• Annual Fixed cost of plants

    The costs which are independent of number of units generated is known as fixed cost of the plant. It consist of following components :-- 

    1. Interest: The annual interest on amount of capital investment (Land cost, Building cost, Equipment cost, Installation cost, etc.) borrowed from banks or other financial institutions. Therefore, while calculating the cost of production of electrical energy, the interest payable on the capital investment must be included.


    1. Taxes: The utility may have to pay taxes to government. Note that only the taxes which are a function of the capital investment are included in fixed costs.


    1. Insurance: A very well managed utility has to incur expenditure on insurance against accidents (fire, flood, explosion, earthquake, etc) to equipments and personnel.


    1. Depreciation Cost: The decrease in the value of the power plant equipment and building due to constant use is known as depreciation. Therefore, depreciation cost takes into account the deterioration of the component over a period of time.


    1. Rate of return: It is a profit on an investment over a period of time, expressed as a proportion (or %) of the capital investment.  The time period is typically a year, in which case the rate of return is referred to as annual return. A certain rate of return should be taken into account in calculating the annual fixed costs.


    1. Salaries of management and other officials


    1. Maintenance cost: A certain amount of supervision and maintenance is needed even when it's not producing any energy.


    Calculation of Annual Fixed cost

                      Annual Fixed cost of ith unit (AFCi) = FCRi × UCi × Ci

    Where, FCRi = Fixed charge rate of ith unit. The value of fixed charge rate is fixed on the basis of above mentioned components of the fixed charged rate (Rs./year).

                      UCi = Unit capital cost of the ith unit, (Rs./MW)

                      Ci = Capacity of ith unit, (MW)


    Annual operating cost of plants

    It is the cost which depends only upon the number of units generated. Annual operating cost consists of the following components:--


    1. Fuel cost: The cost of fuel includes not only its price at the site of purchase but its transportation and handling costs also. In the hydroelectric power plants the absence of fuel factor in cost is responsible for lowering the operating cost. The cost of fuel varies with the following :

    (a) Unit price of the fuel.

    (b) Amount of energy produced.

    (c) Efficiency of the plant.


    1. Labour Cost: For plant operation labour cost 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 require 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.


    1. Cost of Maintenance and Repairs: In order to avoid plant breakdowns maintenance is necessary. Maintenance includes periodic cleaning, greasing, adjustments and overhauling of equipment. The material used for maintenance is also charged under this head. Sometimes an arbitrary percentage is assumed as maintenance cost. A good plan of maintenance would keep the sets in dependable condition and avoid the necessity of too many stand-by plants. Repairs are necessitated when the plant breaks down or stops due to faults developing in the mechanism. 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 plants than for hydro-plants due to complex nature of principal equipment and auxiliaries in the former.


    1. Supplies: Cost related to consumable materials such as lubricating oil, etc., and water for make up, cooling purposes & general use.


    1. Taxes: The taxes under operating head includes the following :

    (a) Income tax
    (b) Sales tax
    (c) Social security and employee’s security, etc.  


    Calculation of Annual operating cost

                      Annual operating cost of ith unit (AOCi) = FCi  + O&Mi

                                    Where,       FCi = Annual fuel cost of ith unit,  (Rs./year)

                                                             = (fuel consume in kg /year) × (fuel cost/kg)

                                                             = (fuel consume in kg /kWh) × (kWh/year) × (fuel cost/kg)

    O&Mi = Annual cost of operating labour, maintenance& repaire cost, taxes and supplies cost of ith unit, (Rs./year)


    Annual Plant Cost of ith unit

                                    APCi = AFCi + AOCi

    Expected annual energy generated by ith unit (kWh/year)

                                    Ei = Average annual load in kW × 8760

                                       = Capacity factor × Plant capacity in kW × 8760


    Generating cost of ith unit (Rs./kWh)                             

    GCi = APCi / Ei

    Generating cost of ith unit (Rs./kWh)                            

      GCi = APCi / Ei


    Fixed costs

    Variable costs

    The annual fixed cost of a plant includes interest, taxes, insurances, maintenance, depreciation, managerial, salary and rate of return

    The Variable fixed cost of a plant means expenses which vary with the operation or the amount of energy produced

    The fixed cost of the steam plant consists of cost of land, installation, equipment, design power house building, testing, commissioning etc.

    The variable fixed cost of a steam plant includes the cost of coal, oil, repair, water, salaries of operating staff

    The fixed cost of a hydro plant consists of the cost of survey, bridges, dam, earthwork, railhead, highways, other civil engineering works, powerhouse structure, design, specifications, equipment testings, commissioning etc.

    The variable cost of a hydro plant includes salaries and wages of operating staff, maintenance staff and suppliers. The operating cost of hydro plant is very small

    The fixed cost of a nuclear plant includes the cost of plant site, equipment testing and commissioning

    The variable cost of a nuclear plant includes the cost of fuel, water, material, required for repair and, maintenance, salaries of operating and maintenance staff. The operating cost is very high


    Typical capital and operating costs for power plants. Note that these costs do not include subsidies, incentives, or any "social costs" (e.g., air or water emissions)




    Capital Cost ($/kW)

    Operating Cost ($/kWh)

    Coal-fired combustion turbine

    $500 — $1,000

    0.20 — 0.04

    Natural gas combustion turbine

    $400 — $800

    0.04 — 0.10

    Coal gasification combined-cycle (IGCC)

    $1,000 — $1,500

    0.04 — 0.08

    Natural gas combined-cycle

    $600 — $1,200

    0.04 — 0.10

    Wnd turbine (includes offshore wind)

    $1,200 — $5,000

    Less than 0.01


    $1,200 — $5,000

    0.02 — 0.05

    Photovoltaic Solar

    $4,500 and up

    Less than 0.01


    $1,200 — $5,000

    Less than 0.01