Introduction  

The art of determining the production cost of one unit (i.e., 1 kWh) electrical energy is known as economics of power generation. Economics is as important as technical knowledge for an electricity generation. Pricing the electricity generated is a truly complex issue. Because a lot of costs are involved in producing a unit of electricity from generation stations to transmission lines losses to distribution system losses and metering errors. Also the generation is not from a single source and each customer’s distance from the generating station varies so the losses also vary.  Thus, finding a cost for unit of electricity is a difficult task.

In a country like India, power thefts, free power to some sections of people and immense distances to which transmission needs to be distributed and wide variety of loads and limited awareness of people on electricity consumption adds to the issues which need to be addressed when designing a tariff plan for the people. Another important issue is the collection of bills where there is no strong and effective system is in place. Thus, in context with India, economics of electricity generation has addition thorns attached to it when practical aspects are concerned. However, such cannot be included in the tariff and they are generally accounted as losses for utilities or the government pays them from the public money. Thus in India, the electricity utilities are public sector and slowly he private players are entering into generation aspect in the name of Independent power producer who sell power to the utilities at pre determined cost.