Economics of Power Generation
In modern engineering projects, cost is very important. Engineers
must achieve the desired results at the lowest cost. In power
generation, we often choose between high-cost, high-efficiency
equipment and low-cost, lower-efficiency equipment. High-cost
equipment has higher interest and depreciation charges but lower
energy bills.
Electrical engineers must balance costs to minimize total plant
expenditure. Studying the economics of power generation is crucial
for achieving this balance.
To understand power generation economics, we need to know the
plant’s annual expenditure and the factors affecting it. The total
annual expenditure is divided into several categories:
1. Fixed Charges
2. Semi fixed Charges
3. Running Charges
These are all important parameters pertaining to the Economics
of power generation and are considered in details below.
Fixed Charges of Power Generation
Fixed charges, as the name suggest does not vary either with the
capacity of the plant or with plant operation. These costs remain
fixed under all circumstances. These mainly include the salaries of
higher officials of the central organization and the rent of the land
reserved for future expansion.
Semi Fixed Charges of Power Generation
These charges depend on the plant’s installed capacity but not on
its energy output. They include:
1. Interest and depreciation on the capital cost of the generating
plant, transmission and distribution network, buildings and
other civil engineering works etc. Capital cost of the plant also
includes the interest paid during the construction of the plant,
salaries of engineers and other employees, development and
construction of the power station. It also includes cost
incurred on account of transportation, labor etc. to bring the
equipment on site and installing the same, all of which are
involved for the overall economics of power generation.
It is particularly note worthy, that in nuclear stations the
capital cost of the station also includes the cost of initial
charges of the nuclear fuel minus the salvage value paid at the
end of its useful life.
2. It also includes all types of taxes, insurance premiums pain on
policies to cover the risk of accidental breakdown.
3. Rent paid for the land being actually used for the construction
purpose.
4. The cost due to starting and shutting down of plants are also
included in this category, when the power plant operates on
one or two shift basis.
Running Charges of Power Generation
The running charges or running cost of a power plant, is probably
one of the most important parameters while considering the
economics of power generation as it depends upon the number of
hours the plant is operated or upon the number of units of
electrical energy generated. It essentially comprises of the
following costs incurred mentioned below.
1. Cost of the fuel delivered coupled with the fuel handling cost
in the plant. Coal is the fuel used in a thermal power plant,
and diesel oil in case of a diesel station. In case of a hydro-
electric plant there is no fuel cost as water is the free gift of
nature. But a hydro-plant requires higher installation cost and
their mega Watt output of power generation is also lower
compared to the thermal power plants.
2. Wastage of the operational and maintenance stuff and salaries
of supervisor staffs engaged in running the plant.
3. In case of a thermal power plant, power generation economics
includes the cost of feed water for the boiler, like the cost of
water treatment and conditioning.
4. As the amount of wear and tear of the equipment depends on
the extent to which the plant is being used, so the lubricating
oil cost and repair and maintenance charges of the equipment
are also included in the running charges.
So, we can conclude saying, that the total annual charges incurred
in the power generation, and the overall power generation
economics can be represented by the equation,
1. Where ‘a’ represents the total fixed cost of the plant, and has
no relation with the total output of the plant or the number of
hours for which the plant is running.
2. ‘b’ represents the semi-fixed cost, which mainly depends on
the total output of the plant and not on the number of hours
for which the plant is being operated. The unit for ‘b’ is thus
ideally chosen to be in k-Watt.
3. ‘c’ essentially represents the running cost of the plant, and
depends on the number of hours for which the plant is running
to generate a certain mega watt of power. Its unit is given in
K-Watt-Hr.
