Economics of

Power
Generation
1
• When planning a power plant, two basic
parameters to be decided as:

– Total power output to be installed (kWinst)

based on
• Present Demand (kWmax )
• Reserve capacity required based on Growth of demand

– Size of generating unit

• Total capacity of unit
• Maintenance program plan
• Price and space
2
Load Curve

3
4
5
 Load factor
Reserve factor 
Capacity factor
Plant use factor,
kWh gen

kWinst  operating hours
Peak (maximum) load (demand)
Demand factor 
Total Connected load
Diversity factor,
Sum of individualy connected maximum demand

Actual peak load of the power plant system
6
 NOTES
For financially healthy plant:
• Load factor should be 1. It cannot be more than 1.
• Capacity factor should be 1. It cannot be more than 1.
• Reserve factor should be 1. It cannot be less than 1.
• Plant use factor and capacity factor become same if
operating duration and duration used to find energy
generated using average load are same. Also Avg Load =
Installed Plant Capacity.
• Plant use factor should be 1. It cannot be more than 1.
• Demand factor should be 1. It cannot be more than 1.
• Diversity factor should be 1. It cannot be less than 1.
• REMEMBER always IF AVERAGE LOAD = PLANT CAPACITY
THEN PLANT IS HEALTHY FINANCIALLY !! 7
(Q.1) A 30 MW plant capacity has peak demand
of 25 MW. It supplies individual loads
having maximum demands of 10 MW, 8.5
MW, 5 MW and 4.5 MW. The load factor is
0.45. Estimate the average load, energy
(load-hr) supplied during the year, diversity
factor and demand factor.
Average Load
Load factor 
Peak Load
Average Load
0.45 
Peak Load (= 25)
Average load  11.25 MW
8
 Energy supplied per year
 avearge load  8760 hrs
 11.25  8760 MWh
 98550 MWh per year
Diversity factor
Sum of individualy connected maximum demand

Peak load

10+8.5+5+4.5
  1.12
25
Maximum demand
Demand factor 
Total connected load
25
  0.89
10+8.5+5+4.5 9
(Q.2) A thermal power plant consists of two 60 MW
units, each running for 8000 hours, and one 30
MW unit running for 2000 hours per year. The
energy produced by the plant is 876×106 kWh per
year. Determine the plant capacity factor and plant
use factor.

10
Plant capacity = 60  2  30  150 MW
Energy produced per year
Average load =
8760
876 10 6
=  10 kW = 100 MW
5

8760
100
Capacity Factor =  0.67
150

11
 Actual energy produced
Plant use factor =
Max. possible energy that can be produced
Max. possible energy that can be produced
= 60  2  8000  30  1 2000 MWh
 1020 106 kWh
876 106
Plant use factor =  0.86
1020 10 6

12
(Q.3) A power station has to supply load as
follows:
Time (hrs) 0-6 6 – 12 12 - 14 14 - 18 18 - 24

Load (MW) 30 90 60 100 50

(a) Draw the load curve. (b) Draw the load

duration curve. (c) Calculate the load factor.
(d) Calculate the capacity of the plant and plant
capacity factor.

13
14
15
Total Load-Hour or Energy generated =30  6+ 90  6+60  2  100  4  50  6
=1540 MWh = 1540 103 KWh per day
1540 103
Average load =  64.17 MW
24
Maximum demand = 100 103 kW
64.17
Load Factor =  0.64
100

Plant capacity =120 MW

Average Load
Capacity factor =
Plant Capacity
64.17
=  0.534
120
16
• (Q.4) A power plant of 420 MW capacity had a
load factor of 0.6, capacity factor of 0.27.
Calculate its reserve capacity and energy
produced per year.
ANSWERS:
(i) Average Load= 113.4 MW
(ii) Peak Load = 189 MW
(iii) Reserve Capacity = 231 MW
(iv) Energy produced per year = 993384 MWh

17
 (Q.5) A power station supplies the following loads
to the consumers:

Time in hrs 0 - 6 6 - 10 10 - 12 12 - 16 16 - 20 20 - 22 22 - 24
Load in MW 30 70 90 60 100 80 60

(a) Draw the load curve and estimate the load

factor of the plant. (b) What is the load factor of a
standby equipment of 30 MW capacity if it takes
up all loads above 70 MW? What is its use factor?
Assume peak load = plant capacity for the plant
and also for standby equipment.
18
19
(a) Total Load-Hour or Energy generated = area
under the load curve
= 30× 6 + 70× 4 + 90× 2 + 60× 4 + 100× 4
+ 80× 2 + 60× 2
= 180 + 280 +180 +240 + 400 + 160 + 120
= 1560 MWh per day
1560 MWh
Average load   65 MW
24 h
Average Load 65
Load factor    0.65
Peak load 100
Capacity factor and Load Factor will be same
because in this problem Peak Load = Plant Capacity
20
21
(b) If the load above 70 MW is supplied by a stand by
unit of 30 MW capacity, the energy generated by it
= 20× 2 + 30× 4 + 10× 2 + 0 × 16
= 40 + 120 + 20 + 0 = 180 MWh

Average Load = Total MWh /(Total hrs = Operating hrs +

Non-operating hours)
Average load = 180/(2 + 4 + 2 +16) = 180/(24)= 7.5 MW

Load factor = 7.5/30 = 0.25 =CAPACITY FACTOR

Use Factor = 180 MWh / (30 × 8) = 0.75

22
(Q.6) A power plant has the following annual factors:
Load factor 0.7, Capacity factor 0.5, Plant use
factor 0.6, and maximum demand = 20 MW.
Estimate (a) annual energy production, (b)
reserve capacity over and above the peak load,
and (c) hours in a year during which the plant
was not in operation.

23
 Average Load
Load factor   0.7
Peak Load
Average load  0.7  20  14 MW
Annual energy production = 14  8760
= 122.64  10 kWh
6

24
 Average Load
Capacity factor   0.50
Plant capacity
Plant Capacity  14 / 0.50  28 MW
Reserve capacity over above the peak load
= 28  20  8 MW
Energy generated per year
Plant Use factor   0.60
Plant capacity  hours in operation
122.64 10 kWh
6
Hours in operation   7300 h
28 10 kW  0.6
3

Hours not in operation = 8760 -7300 = 1460 h

25
(Q.7) A 300 MW thermal power station is to supply
power to a system having maximum and
minimum demand of 240 MW and 180 MW
respectively in a year. Assuming the load
duration curve to be a straight line, estimate the
(a) load factor, (b) capacity factor

26
Energy supplied per year
1
= 180 MW  8760 h    240  180  MW  8760 h
2
 210  8760 MWh = 183.96 10 kWh
7

183.96 107 kWh

Average load   210  10 kW
3

8760
average load 210 MW
Load Factor  
maximum demand 240 MW
 0.875
210
Capacity Factor   0.70
300
27
(Q.8) The maximum load on a thermal power plant of
60 MW capacity is 50 MW at load factor of 60%.
The Coal consumption is 1 kg per kWh of energy
generated and the cost of coal is Rs 600 per ton of
coal. Find the annual revenue earned if the energy
is sold at Rs 2 per kWh.

Average Load  peak load  load factor

 50  0.6  30 MW
Energy Generated per year  30 103  8760
 262.8 106 kWh

Coal required per year =

 262.8  10 6
 1  262.8 103 tonnes
1000
28
Cost of coal per year =262.8 10  6003

= 15768 10 4 rupees

Cost of energy sold =262.8 10 kWh  2
6

= 525.6 10 6 rupees

Revenue earned by the power plant per year
= 525.6 10 6 - 157.68 106
= Rs. 367.92 10 6

• Note: Correction: Here Revenue = Cost of

energy sold; and Profit = Rs.367.92 x 10^6
29
 Power Plant Economics

The cost (total annual cost Ct or annual production cost)

per kWh net is determined by:

1. Fixed cost (FC): Interest (I), depreciation (D), taxes &

insurance (T) cost on the capital invested for the
construction of the plant including the purchase of the
land.
2. Operation and maintenance (O&M) costs covering
salaries and wages (W), repairs including spares parts
(R), water, lubricating oil, chemicals and miscellaneous
expenses (M).
3. Fuel costs, depending on the amount of electricity
generated. 30
Total annual cost (Ct ) in a power plant can be calculated
I+D+T
Ct = Cc  (W+R+M)+C f
100
The annual amount of electricity sent out by a power plant (kWh net )
 Laux 
is given by kWh net  kWinst  8760  1    n; n is capacity factor;
 100 
L aux is power consumption by auxiliaries

In order to calculate the electric power cost to the consumer,

in adddition to the annual production cost
(fixed cost, operation and maintenance cost, and fuel cost),
the transmission and distribution cost,
and return or profit on the investment have to be taken into consideration.
31
The cost of power generation can be reduced by
 Selecting equipment of longer life and proper capacities.
 Running the power station at high load factor.
 Carrying out proper maintenance.
 Keeping proper supervision.
 Using a plant of simple design that does not need highly
skilled personnel.

The costs, however, have a continuous upward

trend due to monetary inflation, rising fuel prices
and increased demand for measures protecting the
environment.
32
 Construction cost
Consist of expenses for:
• Land and preparation of site, including road (&
rail)
• Building and machinery foundation
• Plant equipment, including transport to site.
• Erection and testing of equipment
• Interest during construction (payment made
before commissioning)

Construction cost per kW decreases with size.

33
34
 Formulae and Notes
• Overall cost per kWh = Fixed Cost (FC) + Operation & Maintenance cost
(OM) + Fuel Cost (Fuel) + Transmission & Distribution Cost (Tr &Dr) = Total
Annual Cost + Transmission & Distribution Cost (Tr &Dr)
• Overall cost per net kWh sold to consumer = Overall cost per kWh + Profit
per kWh = Revenue per net kWh = Rupees per net KWh at which it is sold
• Total Revenue = Net KWh sold i.e [(Avg. Load * hours)-Aux. Power
Consumption]* Rupees per net KWh at which it is sold
• Production Cost per kWh= FC + OM + Fuel cost = Total Annual Cost
• Running Cost per kWh= OM + Fuel cost+ Tr & Dr
• Fixed Cost = (I%+ D% + T% ) × Capital Invested for Construction Cost (Cc)
• Note : If installed capacity of the power plant is not given or it is not possible to
obtain it by anyway,
take installed plant capacity = 1.20 × (Peak Load).
Note: Profit will take care to nil the bank loan taken, and money required for
expansion of plant, bonus to employee. %D will take care to replace old
equipment by newer one.
35
 Q.9
• Find the Fixed cost, Running Cost, Production
cost and overall cost per kWh if power plant
supply a load with maximum demand of 500
MW and load factor 70%.
If capital cost per MW installed is Rs. 3 crore,
Interest 6%, Depreciation 6%, Operating and
Maintenance cost including Fuel cost is Rs.
0.30 per kWh, Transmission and Distribution
cost per kWh is Rs. 0.02. Assume capacity
installed is equal to peak demand.
36
 Solution to Q.9
• Capital cost = 500 MW × Rs. 3 Crore per MW
= Rs. 1500 Crore
Fixed Cost = (Interest + Depreciation) × Capital
Cost = (0.06 + 0.06) × 1500 = Rs. 180 Crore

Now Fixed Cost per kWh energy generated

= Rs. 180 Crore / (Energy generated per year)
= 180 / (Avg Load in MW × 8760 hrs)
= 180/ (Load Factor × Maximum Demand × 8760 hrs)
= 180 / (0.7 * 500 *1000 * 8760) = Rs. 0.59 per kWh 37
 Solution to Q.9, continued
• Overall cost per kWh =
= FC per kWh + O & M with Fuel Cost per
kWh + Tr & Dr cost per kWh
= 0.59 + 0.30 + 0.02
= Rs. 0.91 per kWh
Now,
Running cost is = 0.91 – 0.59 = Rs. 0.32 per kWh
= O & M with Fuel Cost + Tr & Dr cost

38
 Depreciation

• Fixed cost consists of annual costs for interest,

depreciation, insurance and taxes on property –
capital investment.

• Interest rate (I) depends on the source of funding

i.e international, national, private etc. Because of
inflation concept of real and charged interest
rates has been proposed. For example, if, for a
instance, the real rate is fixed at 10% and a price
inflation forecast of 7% per year, the charged
interest rate goes up to 17%. 39
 Depreciation
• Depreciation rates (D) are determined by the life
expectancy of the equipment.
• Equipments used in power plant will have a
certain period of useful life, after years of use, the
equipment loses its efficiency and need
replacement. To easy purchase of new
equipment, some money is put aside annually,
and it is known as depreciation fund.
• There are two methods of accumulating the
money for the depreciation fund
1) Straight-line method
2) Sinking-fund method 40
Depreciation – Straight Line Method

41
 Depreciation – Straight Line Method
• Therefore in general , in this (straight line) method
DJ = CE OR DE + EJ = CD + DE
Therefore EJ = CD
Where EJ = Salvage value (resale value)

Now, Depreciation fund (DJ) = Capital Cost (AB)- CD ……. (1)

But EJ = CD
Hence from eq. (1), Depreciation fund (DJ) = AB – EJ
i.e
Depreciation fund (S) = Capital cost (A) – Salvage value (G)

42
Depreciation – Straight Line Method

• The straight line method is based on the

assumption that depreciation occurs
uniformly every year according to a straight-
line law.
• If A is the capital cost of the equipment and G
is its salvage value after N useful years, then
the depreciation charge (fund gained) per
year is
D = (A – G ) / N … slope of line BE
• The money saved neglects any interest. 43
 Q. 10
• Let capital cost A = Rs. 1000/-,
Salvage value G = Rs. 600/-, N= 4 years.
Determine depreciation fund raised by using
Straight line method and Sinking fund method.

Solution: Using Straight line method,

Depreciation fund S = A – G = Rs. 400/-
Depreciation charge per year D = (A-G)/N = Rs.
100/-
44
 Depreciation – Sinking Fund Method
• In the sinking fund method, money is set aside
every year for N years and invested to earn
compound interest.
• Let us suppose P is the deposit at the end of first
year and i is the interest compounded annually
once deposit is invested.
• Now Refer Q. 10, N = 4 years . Interest is 10%.
At the end of first year, Rs. D = P = Rs. 100 = P1 is
deposited. (because [Rs. 1000- Rs. 600] /4 years )

45
Year Amount Total fund generated Total fund generated in Extra fund
deposited at the end of year a year by Sinking Fund generated in
at the because of 10% Method a year
end of interest (subtraction
year by of 4th and
Straight 2nd column)
line
method
1 100 100 + 10% . (0) = 100* = 100* 0

2 100 100*+ 10% . (100*) + 210* - 100*= 110 10

100 + 10% . (0) = 210*

3 100 210*+ 10% . (210*) + 331* - 210* = 121 21

100 + 10% .(0) = 331*
4 100 331*+ 10% . (331*) + 464.10* - 331* = 133.10 33.10
100 + 10% .(0) =
464.10*

Total = 400 = 464.10* = 464.10 64.10

after 4
years 46
• In the first year, Rs. D = P = Rs. 100/- = P1 is deposited. i.e
Rs. 100* + Rs. 00 */- as no interest in the first year.
In the second year, P2 = P1 + (P1× 10%) = Rs. 110/-
P2 = P (1 +10%)^1 = Rs. 110/-
P2 = P (1+i)^(N-3) = Rs. 110/- = Rs. 100 + Rs. 10*/-
In the third year, P3 = P2 + (P2× 10%) = Rs. 121/-
P3 = P (1 +10%)^2 = Rs. 121/-
P3 = P (1+i)^(N-2) = Rs. 100 + Rs. 21*/-
In the fourth year, P4 = P3 + (P3× 10%) = Rs. 133.10/-
P4 = P (1 +10%)^3 = Rs. 133.10/-
P4 = P (1+i)^(N-1) = Rs. 133.10/- = Rs. 100+ Rs. 33.10*/-
• In N = 4 years, total money S (depreciation fund) will be
P1 + P2 + P3 + P4 = P+ P2 + P3 +…… P4 = Rs. 464.1/-
S = P + P (1+i)^1 + P(1+i)^2 +……. ……. + P(1+i)^(N-1)
This is the geometric progression. Therefore, after N = 4
years, total amount (depreciation fund S) will be
(1  i ) N  1
S  P{ }
i
If , P  Rs.100 / , N  4 years, i  10%
S  Rs.464.1 / 
Where ‘P’ is fund deposited at the end of EVERY year is Rs. 100/-.
But due to interest, extra money earned in this method in 4 years in
comparison with straight line method , are
Rs. (0 + 10 + 21 + 33.10)* = Rs. 64.10* = Rs. 464.1 – Rs. 400/-
Note that, minimum value of S should be (for example Rs. 400 in Q.10)
S = capital cost (A) – salvage value ( G ) = 1000 – 600 = 400 in 4 YEARS48by
 NOTES
• (%D per year * Cc) = D = S/N =(A-G)/N for Straight Line
Method
• P = (S*i) / ( ({1+i}^N) -1 ) for Sinking Fund Method. Note (i) If i,
N is mentioned then it is recommended to use sinking fund
method formula to find P or S. If required use note (ii) or (iii) if
value of S or P is not given respectively. Note (ii) while finding
P, if it is not mentioned the value of S then find S using S = (A-
G) by straight line method. Note (iii) while finding S, if it is not
mentioned the value of P then find P using P = D = (%D per
year * Cc) =(A-G)/N by straight line method.
• By this way if we use Note (ii) then S = (A-G) =400 and for this
value of S, P= 86.18 per year by sinking fund method if N =4,
S= 400 and i = 10% for the problem of slide 47.
• And by straight line method D = 100 per year if N = 4 and S =
400. 49
 Q. 12

• Determine the overall cost per year of a feed

water softener from the following data:
Cost = Rs. 80,000/-
Salvage value = 5%
Life = 10 years
Annual repair and maintenance cost = Rs. 2500/-
Annual cost of chemicals = Rs. 5000/-
Labour cost per month = Rs. 300/-
Interest for sinking fund = 5%
50
 Q.12. Solution
• Overall cost per kWh = Fixed Cost (FC) +
Operation & Maintenance cost (OM) + Fuel
Cost (Fuel) + Transmission & Distribution Cost
(Tr &Dr) = Total Annual Cost + Transmission &
Distribution Cost (Tr &Dr)
• Overall cost per year = [(I =0) + P + (T=0)] +
OM + 0 + 0 = Rs. 17140/-
Where P = (use formula slide 48) = Rs.6042.35/-
per year using A = 80000, G = 5% * 80000, N
=10, i for sinking fund =5%
Where OM = 2500 + 5000+ (300*12)
51
 Economic Scheduling Principle
( Economic Load Sharing)
• If power plant has more than one generating unit, load
should be distributed properly.
• Otherwise, it will result in decrease in efficiency.
• Consider a power station has two generating units A and
B. Figure (a) (refer next slide) represent Input output
curve for units A and B. Let us consider the situation that
for a given load (output), unit A require less heat input
than unit B.
• For economical loading, the combined input of units A and B
should be plotted against load on unit A for a constant total load.
(Refer figure (b) in the next slide). Unit A is selected in Fig. (b) on
X-axis because unit A require less heat input than unit B.

52
53
• Let a load of 4 MW is to be supplied by units A
and B. Hence Lc = LA + LB = 4 MW. Where Lc is
the combined output.

• Let the unit B supplies total load of 4 MW and

unit A supplies zero load. Corresponding to
these load values of units A and B, values of
input to units A is (IA) and input to unit B is(IB)
can be determined respectively from figure (a).

• Thus value of (IA+IB) can be plotted against zero

load on unit A, as shown in figure (b). 54
• Repeat the above two steps, if unit B supplies
2 MW and unit A supplies 2 MW. But plot this
time (IA+IB) value against 2 MW load on unit A
as shown in figure (b).
• Repeat the process if B supplies 0 MW and A
supplies 4 MW.
• Similarly curves for total load of 8 MW, 12 MW
etc can be plotted.
• In these curves there is at least one point
where combined input is minimum for a given
load on A.
55
• Corresponding to this point of minimum input, the
load of unit A can be found. Then load on B will be
difference of total load and load on unit A. Condition
for best economy is obtained as below
Let
I  I  I ......................................(1)
C A B
L  L  L ....................................(2)
C A B
Differentiating (1),
dI dI dI
C  A  B 0
dL dL dL
A A A 56
 dI dI  dI dL 
 A  B   B  B  .......(3)
dL dL  dL dL 
A A  B A
Differentiating (2),
dL dL dL
C  A  B  0...( L  cons tan t )
dL dL dL C
A A A

57
 dL dL
 A  1   B ............................(4)
dL dL
A A
from(4) & (3)
dI dI
 B  B
dL dL
A B
dI dI
 A B
dL dL
A B
Therefore, to achieve best economy in load sharing, the slopes
of the input-output curves for each unit must be equal, so that
COMBINED i.e TOTAL INPUT TO PLANT WILL BE MINIMUM for a
expected output (4 MW or 8 MW etc refer fig. (b)} for a plant.
58
 Q. 13
• The incremental fuel costs for two generating units A and B of
a power plant are given by the following

dF
A  0.06 P  11.4
A
dP
A
dF
B  0.07 P  10
B
dP
B

where P is in mega-watts and F is in rupees per hour.

(a) Find the economic loading of the two units when the total
load to be supplied by the power station is 150 MW.
(b) Find the loss in fuel cost per hour if load is equally shared by
the two units. 59
 Solution to Q.13

• PA+ PB = 150 MW……(i)

dF dF
For economic loading A  B
dP dP
A B
Hence, 0.06PA+11.14 = 0.07 PB+10……(ii)
Solving (i) and (ii), PA = 70 MW, PB = 80 MW
• If load will be shared equally means PA=PB=75 MW,
Then increase in cost for unit A
=
60
75
 (0.06 PA  11.4) dPA  Rs.78.75 per hour
70
Increase in cost for unit B will be
75
 (0.07 PB  10) dPB   Rs.77.12 per hour
80
This shows that in case of unit B there is decrease in cost.

Hence NET increase in cost due to departure from economic distribution

= 78.75 - 77.12 = Rs. 1.63 per hour.

61