Brownfield Expansion: What the Next Increment Costs

How to read this sheet

Machinery is linear and shared plant is not, so capital per unit is a sawtooth: flat until a limit is crossed, a vertical jump when it is, then falling again as the step fills. Two sizes are worth knowing and the space between them is worth avoiding. Below the tightest headroom nothing shared has to be bought and the cost is the machinery cost. Once anything has been bought, the cost per unit keeps falling until the last step bought is full, so an expansion that crosses a limit should usually go much further than the one that crossed it. The dearest size reported is the warning: a modest increment that has crossed every limit and filled none of them, which is exactly the shape of proposal a board approves because it looks prudent. Headroom is the input that decides everything and the one most often overstated. It is what is genuinely spare at the load the mill runs in its worst month, not the nameplate less the design figure - a transformer at 78% in February is not carrying 22% into July, and humidification headroom in particular is a summer number. Step cost should be the installed cost including civil work, cabling and the production lost to the shutdown, because a step that is delivered and not commissioned has bought nothing. What is outside this: whether the market wants the extra output, which is the question that should be asked first and this sheet cannot answer; the working capital a larger expansion needs, which grows with it and is not capital expenditure; the possibility of renting or sharing a step rather than buying it; and any staging over time, since a step bought in three years is cheaper today than one bought now and this sheet prices everything at once.