NIST GCR 04-863
Composites Manufacturing Technologies: Applications in Automotive, Petroleum, and Civil Infrastructure Industries
Economic Study of a Cluster of ATP-Funded Projects

6. Benefit-to-Cost Analysis for Cluster of Projects

The current cluster study uses a hybrid of traditional case-study approaches. The cluster study combines the advantages of overview case studies and detailed case studies for a richer assessment of empirical relationships between public investments and public benefits than would be possible with either of the two methods alone.

Detailed case studies are used to develop insights into market dynamics and technology commercialization pathways and to provide a credible basis for estimating benefit cash flows and associated probabilities. Cash flow estimates are then used to compute performance metrics to quantify the relationships of public investments and resultant public benefits.

Multiproject overviews are used to envision additional benefits, extend analysis beyond individual projects, and generate lower-bound performance estimates for a cluster of projects and an entire technology program.

PROJECT CLUSTER AND FOCUSED PROGRAM

The cluster of ATP-funded composites manufacturing technologies is composed of five projects. Two of these projects are at advanced stages of commercialization and have a high probability of generating public benefits: vapor-grown carbon fiber technology and the composite production riser technology. Detailed case studies for these two projects are discussed in Sections 3 and 4. The remaining three projects in the cluster discussed in Section 5 (composite bridge beam technology, composite joining and fitting technology, and machining technology for pultruded lineals) are at earlier stages of commercialization and can be associated with only speculative public benefits. At some point, these remaining technologies may also become commercialized and become associated with probable cash flow benefits. Given that remaining technologies may yield benefits in the future, developing performance metrics using cash flows from only two projects with near-term commercial impact leads to conservative, lower-bound performance estimates for the entire cluster.

Over the 1994–1998 period, the ATP funded 17 additional composites manufacturing technologies. Together with the five cluster projects, these 22 projects constitute the ATP focused program for manufacturing of advanced composite materials. While beyond the original scope of the cluster study, it seemed appropriate to extend analysis to include preliminary performance metrics for the focused program. Using the same approach as for the cluster analysis, cash flow benefits from the two case studies are compared to the combined cost of 22 projects of related technologies in the focused program. Given that at some future time additional projects in the program may become commercially successful and may yield benefits that are not yet determined and not yet included in the analysis, preliminary performance metrics for the program of 22 projects represent conservative, lower-bound estimates.

PUBLIC BENEFITS, PUBLIC INVESTMENTS, AND PERFORMANCE METRICS

While ATP-funded composites manufacturing technologies, once fully commercialized, will generate both public and private benefits, the estimation of benefit cash flows and the computation of performance metrics were limited to public benefits, excluding private benefits to innovating firms. These public benefits will be realized by industrial users of new composite materials, by consumers of improved industrial products incorporating new composite materials, and by society at large, through enjoyment of reduced environmental emissions and increased energy availability.

Figure 11 illustrates the general flow of the cluster-study process. Public benefits from ATP-funded technologies and ATP-facilitated industry joint ventures are combined with public investment costs to yield economic measures of return. More specifically, two of the five projects in the cluster, analyzed in Sections 3 and 4 and associated with quantifiable, high-probability cash flow estimates from automotive and oil and gas applications, are connected with solid-line arrows to the “Combined Cash Flow Estimates” box in the middle of Figure 11. The remaining three projects with broken-line arrows to the “Combined Cash Flow Estimates” box do not represent current contributions. Rather, broken-line arrows denote possible future benefit cash flows, should currently speculative benefits from these three projects become more probable through ongoing commercialization efforts. While beyond the scope of the current study, cash flow estimates for these three remaining projects could be developed, when appropriate.

The “Combined Cash Flow Estimates” box in the middle of Figure 11 represents cash flows from automotive and from oil and gas applications, normalized for constant 2003 dollars. Normalized cash flows are added to yield a combined cash flow time series.

Boxes on the right side of Figure 11, “ATP Investment in 22 Projects” and “ATP Investment in Cluster of Five Projects,” represent investment costs for the focused program and the cluster of projects, respectively.

Figure 11: Public Benefits, Investments, and Performance Metrics for Cluster of Related ATP Projects and, by Extension, Program of ATP Projects

The “Cluster Performance Metrics” circle represents the calculation of performance measures by comparing combined cash flow benefits to ATP’s investment in the cluster of five projects. The metrics generated for the cluster, net present value (NPV), benefit-to-cost ratio, and internal rate of return (IRR), measure public returns against public investments.

Similarly, the “Program Performance Metrics” circle represents the calculation of performance measures by comparing combined cash flow benefits to ATP’s investment in a program of 22 projects. The metrics generated for the program, NPV, benefit-to-cost ratio, and IRR measure public returns against public investments in the focused program. Given that program metrics are derived by comparing cash flow benefits from two projects to a much larger program investment, performance metrics for the focused program, while still at significant levels, have lower values than metrics for the cluster of five projects.

ECONOMIC ANALYSIS

The flow of benefits in Figure 11, from the two cases study projects and from the remaining three projects in the cluster, are directly attributable to the ATP.

Industry partners for the five cluster projects have indicated that, for various reasons specific to each high-risk technology project, development programs would not have been undertaken without ATP funding. In addition, industry partners for the two projects with currently quantifiable cash flow benefits stressed the value of ATPfacilitated industry joint ventures as essential ingredients for successful technical development and commercialization.

Base Case Analysis

The base case analysis represents a conservative set of assumptions regarding expected benefits from ATP-funded technology development. On the benefit side, combined cash flows from the commercial utilization of two technologies for which quantifiable benefits are currently available (VGCF and CPR), covering the period of 2004 to 2026, are used to characterize both cluster and program performance, as summarized in Table 9. Combined cash flow estimates reflect the following assumptions:

• VGCF utilization in the automotive industry starting in 2006 and continuing for a period of 16 years until 2021 (estimates developed in Section 3).
• CPR utilization in Gulf of Mexico offshore oil platforms starting in 2004 and continuing for a period of 23 years until 2026 (estimates developed in Section 4).

On the cost side, ATP invested $9.4 million and industry partners invested $7.8 million in the cluster of five projects. To fund the 22-project focused program, ATP invested $43.5 million and industry partners invested $39.0 million. Normalized to 2003 dollars, the ATP investment for the cluster was $10.90 and $50.45 million for the program.

In Table 9 column 2, normalized ATP cluster project investments are negative entries over the 1995 to 1998 investment period; combined VGCF and CPR cash flow benefits are positive entries during the 2004 to 2026 “benefit generation years.”

Table 9: Combined Cash Flows of ATP Investments and Expected Benefits from VGCF and CPR Deployment ($ Millions, in 2003 Dollars): Base Case

Note: Combined cash flows are computed from “Total cash flow” columns in Tables 2 and 7.

In Table 9, column 3, normalized ATP investments in the 22 projects of the focused program are negative entries over the 1995 to 1998 investment period and combined VGCF and CPR cash flow benefits are positive entries during the 2004 to 2026 “benefit generation years.”

Base Case Performance Metrics

Cash flow time series over the 1995 to 2026 period, comprised of ATP investments and expected benefits (from Table 9, column 2), are used to compute performance metrics for the cluster of projects. These cluster performance metrics (NPV of $892 million, benefit-to-cost ratio of $83, and IRR of 44 percent) are indicated in Table 10, column 2.

Cash flow time series over the 1995 to 2026 period, comprised of ATP investments and expected benefits (from Table 9, column 3), are used to compute performance metrics for the focused program . These program performance metrics (NPV of $858 million, benefit-to-cost ratio of $18, and IRR of 29 percent) are indicated in Table 10, column 3.

Table 10 cluster and program performance metrics indicate excellent returns to taxpayers from ATP’s investments in composites manufacturing technologies, as highlighted below:

• For every dollar of ATP’s $9.4 million investment in the cluster of five projects, U.S. industry, U.S. consumers, and the nation will enjoy $83 of quantifiable benefits over the projected economic life of the VGCF and CPR technologies. • For every dollar of ATP’s $43.5 million investment in the program of 22 projects, U.S. industry, U.S. consumers, and the nation will enjoy $18 of quantifiable benefits over the projected economic life of the VGCF and CPR technologies. Even though these results should be interpreted as preliminary and actual results could be stronger if more projects were analyzed in depth, the entire focused program investment yielded far greater benefits than its cost to taxpayers.

Table 10: Base Case Performance Metrics from Combined VGCF and CPR Cash Flows against ATP Cluster and ATP Program Investments (in 2003 Dollars)

Note: A 1995 base year and an OMB-mandated 7 percent discount rate were used for analysis. Performance metrics were computed from time series representing ATP investments over the 1995 to 1998 period and prospective cash flow benefits from 2004 to 2026.

These measures reflect the estimated benefits to industry users and the general public relative to the ATP investment. Estimated benefits to direct recipients of ATP funding are excluded.

Most Significant Sources of Benefits

The results of a component analysis of the base case NPV for the cluster of five projects are presented in Figure 12. NPV contributions from VGCF deployment and CPR deployment are of similar magnitude at 49 and 52 percent, respectively. NPV contributions from CPR deployment are evenly split between capital cost savings and royalties to the U.S. Minerals Management Service, whereas contributions from VGCF for electrostatic painting dwarf the small (9 percent) contribution from VGCF use in EMI shielding.

Figure 12: Net Present Value Component Analysis: Base Case

Step-Out Scenario Analysis

The step-out scenario is based on more optimistic assumptions about expected benefits from ATP-funded technologies. Benefit estimates are somewhat higher and ATP investments are the same as for base case analysis.

Cash flow time series over the 1995 to 2026 period, comprised of ATP investments and expected benefits, are used to compute performance metrics for the cluster of projects. These cluster performance metrics (NPV of $994 million, benefit-to-cost ratio of $92, and IRR of 46 percent) are indicated in Table 11, column 2.

Cash flow time series over the 1995 to 2026 period, comprised of ATP investments and expected benefits, are used to compute performance metrics for the focused program . These program performance metrics (NPV of $960 million, benefit-to-cost ratio of $20, and IRR of 30 percent) are indicated in Table 11, column 3.

Table 11: Step-Out Scenario Performance Metrics from Combined VGCF and CPR

Note: A 1995 base year and an OMB-mandated 7 percent discount rate were used for analysis. Performance metrics were computed from time series representing ATP investments over the 1995 to 1998 period and prospective cash flow benefits from 2004 to 2026.

FUTURE EXTENSION OF CASH FLOW BENEFITS

While some public benefits expected to be realized from the cluster of five projects could not be meaningfully quantified at this time, these potential benefits could become important for U.S. industry, consumers, and society at large in the future.

Two examples are given below.

• A composite beam fabrication technology, developed by Strongwell Corporation forprefabricated structural components to repair short-span bridges in high-traffic metropolitan areas, could lead to reduced construction time and associated traffic congestion, as well as reduced gasoline consumption and auto emissions. Potential cash flow benefits could include cost savings from construction efficiencies and from automotive energy conservation.
• A CNC machining technology for pultruded composite lineals, developed by Ebert Corporation for applications in electric transmission towers, could be useful for the modernization of the nation’s electric transmission grid. Potential cash flow benefits could include transportation efficiencies, moving lighter-weight tower structures to remote sites, more rapid installation of tower structures, and installation cost savings.

If the above technologies should progress toward successful commercialization, over time, the estimation of additional cash flow benefits could be warranted. This, turn, would lead to an upward adjustment of performance metrics presented in the current study.

Given the potential for additional cash flow benefits from future analysis, it is clear that the levels of performance reported in this study (based on cash flow benefit streams from only two ATP-funded projects) provide conservative, lower-bound estimates of cluster performance and program performance.

Return to Table of Contents or go to next section.

Date created: July 14, 2004
Last updated: August 3, 2005

ATP website comments: webmaster-atp@nist.gov  / Technical ATP inquiries: InfoCoord.ATP@nist.gov.

NIST is an agency of the U.S. Commerce Department
Privacy policy / Security Notice / Accessibility Statement / Disclaimer / Freedom of Information Act (FOIA) /
No Fear Act Policy / NIST Information Quallity Standards / ExpectMore.gov (performance of federal programs)