Return on Replacement Capital
The return on replacement capital is calculated by comparing the annualised revenue (cash margin less depreciation) with the total capital cost of the plant (ISBL + OSBL). This calculation is termed on replacement capital as it uses the current estimated capital cost as the divisor. Actual plants in a region will have been built at an earlier date, at potentially a lower capital cost.
Royalty costs are the costs per ton agreed to cover any license granted to the plant owner by the technology provider. It is also common for this royalty charge to be capitalised and included in the ISBL capital cost.