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Power Generation Economics

Economics of Generation
Cost Of Electrical Energy
1. Fixed Cost
2. Semi - Fixed Cost
3. Running or Operation Cost
Formula For Cost of Electrical Energy
Types Of Consumers / Load
1. Domestic Load / Residential Load
2. Commercial Load
3. Industrial Load
4. Municipal Load
5. Irrigation Load
6. Traction Load
Terms Related To Load
Connected Load
Average Load
Maximum Demand
Factor Related To Variable Loading
Demand Factor
Load Factor
How Load Factor affects the Production Cost?
Why the Load Factor Should Kept as High as Possible?
Diversity Factor
Location of The Plant (Site Selection)
1. The location of the plant should be close to the Load
2. The Location of the plant should also be near to the source of Fuel
3. Cost of the Land be optimal
4. Availabilit of Water
Cost Analysis
1. Initial Cost
2. Capital Cost
3. Operating Cost (Recurring Expenses)
Interest →
Depreciation →
Sinking Fund Method →

Economics of Generation
Economy is one of the most crucial aspects of management of a power system. We can have higher efficiency with specially
designed equipment but the cost of such equipment is usually high. On the other hand, the lower-costing equipment will have
corresponding limitations of efficiency and workability. A good engineer, therefore, must make use of the equipment available and
strike a balance between optimum efficiency and optimum economy.

Cost Of Electrical Energy

1. Fixed Cost
Annual charges of the central organization management

Salary of the employees

Interest on the land costs

All of these costs are fixed, and hence, fixed cost remains constant under all conditions. It is independent of the maximum
demand, the plant capacity and the energy generated.

2. Semi - Fixed Cost

Power Generation Economics 1

 3. Running or Operation Cost
Formula For Cost of Electrical Energy
Types Of Consumers / Load
1. Domestic Load / Residential
Load
Domestic load consists of lights,
fans, home electric appliances
(including TV, AC, refrigerators,
heaters etc.), small motors for
pumping water etc.
Most of the domestic loads are
connected for only some hours
during a day.
For example, lighting load is
connected for few hours during night
time.
4. Municipal Load
This type of load consists of street
lighting, water supply and drainage
systems etc. Street lighting is
practically constant during the night
hours.
Water may be pumped to overhead
storage tanks during the off-peak
hours to improve the load factor of
the system.
Terms Related To Load
Connected Load
The total sum of all the loads (ON
and OFF) connected to the power
system
All the loads may not be switched
ON together, but such loads have to
be calculated to determine the
required power and hence the
capacity of the units.
For example, if one of the
consumers has three lamps of 200
W each, four lamps of 100 W each
and a machine consuming 5 kW,
then the connected load of the
Power Generation Economics
2. Commercial Load
Commercial load consists of
electrical loads that are meant to
be used commercially, such as in
restaurants, shops, malls etc.
This type of load occurs for more
hours during the day as compared
to the domestic load.
5. Irrigation Load
Motors and pumps used in
irrigation systems to supply the
water for farming come under this
category.
Generally, irrigation loads are
supplied during off-peak or night
hours.
Average Load
It indicates the average value of
all the loads occurring on the
station for a given time period.
Average Load →
3. Industrial Load
Industrial load consists of load
demand by various industries.
It includes all electrical loads used in
industries along with the employed
machinery.
Industrial loads may be connected
during the whole day.
6. Traction Load
Electric railways, tram cars etc.
come under traction loads.
This type of loads reaches its peak
during morning and evening hours.
Maximum Demand
The maximum value of load that
occurs on the system during a
specific time period.
Knowledge of max demand is
necessary because the installed
capacity of the plant is decided on
the basis of max demand since the
power station must be capable of
supplying the max demand.
2
 consumer = 3(200) + 4(100) + 5000
= 6000 W

Factor Related To Variable Loading

Demand Factor
The ratio of maximum demand to the connected load of Maximum Demand
Demand F actor =
the system. Conected Load
It is necessary for determination of the required plant
equipment capacity.

all the connected loads are not ON all the time, Maximum
demand < Connected Load. Hence, Demand factor < 1

Load Factor Average load

Load F actor =
Maximum Demand
The ratio of average load to the maximum
demand in a given time period.

How Load Factor affects the Production Cost?

If the load factor is high, max demand is low and required station capacity (which depends on max demand) is reduced. This
reduces cost of production. Load Factor should be as close to 1 as possible.

Why the Load Factor Should Kept as High as Possible?

A higher value of load factor reduces the variable loading problems. This is because, a higher value of load factor implies less
variation in demands at various times. Due to this, the effects of variable loading are minimised. Hence Load factor should be as
high as possible.

Diversity Factor
The ratio of the sum of the individual maximum
demands to the total maximum demand on the
system
Sum of individual maximum deman
Diversity F actor =
Maximum Demand of the power syste

Location of The Plant (Site Selection)

1. The location of the plant should be close to the Load
To reduce the transmission loss

2. The Location of the plant should also be near to the source of Fuel

3. Cost of the Land be optimal

Power Generation Economics 3

 4. Availabilit of Water
If it is thermal or nuclear plant water usage is very high

In case of hydro Power Water is the main source of energy.

Cost Analysis
The Three Things we should take in consideration whether it is a

1. New System

2. Exting be Replaced

3. Extension to Old one

1. Initial Cost
Land Cost

Time taken to build the plant

It is taken in consideration that a plant should be build in minimum time possible. As because as first the construction is
possible the demand can be cater easily.

Location of the Land

2. Capital Cost
It is fixed initial cost

interest

depreciation cost

taxes

intuarance

3. Operating Cost (Recurring Expenses)

Fuel ()

Labour

Maintenance

Supervision

Supply

Taxes

Interest →

Depreciation →

Sinking Fund Method →

Power Generation Economics 4