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Economical Goals of Life-extending Maintenance

2. Estimation of the economical effect of the postponned replacement of a transformer

The benefit of extending the life of a transformer by n years is realized at the end of its normal life.

The minimum benefit is equal to the deferred interest on an expenditure (an investment) E which would otherwise be required to refurbish or replace the old transformer.

The investment E is deferred for n years (by extending of the life-span of existing transformer) and by the given annual Interest Rate  IR can be the potential savings calculated as follows:

S = E [ (1 + IR ) n - 1 ]

Fig. 1 The potential savings as a function of interest rate and time

The time-related savings for different IR-values are shown at Fig. 1.

Example:

The price of the new transformer is E = € 300 000.- , the existing old one is completely depreciated and for simplicity we suppose that the price level for new one remains virtually constant for future *1

The interest rate is IR = 15 %

Let suppose that the preventive maintenance and the present state of the transformer allows to extend its life-span for min. another % years (n = 5)

S = 300 000 [ (1 + 0.15 ) 5 - 1 ] = 303 407 .-

The potential saving € 303 407.- is enormous, we can save more than 100% of the purchase price of the new transformer in only 5 years.
Fig.1 shows that in fact we can save more than 100% of the price of the new unit in only 5 years.

Used IR = 15% looks high, but please do not forget that our IR-rate should be expected not only as the interest rate of the bank, but more as the revenue rate of our own company ( and a company with the revenue rate under the interest rate of the bank is,  from the economical point of view,  simply absurd).

A similar picture gives us a 10% interest rate: S = 300 000 [ (1 + 0.1 ) 5 - 1 ] = 183 153.-

Fig.1 shows that we can, even now, save more than 60% of a purchase price in 5 years.

The life-extending maintenance is a simple technique how to easy, safely and significantly improve the cash flow of any customer - providing that the life-extending maintenance of the power transformers is effective and the costs remain reasonably low.

But to speculate about potential savings makes sense only if we can convicingly demonstrate that our deferred replacement will produce savings de-facto.

The corresponding problem is substantially more complicated due more different parameters. To avoid human errors  ARS-Altmann developed  the SINDRET ( Savings Induced by Deferred REplacement of Transformer). For more details about SINDRET background See SINDRET Explanation Tutorial.

*1 This premise is not even seriously disturbed by the price increase of the transformers because this increase is mostly slow and linear, but our saving is always of an exponential character.

Read next: 3. SINDRET (Saving Induced by Deferred REplacement of Transformer)