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Lecture 14
Cost of Power Plants
The cost of a power system depends upon whether:
• an entirely new power system has to be set up, or
• an existing system has to be replaced, or
• an extension has to be provided to the existing system.
Supplies
Taxes
supervision
Insurance Operating taxes
Cost of Power Plants
Capital Cost
(i) Initial cost
• Land cost
• Building cost
• Equipment cost
• Installation cost
• Overhead charges which will include the transportation cost, stores and
storekeeping charges, interest during construction etc.
(ii) Interest:
▪ All the enterprises need investment of money and this money may be
obtained as loan, through bonds and shares, or from owners of personal funds.
▪ Interest is the difference between money borrowed and money returned.
▪ The interest on the capital investment is considered because otherwise if the
same amount was not invested in power plant, it would have earned an annual
interest.
▪ A suitable rate of interest is considered on the capital invested. It may be
charged at a simple rate expressed as % per annum or may be compounded, in
which case the interest is reinvested and adds to the principal, thereby earning
more interest in subsequent years.
Cost of Power Plants
Capital Cost
(iii) Depreciation cost
▪ Depreciation accounts for the deterioration of the equipment and decrease in its value due
to corrosion, weathering, and wear and tear with use.
▪ It also covers the decrease in value of equipment due to obsolescence. It is required to
replace the generating plant machinery after its expiry of useful life.
▪ Therefore, a certain amount is kept aside every year from the income of the plant to enable
the replacement of plant at the end of its useful life. This amount is called depreciation
amount.
In this method the deterioration in value of equipment from year to year is taken into
account and the amount of depreciation is calculated upon actual residual value for each
year. Thus, it reduces for successive years.
In Unit method some factor is taken as a standard and, depreciation is measured by that
standard. In place of years equipment will last, the number of hours that equipment will
last is calculated. This total number of hours is then divided by the capital value of the
equipment. This constant is then multiplied by the number of actual working hours each
year to get the value of depreciation for that year. In place of number of hours, the number
of units of production is taken as the measuring standard.
Cost of Power Plants
Depreciation Cost
Example: The original value of an equipment is $2,50,000 and its salvage value at the end
of its useful life of 20 years is $25,000.
Find the value of the equipment at the end of 10 years of its use by using following methods:
(a) straight line depreciation and
(b) sinking fund depreciation, when it is compounded annually at 8%.
Solution:
(a) Straight line method
Original value = $2,50,000
Salvage value = $25,000
Total depreciation = 2,50,000 − 25,000 = $2,25,000
Depreciation per year = 2,25,000/20 = $11,250
Depreciation at the end of 10 years = 11,250 x10 = $1,12,500
Value of the equipment at the end of 10 years = 2,50,000 − 1,12,500 = $1,37,500
Cost of Power Plants
Depreciation Cost
Example: The original value of an equipment is $2,50,000 and its salvage value at the end
of its useful life of 20 years is $25,000.
Find the value of the equipment at the end of 10 years of its use by using following methods:
(a) straight line depreciation and
(b) sinking fund depreciation, when it is compounded annually at 8%.
Solution:
(a) Straight line method
= $ 4,916.75
= $71,226.81
(iv) Insurance:
• This includes the salaries of management, security and administrative staff, etc.
working in the plant. This must be paid whether the plant is working or not. Therefore,
this is included in fixed charges of the plant.
Operating cost
(i) Fuel cost: In a thermal power plant, fuel is the heaviest item of operating cost. The
selection of the fuel and the maximum economy in its use are, therefore, very important
consideration in thermal power plant design. The cost of fuel includes not only its price
at the site of purchase but its transportation and handling cost also.
The cost of fuel varies with the following:
(1) Unit price of the fuel.
(2) Amount of energy produced.
(3) Efficiency of the plant.
Cost of Power Plants
Operating Cost
(ii) Labour cost: It is another item of operating cost. Maximum labour is needed in a
thermal power plant using coal as a fuel. A hydraulic power plant or a diesel power plant of
equal capacity requires a lesser number of persons. In case of automatic power station, the
cost of labour is reduced to a great extent. However, labour cost cannot be completely
eliminated even with fully automatic station, as they will still require some manpower for
periodic inspection etc.
Oil, Grease and Water cost: The cost of various consumables like oil, grease etc. and
water cost are also proportional to the amount of power generated. These costs increase
with an increase in life of the plant as the efficiency of the power plant decreases with the
age. The total cost of power generated is the sum of fixed charges and operating charges.
Cost of Power Plants
Operating Cost
Repairs are necessary when a plant breaks down or stops due to faults.
The repairs may be minor, major or periodic overhauls and are charged to the
depreciation fund of the equipment. This item of cost is higher for thermal power
plants than for hydro-plants due to complex nature of principal equipment and
auxiliaries in the former.
Cost of Power Plants
Operating Cost
(iv) Cost of Stores: The items of consumable stores other than fuel include such articles
as lubricating oil and greases, cotton waste, small tools, chemicals, paints and such other
things. The incidence of this cost is also higher in thermal stations than in hydro-electric
power stations.
(vi) Taxes
The taxes under operating head includes the following:
(i) Income tax
(ii) Sales tax
(iii) Social security and employee’s security etc.
Cost of Power Plants
Customer charges
These charges depend on the number of customers. Various costs include the following:
▪ Capital cost of secondary distribution system and depreciation cost, taxes and interest
on this capital cost.
▪ Cost of inspection and maintenance of distribution lines and the transformers
▪ Cost of labour required for meter reading and office work
▪ Publicity cost
Investors profit:
The investor expects a satisfactory return on the capital investment. The rate of profit varies
according to the business conditions prevailing in different localities.
Economics of Power Generation
Power plant economics is important in controlling the total power costs to the
consumer.
The cost of power generation can be reduced by:
5. The site selected should be away from densely populated areas in order to
avoid atmospheric pollution and to reduce noise.
1. Centre of electrical load: The plant should be located where there are industries and
other important consumption places of electricity. There will be considerable advantage in
placing the power station nearer to the centre of the load.
▪ There will be saving in the cost of copper used for transmitting electricity as the
distance of transmission line is reduced.
▪ The cross-section of the transmission line directly depends upon the maximum
current to be carried. In case of alternating current, the voltage to be transmitted can
be increased thus reducing the current and hence the cross-section of the
transmission line can be reduced. This will save the amount of copper.
▪ It is desirable to have a national grid connecting all power stations. This provides for
selecting a site which has other advantages such as nearer to fuel supply, condensing
water available.
Power plant site selection
The cost of transportation of fuel may be quite high if the distance of location of the power
plant is considerable.
It may be advisable to locate large thermal power plants at the mouth of the coal mines.
Lignite coal mines should have centralized thermal power station located in the mines itself
as this type of coal cannot be transported.
The power stations could be located near oil fields if oil is to be used as a fuel and near gas
wells where natural gas is available in abundance. In any case it has been seen that it is
cheaper to transmit electricity than to transport fuel.
Power plant site selection
3. Availability of water: The availability of water is of greater importance than all other
factors governing station location. Water is required for a thermal power station using
turbines for the following two purposes :
(i) To supply the make-up water which should be reasonably pure water.
(ii) To cool the exhaust steam. This cooling process is done in case of diesel engines too.
For bigger power stations the quantity of this cooling water is tremendous and requires some
natural source of water such as lake, river or even sea. Cooling towers could be used
economically as the same cooling water could be used again and again.
Only a part of make up water for cooling will then be required.
For small plants spray pounds could sometimes be used. It is economical to limit the rise in
cooling-water temperature to a small value (between 6ºC and 12°C), and to gain in cycle
efficiency at the expense of increased cooling water pumping requirement.
Power plant site selection
4. Type of soil available and land cost: While selecting a site for a power plant it is
important to know about the character of the soil. If the soil is loose having low bearing
power the pile foundations have to be used.
Boring should be made at most of the projected site to have an idea of the character of
the various strata as well as of the bearing power of the soil. The best location is that for
which costly and special foundation is not required.
In case of power plants being situated near metropolitan load centers, the land there will
be very costly as compared to the land at a distance from the city.
Selection of the Number and Size of Units
As the load on the power plant is not constant and varies continuously, it is not economical to
run a single generating unit meeting the variable load. The efficiency of a single generator
unit falls drastically when the load on it is low. Hence, the number and size of the generating
units is decided based on the annual load curve of the station. The number and size of the
units selected must perfectly match with the station load curve to ensure highest efficiency of
the generating units (75% maximum).
The curve shows wide variations in load for the 24 hr considered from a minimum of 60 kW
to a maximum of 500 kW. For this kind of situation, single unit is not recommended.
However, the total generating capacity can be matched by selecting a number of generating
units to fit the load curve as shown in Table. In this case, three units can be employed
according to the load on the station, viz. three in numbers.
Selection of the Number and Size of Units
The following points to be remembered while selecting the size and number of
units:
• Number and size of the unit should approximately match with annual load curve
of the plant.
• Selection of units of different capacities is preferable as units having same
capacity may not meet the load requirements.
• As investment cost/kW of capacity increases with decreased size of the unit,
selection of large number of smaller units must be avoided.
• A total of 15–20 % margin above the maximum demand should be provided to
accommodate future load requirements.
• Provision for a spare generating unit must be made to facilitate the repairs and
Maintenance of working units.
Factors Affecting Economics of Power Generation
The factors that influence the economics of power plant operation are load factor,
demand and utilization factors.
(a) Load factor: Depending on the type of power generation and the load factor,
cost of generating unit power also varies in a power plant.
(b) Demand factor and utilization factor: In order to ensure most economical
operations of interconnected stations, it is essential to study the curves of all stations
and the time of maximum demand occurring in a system.
• Unit cost is higher even in an efficient station, if worked at low utilization factor. All
planning should be done to load the most efficient and cheapest power-producing
stations to the fullest possible extent (base load stations). Typically, a base load
station carries full load during 24 hr in three shifts.
• For stations having medium range efficiency, it is advisable to operate only during
the two shifts of 16 hr.
• The older or less-efficient stations are run as peak load or standby stations for shorter
durations.
• Modern power plants use units of large capacities that reduce space and to handle
larger loads. These units operate near to full load for maximum economical benefit.
POWER PLANT ECONOMICS
Tariffs:
Energy rates are the different methods of charging the consumers for the
consumption of electricity.
It is desirable to charge the consumer according to his maximum demand (kW) and
energy consumed (kWh).
The tariff chosen should recover the fixed cost, operating cost and profit etc.
Requirement of a tariff:
The tariff should satisfy the following requirements :-
▪ It should be easier to understand.
▪ It should provide low rates for high consumption.
▪ It should encourage the consumers having high load factors.
▪ It should take into account maximum demand charges and energy charges.
▪ It should provide less charges for power connection than for lighting.
▪ It should avoid the complication of separate wiring and metering connections.
POWER PLANT ECONOMICS
The energy rate (tariff) must include the following:
▪ Recovery of cost of capital investment in generating equipment, transmission
and distribution system, and other operating equipment.
▪ Recovery of cost of the operation, supplies and maintenance of equipment
▪ Recovery of cost of maintenance equipment, billing and collection costs, and
miscellaneous services.
▪ An adequate return on the total capital investment
The most commonly observed pollutants from fossil power plants (oil or coal based) are
the following:
(a) Sulphur oxide (SOx)
(b) Nitrogen oxides (NOx)
(c) Carbon oxides (COx)
(d) Particulate matter or PM
(e) Thermal pollution
Coal-fired power plants directly emit particulate matter (PM, also called “soot”) in
addition to gases that undergo chemical reactions to form fine particles in the atmosphere:
SOx and NOx. These emissions of PM in conjunction with SOx and NOx increase the
ambient concentration of PM (with diameter less than 2.5 μm) (PM2.5) over hundreds to
thousands of kilometres downwind of the plants. Continuous exposure to PM2.5 may lead
to increased mortality from cardiopulmonary diseases, lung cancer and numerous other
respiratory illnesses and associated morbidity.
Although most modern power plants have some advanced pollution controls, such as
electrostatic precipitators (ESPs), the use of flue–gas desulfurization (FGD) is relatively
rare in the developing countries. FGDs if installed can reduce sulphur dioxide emissions
by 90 %, resulting in substantial reduction in human health risks.
Thermal Pollution of Water
The discharge of thermal energy into natural waters is called thermal pollution. The addition
of heat to the water reduces the water’s ability to hold dissolved gases, including dissolved
oxygen that is vital for aquatic life. If the water temperature exceeds 35oC, the dissolved
oxygen contents are low to support life. At lower temperature, aquatic growth is enhanced
and most plants and fishes grow at a faster rate. During cold weather, warm water discharge
from a power plant is an excellent place for fishes.
To compare power generating systems with respect to the amount of thermal energy
discharged to the environment, a term known as thermal discharge index (TDI) is introduced.
The TDI of any power system is the number of thermal energy units discharged to the
environment for each unit of electrical energy produced by the plant, that is
TDI should be as low as possible and preferably non-zero to satisfy second law of
thermodynamics.
Let Pth = input thermal energy to power station
Pth ηth = electrical power output of the system
Methods of Pollution Control
With stringent air quality restriction by the governments, majority of the power plants in the
world use ESPs for dust removal and FGD technology for sulphur removal. An ESP can handle
large volumes of flue gases accompanied low pressure drop and high collection efficiency
(99.5%). It facilitates easy removal of dust particles.
Electrostatic Precipitator
It consists of two sets of electrodes the emitting or discharging electrode and collecting
electrode. In the case of a tubular-type precipitator emitting electrodes are placed in the centre
of the pipe; whereas in the case of plate-type precipitator, emitting electrodes are placed
midway between the two plates.
Electrostatic Precipitator
It consists of two sets of electrodes the emitting or discharging electrode and collecting
electrode. In the case of a tubular-type precipitator emitting electrodes are placed in the centre
of the pipe; whereas in the case of plate-type precipitator, emitting electrodes are placed
midway between the two plates.
FGD Technology
FGD is a technology that extracts sulphur dioxides from flue gases produced in coal-based
Thermal power plants, where sulphur content in coal is more than 0.5 per cent. The coal
produced from Indian mines contains only 0.4 per cent sulphur contents; therefore in India,
this technology was not required much. Now, a lot of companies in India are importing coal
from other countries such as Indonesia, South Africa, which contains sulphur contents 0.6–
0.9 %. Therefore, it is made mandatory to install the FGD plant to maintain the ambient air
Quality standards.
Sulphur dioxide is extracted from flue gases in wet scrubber, slurry of alkaline sorbent; lime
stone reacts with the sulphur dioxide. More than 90 per cent of the limestone particles in the
limestone powder (85% purity) are made to pass through a screen (325 mesh) to ensure that
maximum amount of limestone particles comes in contact with the sulphur dioxide molecules
in the flue gas.
Methods of Pollution Control
Sulphur dioxide is extracted from flue gases in wet scrubber, slurry of alkaline sorbent; lime
stone reacts with the sulphur dioxide. More than 90 per cent of the limestone particles in the
limestone powder (85% purity) are made to pass through a screen (325 mesh) to ensure that
maximum amount of limestone particles comes in contact with the sulphur dioxide molecules
in the flue gas.
To have a chemical reaction, the limestone powder is mixed into 15–30 per cent slurry
Introduced into the FGD vessel, re-circulated, and sprayed into the flue gas stream. The
following chemical reactions happen in the FGD system:
Flue gases containing SO2 enter the absorber and come in contact with limestone slurry
(CaCO3) in the wet scrubber producing calcium sulphite.
CaCO3 + SO2 → CaSO3 + CO2
Further, Ca(OH)2 in lime, when combined with SO2 gas produces calcium sulphite and
water
Ca (OH) 2 + SO2 → CaSO3 + H2O