Economics of Power Generation

Introduction
Relative comparison of Operating cost and operational flexibility
 Basic Cost Concepts ̶ Microeconomics

• Total cost: The total cost of producing (Q) MWh of

electricity
• Average cost of energy: The average cost of
producing one MWh of electric energy (Rs/MWh)
• Average cost of capacity: The average cost of one
MW of electric power capacity (Rs/MW)
• Marginal cost of energy: The incremental cost of
producing an additional unit of electric energy
(Rs/MWh)
 Basic Cost Concepts ̶ Microeconomics
• Variable costs: Costs those change when output
changes, e.g., cost of fuel, the cost of labor or
materials, costs to start up and shut down plants,
and some types of environmental costs
• Fixed costs: Costs those that remain at a fixed
amount no matter how much electricity the plant
produces, e.g., capital cost, insurance and land cost
What are the biggest drivers in overall power plant
economics: 1-Cost of capital, 2-Cost of fuel
Which cost is complex and which is straightforward?
Fixed Cost Concepts for Power Generation

• Fixed costs: Capital costs and land cost

– Capital costs: Building Central Stations varies from
region to region
– Depends upon
• labor costs, regulatory costs
• obtaining siting permits
• environmental approvals
• Building time (at least 2 years, may take many years)
 Operating Costs
• Fuel, labor, maintenance costs
– Depends on how much electricity the plant produces
• Fuel costs dominate the total cost of operation for
fossil-fired power plants
– Sensitive to changes of the fuel prices
– What about renewable fuels?
– What if the fuel is biomass?
– What about Nuclear fuels?
• Fuel cost is low
– What is the dominant operating cost then?
• Labour and Maintenance
 Capital Vs Operating cost
• Tradeoff between capital and operating costs
• Plants that have higher capital costs tend to
have lower operating costs
• Operating cost, comparing the overall costs of
different power plant technologies is not
straightforward
• Levelized Cost of Energy (LCOE): Average
price/kWh needed for the plant to break even
over its operating lifetime
 Tech: Capital Vs Operating cost
Capital Cost Operating Cost
Technology
($/kW) ($/kWh)
Coal-fired combustion turbine $500 — $1,000 0.02 — 0.04

Natural gas combustion

$400 — $800 0.04 — 0.10
turbine

Coal gasification combined-

$1,000 — $1,500 0.04 — 0.08
cycle (IGCC)

Natural gas combined-cycle $600 — $1,200 0.04 — 0.10

Wind turbine
$1,200 — $5,000 Less than 0.01
(includes offshore wind)

Nuclear $1,200 — $5,000 0.02 — 0.05

Photovoltaic Solar $4,500 and up Less than 0.01

Hydroelectric $1,200 — $5,000 Less than 0.01

 Characteristics Influencing Operations
• Capacity [MW]: The maximum output of a plant
• Lower Operating Limit (LOL) [MW]: The minimum
amount of power a plant can generate once it is turned
on
• Minimum Run Time[h]: The shortest amount of time a
plant can operate once it is turned on
• No-Load Cost [Rs/MWh]: The cost of turning the plant
on, but keeping it "spinning,"
– is fixed cost of operation; i.e., the cost incurred by the
generator that is independent of the amount of energy
generated
• Start-up and Shut-down Costs [Rs/MWh]: Costs
involved in turning the plant on and off
Characteristics Influencing Operations
• Ramp/Run time [h]: The amount of time it
takes from the moment a generator is turned
on to the moment it can start providing
energy to the grid at its lower operating limit
• Ramp rate [MW/h]: How quickly the plant can
increase or decrease power output, or
[% capacity per unit time]
 Ramp and Run Times
• Ramp and run times determine how flexible the
generation source is
– Depends upon regulations, type of fuel, technology
• Less flexible: Plants have longer minimum run times
and slower ramp times
– Operates on base load energy
• More flexible: plants have shorter minimum run times
and quicker ramp times
– better-suited to filling peak demand
• To run a Nuclear plant for five hours and then shut it
down. What Will happen?
– It will impose a large cost in the form of wear and tear on
the plant's components
 Ramp and Run Times
Technology Ramp Time Min. Run Time
Simple-cycle combustion
minutes to hours minutes
turbine

Combined-cycle
hours hours to days
combustion turbine

Nuclear days weeks to months

Wind Turbine
minutes none
(includes offshore wind)

Hydroeletric
(includes pumped minutes none
storage)
 Relative comparison of Operating cost and operational flexibility

Why this excludes most renewables:

Their operational flexibility is partially dependent on prevailing weather conditions such
as irradiance and wind speed/direction
 EFFECT OF POWER PLANT TYPE ON
COSTS
• Fixed Cost: Initial cost of the plant, Rate of interest,
Depreciation cost, Taxes, and Insurance
• Operational Cost: Fuel cost, Operating labour cost,
Maintenance cost, Supplies, Supervision, Operating taxes
• INITIAL COST
– Land cost
– Building cost
– Equipment cost
– Installation cost
– Overhead charges during construction
• transportation cost,
• stores and storekeeping charges,
• interest during construction
• Load Factor: Ratio of the average load to the peak load
during a certain prescribed period of time
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑜𝑎𝑑 𝐸𝑛𝑒𝑟𝑔𝑦 𝑔𝑒𝑛𝑒𝑎𝑟𝑡𝑒𝑑
• 𝐿𝐹 = =
𝑃𝑒𝑎𝑘 𝑙𝑜𝑎𝑑,/𝑝𝑒𝑎𝑘 𝑑𝑒𝑚𝑎𝑛𝑑 𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑑𝑒𝑚𝑎𝑛𝑑×ℎ𝑜𝑢𝑟𝑠
– should be high
– It is always less than one
• Utility Factor: Ratio of the units of electricity generated per
year to the capacity of the plant
𝑘𝑊ℎ 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 𝑑𝑢𝑟𝑖𝑛𝑔 𝑦𝑒𝑎𝑟
– 𝑈𝑡𝑖𝑙𝑖𝑡𝑦 𝐹𝑎𝑐𝑡𝑜𝑟 =
𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑙𝑎𝑛𝑡
– rated capacity of a plant of 200 MW, The maximum load on the
plant is 100 MW at a load factor of 80%,
– What is the Utility Factor?

• Utility Factor = (100 × 0.8)/(200) = 40%

• Plant Operating Factor: Ratio of the time during which the
plant is in actual service, to the total duration of time
considered
𝑡𝑜𝑡𝑎𝑙 ℎ𝑜𝑢𝑟 𝑜𝑓 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑜𝑛
– 𝑃𝑙𝑎𝑛𝑡 𝑜𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑓𝑎𝑐𝑡𝑜𝑟 =
𝑡𝑜𝑡𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑜𝑓 𝑡𝑖𝑚𝑒 𝑐𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑒𝑑
• Plant Capacity Factor: Ratio of actual kWh Produced to
Maximum Possible kWh that might have produced during the
same period
𝐴𝑛𝑛𝑢𝑎𝑙 𝑘𝑊ℎ 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑
– 𝑃𝑙𝑎𝑛𝑡 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑓𝑎𝑐𝑡𝑜𝑟 =
𝑃𝑙𝑎𝑛𝑡 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑘𝑊 ×ℎ𝑜𝑢𝑟𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
– 𝑃𝑙𝑎𝑛𝑡 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑓𝑎𝑐𝑡𝑜𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑑𝑒𝑚𝑎𝑛𝑑 𝑜𝑛 𝑡ℎ𝑒 𝑝𝑜𝑤𝑒𝑟 𝑠𝑡𝑎𝑡𝑖𝑜𝑛
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑖𝑛𝑠𝑡𝑎𝑙𝑙𝑒𝑑 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑜𝑤𝑒𝑟 𝑠𝑡𝑎𝑡𝑖𝑜𝑛
• Demand Factor: Ratio of the maximum demand of a system to
its connected load
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑑𝑒𝑚𝑎𝑛𝑑
– 𝐷𝑒𝑚𝑎𝑛𝑑 𝐹𝑎𝑐𝑡𝑜𝑟 =
𝑐𝑜𝑛𝑛𝑒𝑐𝑡𝑒𝑑 𝑙𝑜𝑎𝑑
– it is always less than one, since all the appliances will not be in
operation at the same time or to their fullest extent
• Plant Use Factor: Ratio of kWh generated to the
product of plant capacity and the number of hours
for which the plant was in operation
𝑂𝑢𝑡𝑝𝑢𝑡 𝑜𝑓 𝑎 𝑃𝑜𝑤𝑒𝑟 𝑆𝑎𝑡𝑎𝑡𝑖𝑜𝑛
• 𝑃𝑙𝑎𝑛𝑡 𝑈𝑠𝑒 𝐹𝑎𝑐𝑡𝑜𝑟 =
𝑃𝑙𝑎𝑛𝑡 𝐶𝑎𝑝𝑎𝑐𝑖𝑡𝑦×𝑛𝑢𝑚𝑒𝑟 𝑜𝑓 ℎ𝑟𝑠 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡 𝑢𝑠𝑒

• Diversity Factor: Ratio of the sum of the individual

maximum demands to the maximum demand of the
total group
𝑆𝑢𝑚 𝑜𝑓 𝑖𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙 𝑚𝑎𝑥𝑖𝑚𝑢𝑚 𝑑𝑒𝑚𝑎𝑛𝑑𝑠
– DF=
𝑜𝑣𝑒𝑟 𝑎𝑙𝑙 𝑚𝑎𝑥𝑖𝑚𝑢𝑚 𝑑𝑒𝑚𝑎𝑛𝑑𝑠 𝑜𝑛 𝑎 𝑠𝑡𝑎𝑡𝑖𝑜𝑛
– it is known from experience that the maximum demands
of the individual consumers will not occur at one time
– It is always greater than unity
 Load Curve

The Load Curve is defined as the curve which is drawn between

loads (kW, MW) versus Time (daily, weekly, monthly, yearly)
It tells the variation of Loads over a period of time.
 Load Curves
• Variation of load: The daily load curve shows the
variation of load on the power station during
different hours of the day
• Area under Curve: Area (in kWh) under daily load
curve = Units generated/day
• Daily Peaks: The highest/lowest points on the daily
load curve represents the max/min demand
• Average Load: The area under the daily load curve /
total number of hours = the average load on the
station
𝐴𝑟𝑒𝑎 𝑘𝑊ℎ 𝑢𝑛𝑑𝑒𝑟 𝑑𝑎𝑖𝑙𝑦 𝑙𝑜𝑎𝑑 𝑐𝑢𝑟𝑣𝑒
– Average Load=
24ℎ𝑜𝑢𝑟𝑠
 Load Factor
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐿𝑜𝑎𝑑
𝐿𝑜𝑎𝑑 𝐹𝑎𝑐𝑡𝑜𝑟 =
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝐷𝑒𝑚𝑎𝑛𝑑
𝐴𝑟𝑒𝑎 𝑘𝑊ℎ 𝑢𝑛𝑑𝑒𝑟 𝑑𝑎𝑖𝑙𝑦 𝑐𝑢𝑟𝑣𝑒
=
𝑇𝑜𝑡𝑎𝑙 𝑎𝑟𝑒𝑎 𝑜𝑓 𝑟𝑒𝑐𝑡𝑎𝑛𝑛𝑔𝑙𝑒 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑡ℎ𝑒 𝑙𝑜𝑎𝑑 𝑖𝑠 𝑐𝑜𝑛𝑡𝑎𝑖𝑛𝑒𝑑

• Planning the number of generating units

• Preparing the operation schedule of the station
• The monthly/yearly load curves can be obtained
from the daily load curve
• Monthly/yearly load factors can be also be
calculated
 Load Duration Curve
• When load curve are arranged in the order of
descending order of magnitudes in spite of
chronological order

The magnitudes are

20MW for 8 Hours, 15MW for 4 hours, 5 MW from 12 hours,
It tells about price market
 • Unit Generated per Annum form maximum
demand and load factor
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐿𝑜𝑎𝑑
𝐿𝑜𝑎𝑑 𝐹𝑎𝑐𝑡𝑜𝑟 =
𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝐷𝑒𝑚𝑎𝑛𝑑
𝐴𝑟𝑒𝑎 𝑘𝑊ℎ 𝑢𝑛𝑑𝑒𝑟 𝑑𝑎𝑖𝑙𝑦 𝑐𝑢𝑟𝑣𝑒
=
𝑇𝑜𝑡𝑎𝑙 𝑎𝑟𝑒𝑎 𝑜𝑓 𝑟𝑒𝑐𝑡𝑎𝑛𝑛𝑔𝑙𝑒 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑡ℎ𝑒 𝑙𝑜𝑎𝑑 𝑖𝑠 𝑐𝑜𝑛𝑡𝑎𝑖𝑛𝑒𝑑

Average load = Load Factor X Maximum demand

Units generated/annum= Average load X number of hours in 1yr (8760)
Units generated/annum =Maximum demand X Load factor X 8760
Summary