Basic Pricing Principles

Generator cost curves:

 Generator cost functions in the state-of-the-art are derived based on input–output
characteristics, efficiency, and fuel costs of the major energy contributors such as
natural gas, coal, nuclear, and hydro/renewable.
 The input-output characteristic of a thermal generator is the ability to convert
thermal energy into electrical energy.
 These data may be obtained from design parameters of that generator.
 Generator cost curves are usually not smooth.
 The curves can usually be adequately approximated using piece-wise smooth,
functions.
 Two representations predominate
1. quadratic or cubic functions
2. piecewise linear functions

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 Basic Pricing Principles
Mathematical Formulation of Costs
 We'll assume a quadratic presentation as
Ci ( PGi )   oi  Fi (b1i PGi  b2i PGi 2 ) Rs/hr (fuel-cost) (1)
Ci ( PGi )   i   PGi   PGi2 Rs/hr (fuel-cost) (2)
dCi ( PGi )
ICi ( PGi )     2 PGi Rs/MWh (3)
dPGi

 The cost function for an i-th thermal generator can be represented by equation (1),
where αi (Rs/hr) is its no-load cost to operate, and b1i (MBtu/MWh) and b2i
(MBtu/MWh2 ) are the quadratic coefficients of the thermal input-output curve of
that generator with fuel cost Fi, expressed as Rs/MBtu.
 To obtain the quadratic cost co-efficientsfor a generator, (1) relates to (2), where
Fib2i equals γ, Fib1i equals β, and aoi equals αi.
 The cost function of hydro/Renewable generators comprises only no-load cost
because they are non-thermal units and do not have fuel costs associated with
generating electricity.

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 Basic Pricing Principles
Basic Gas Turbine

Fuel
Combustion AC
100%
chamber o
1150 C Power
33%

Generator
Compressor Turbine

Fresh 550 oC Exhaust

air gases 67%

Fig. 1 : Block diagram of basic Gas Turbine power plant.

Brayton Cycle: Working fluid is always a gas. Maximum Efficiency

Most common fuel is natural gas 550  273
 1  42%
Typical efficiency is around 30 to 35% 1150  273

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Combined Cycle Power Plant

Fig. 2: Block diagram of combined cycle power plant.

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Combined Cycle Power Plant cont’d….

• CCPP uses both gas and steam turbines to produce more electricity from the same
fuel than the traditional systems
• The CCPP improves the efficiency of the overall system by utilizing an assembly of
different engines
• The first turbine is driven by its working fluid, thus generating the required torque
to drive the generator shaft
• The remaining energy stored in the exhaust fluid is then used to drive another
turbine/generator shaft.
• This arrangement extracts more energy from the working fluid which is then sent
to the grid.

 Efficiencies of up to 60% can be achieved, with even higher values when the steam
is used for heating.
 Fuel is usually natural gas.

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Generator cost curves

 Generator costs are typically represented by up to four different curves

1. input/output (I/O) curve
2. fuel-cost curve
3. heat-rate curve
4. incremental cost curve

 For reference
1 Btu (British thermal unit) = 1054 J
1 MBtu = 1x106 Btu
1 MBtu = 0.293 MWh
3.41 Mbtu = 1 MWh

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1. Input-Output (I/O) Curve

 The input-output curve is derived simply from the heat-rate curve by multiplying it
by the MW output of the unit.
 This yields a curve showing the amount of heat input energy required per hour as a
function of the generator’s output.
 The I/O curve plots fuel input (in MBtu/hr) versus net MW output.

Fig. 3: The input/output curve.

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2. Fuel-cost Curve
 The fuel cost curve specifies the cost of fuel used per hour by the generating unit
as a function of the unit’s MW output.
 This is a monotonically increasing convex function.
 The fuel-cost curve is the I/O curve scaled by fuel cost.

Fig. 4 : Fuel-cost curve.

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4. Heat-rate Curve

 The heat rate curve plots the heat energy required per MWH of generated
electrical output for the generator as a function of the generator’s MW output.
 Thus, the heat rate curve indicates the efficiency of the unit over its operating
range.
 Generally, units are least efficient at the minimum and maximum portions of their
MW output capability and most efficient somewhere in the middle of their
operating range.
 The vertical axis is plotted in MBtu/MWH and the horizontal axis is plotted in MW.
 You may interpret the heat rate for a generator producing X MW as follows: the
heat rate indicates the amount of heat input energy per MWH of generation
required to produce X MW of power.
 The lower this number, the less input energy is required to produce each MWH of
electricity.

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4. Heat-rate Curve

Fig. 6: The heat-rate curve.

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5. Incremental (Marginal) cost Curve
 By multiplying the input-output curve by the cost of the fuel in Rs/MBTU, one obtains
the cost curve for the unit in Rs/hr.
 By taking the derivative of the cost curve, one obtains the incremental cost curve,
which indicates the marginal cost of the unit: the cost of producing one more MW of
power at that unit.

Fig. 7: Incremental cost curve.

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 Example 1: A 500 MW (net) generator is 35% efficient. It is being supplied with
Western grade coal, which costs Rs 1.70 per MBtu and has 9000 Btu per pound.
What is the coal usage in lbs/hr? What is the cost?

Solution: At 35% efficiency required fule input per hour is

500 MWh 1428 MWh 1 MBtu 4924 MBtu

  
hr  0.35 hr 0.29 MWh hr
4924 MBtu 1 lb 547,111 lbs
 
hr 0.009MBtu hr
4924 MBtu Rs 1.70
Cost = 
hr MBtu
 8370.8 Rs/hr or Rs16.74/MWh

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Example 2: Assume a 100W lamp is left on by mistake for 8 hours, and that the
electricity is supplied by the previous coal plant and that transmission/distribution
losses are 20%. How coal has been used?

Solution: With 20% losses, a 100 W load for 8 hrs requires 1 kWh of energy.
With 35% generator efficiency this requires

1 kWh 1 MWh 1 MBtu 1 lb

  
0.35 1000 kWh 0.29 MWh 0.009MBtu
 1.09 lb

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Example 3: Assume a 100W lamp is left on by mistake for 8 hours, and that the
electricity is supplied by the previous coal plant and that transmission/distribution
For a two generator system assume
C1 ( PG1 )  1000 20 PG1  0.01PG21 $ / hr
C2 ( PG 2 )  400 15 PG 2  0.03PG22 $ / hr
Then
dC1 ( PG1 )
IC1 ( PG1 )   20  0.02 PG1 $/MWh
dPG1
dC2 ( PG 2 )
IC2 ( PG 2 )   15  0.06 PG 2 $/MWh
dPG 2
If PG1  250 MW and PG2  150 MW Then
C1 (250)  1000 20  250  0.01  2502  $ 6625/hr
C2 (150)  400 15  150  0.03  1502  $6025/hr
Then
IC1 (250)  20  0.02  250  $ 25/MWh
IC2 (150)  15  0.06  150  $ 24/MWh
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