Letter from the editor

Abstract

This issue of The Engineering Economist contains four articles that contribute to engineering economics of energy and equipment management. I would like to thank all reviewers who contributed to the peer-review process as well as area editors Sarah Ryan (former TEE editor-in-chief), Karen Bursic, Roy Kwon, and Jo Min for their contributions to this issue. The issue begins with an article entitled “The Levelized Cost of Energy and Regulatory Uncertainty in Plant Lifetimes” written by David Rode and Paul Fischbeck. In many electric power applications, the life of an asset is uncertain and subject to regulatory disruptions. However, the asset life is typically assumed to be known with certainty when calculating the levelized cost of energy. The authors present a corrected version of the standard levelized cost of energy calculation and show its implications on multiple investment and policy applications. In “Economic Feasibility of the Investment in Residential Photovoltaics System Considering the Effects of Subsidy Policies: A Korean Case,” we publish a case study by Jingu Jang, Moonkyu Seo, Giwon Nam, and Deok-Joo Lee. Government policies seek to reduce the economic burden of household photovoltaic (PV) investments and thus promote solar energy to household users. The case study performs an economic feasibility analysis of investments in residential PV systems and considers the effects of several subsidy plan alternatives using the empirical data of Korea. The results show that the residential PV investment project would be economically viable without subsidy but the payback period exceeds ten years which may be too long to convince residential users to invest in a PV system. In the third article, “Optimal Replacement, Retrofit, and Management of a Fleet of Assets under Regulations of an Emissions Trading System,” authors Amir Rajabian and Sharareh Taghipour present a model for parallel replacement and improvement for a fleet of assets to minimize both the economic costs and greenhouse gas (GHG) emissions where the emissions are limited by an emissions trading system also known as cap-and-trade. Their model considers the possibility of both banking the emission allowances or trading them in the market and is applied to data from a fleet of excavators in Ontario, Canada. The model and the findings of this case study could help firms to manage emissions and costs of their assets in a jurisdiction regulated by cap-and-trade. In the last article, Kyoung-Taek Kim, Deok-Joo Lee, and Sung-Joon Park coauthor “Economic Service Life of Equipment under Uncertain Revenues: A Real Options Approach.” The purpose of this work is to develop a binomial lattice real option model for analyzing the optimal equipment replacement considering uncertain revenue conditions over time. The authors present a numerical example to illustrate how their discrete real option model can be used to create an optimal replacement decision lattice, calculate the economic service life of a piece of equipment, and conduct a sensitivity analysis to examine model performance under various aspects of revenue uncertainty. The Engineering Economist seeks submissions in a number of areas, including but not limited to capital investment analysis, financial risk management, cost estimation and accounting, cost of capital, design economics, economic decision analysis, engineering