Acquiring new equipment is a daunting task for many reasons. Often project managers understand the general costs that need to be considered, but sometimes when acquiring a new type of equipment or specialized systems, such as a water treatment system, there are aspects that can be overlooked that are unknown to the project manager. This is why any good person responsible for acquiring a new water treatment system is going to ask himself, "What should be calculated into the price of a water treatment system?"
In short, this article aims to explain what factors can affect CAPEX and OPEX when acquiring an industrial water treatment system.
What is CAPEX
So, to begin with, CAPEX represents the capital expense of acquiring any equipment. In other words, CAPEX is a cash expense that is used to acquire an asset that will be on the balance sheet for X number of years with a depreciation period. These expenses are therefore accounted for over the years and are considered an investment.
Moreover, the expenses included in the CAPEX vary according to the size of the company and internal policies. For some companies, the minimum amount to be considered as an asset included in the CAPEX can be $5,000 and for others, it can be as much as $100,000 or more, all depending on the company, its activities, its budgets and its size.
What Is OPEX
On the same note, OPEX represents the operational expenses associated with CAPEX. These expenses are typically fully accounted for in the current year. Typically, these expenses do not add any assets to the annual balance sheet.
OPEX expenditures can be very large, with budgets approaching $10 million annually. Moreover, depending on the company, OPEX budgets are often available to managers to ensure the maintenance and proper functioning of equipment.
What should be considered in the CAPEX?
When acquiring new equipment, one must take into account all the aspects that can bring additional costs. These costs include engineering, equipment, electrical and mechanical installation, and permit acquisition. Second, labour can be added to CAPEX when used as part of a capital investment. For example, by adding a machine, production line, or other labour-intensive equipment. In these cases, the costs of maintaining the equipment, infrastructure or operating a production line will be added to OPEX afterwards.
The above costs are generic and should be considered when developing any CAPEX budget, regardless of the type of equipment purchased. For the acquisition of a water treatment system, the following aspects should also be considered:
- The flow rate of water to be treated: generally, the higher the flow rate required, the more expensive the equipment
- The quality of the incoming water (contaminants, temperature, pH, corrosiveness, compatibility with materials)
- The contaminants to be extracted and the quantity to be extracted: It goes without saying that the production of ultra-pure water where all the contaminants must be extracted is more expensive than the extraction of total dissolved matter.
- The standards to be respected (sanitary, ASME BPE, GMP, plant specifications, etc.)
- The technologies selected for each step of the process (softener vs. antiscalant, carbon vs. bisulfite, reverse osmosis vs. split bed, EDI vs. mixed bed, etc.).
- Desired automation
- Legislative constraints
- Redundancy requirements to ensure 24/7 operation
- Instrumentation requirements to guarantee water quality at the outlet (bacteria detectors, TOC analyzers, pH and conductivity probes, etc.)
- Material selection (stainless steel vs. PVC vs. steel, etc.)
- Environmental hazards/factors - dust, explosive environment, corrosiveness (seaside, acid vapours, etc.)
- Wastewater management: what to do with your wastewater?
What should be considered in the OPEX?
As stated above, OPEX represents the operational costs of operating any equipment. Therefore, when calculating the OPEX of a water treatment system, it is important to take into account energy costs, the price of consumables (media, membrane, filter, etc.), the price of spare parts, wastewater discharge fees, maintenance and other labour costs, equipment calibration, and maintenance contracts if required.
Some factors may also have a greater impact on the bill depending on your industry, region or market. Some of the factors that may change from time to time are the price paid for water (in and out), the price paid for electricity, the price of labour to operate and maintain the system, the price of spare parts and the frequency of change.
In addition to the above factors, there are costs associated with the specific needs of the system (health and safety, special procedures, etc.). Then, the training of the personnel and the costs related to the bad performance of the system which can cause problems such as the clogging of downstream equipment, a production breakdown, etc.
Don't forget that in some cases, it is important to add a few additional aspects to the list. For example, the hours available for maintenance and the location of the system. These factors are important because if the maintenance has to be done in the evenings and on weekends because your system cannot be shut down during normal operating hours, this represents additional labour costs. In addition, if the system is only accessible by plane, the costs associated with maintenance are likely to be much higher than if the system is easily accessible.
Finally, it is also important to note that water usage costs can be significantly depending on where the water is drawn from, how much and what contaminants are released as a result of its use. On the other hand, waste can be turned into revenue to reduce operational costs. This can be done through energy recovery, recovery of certain contaminants, etc.
Why Calculate CAPEX/OPEX Is Important
Firstly, it is thanks to these estimates that one can quickly know if the equipment needed for the proper functioning of a company can be acquired with the budget that has been allocated to it. Secondly, knowing the full operating costs for a water treatment system allows you to evaluate the return on investment offered by the different technologies.
Generally, when calculating the expected return on investment for a water treatment system, you should keep in mind timeframes of 1 year, 5 years, 10 years and 20 years. It is also very important to take inflation into account since money is not worth the same today as it was 20 years ago.
Some questions you should ask yourself!
Therefore, as mentioned above, depending on the type of water you need, the quantity and type of contaminants to be removed, the price of the equipment needed can vary greatly. Secondly, governmental, local or internal standards can also cause problems and thus, increase costs. Finally, it is easy to forget, but with the labour shortage that affects us all, automation is an interesting option on a water production system, but it costs.
In short, in order to be well prepared for the acquisition of a water treatment system, here are some questions you should ask yourself:
- What water quality do I need?
- What contaminant(s) do I need to remove?
- How much water flow do I need?
- What do I do with my wastewater?
- Do I have to meet any standards?
- At what temperature should my system operate?
- Do I have any operational constraints (space, delivery, etc.)?
- Do I need automation?
There are obviously other questions to ask, but with these guidelines, you will be able to begin a water treatment system acquisition project knowing where you are going.
CAPEX/OPEX estimation: a complex subject
With this information, you should be able to better estimate the total costs for your water treatment equipment.
Although a higher CAPEX does not always mean a lower OPEX, it is always worthwhile to ask yourself if there is a way to make your investment more profitable by optimizing your water treatment system to your situation. This can be done by recovering precious metals from water, reusing water and many other methods!
We hope this article has shed some light on the aspects that can affect the CAPEX and OPEX of a water treatment system. In the meantime, if you have any questions, please feel free to leave us a comment below.