Cost of Electrical Energy Generation
Major costs associated with the generation of electric power
The total cost of power (electrical energy) generation comprises of the following charges:
Fixed cost: It is the cost which is independent of maximum demand and units generated.Fixed cost includes:
- Annual charges of the central organization management
- Salary of the employees (usually higher officials)
- Interest on the land costs
All of these costs are fixed, and hence, fixed cost remains constant under all conditions.
Semi fixed cost: Such charges are independent of the energy (kWh) generated but depend upon the maximum demand. Higher the max demand, the greater the semi-fixed costs. Since these depend upon the size (and cost) of installation which again depends on the max demand. Semi-fixed cost includes:
- Interest and depreciation on the capital costs on the land, the buildings (construction costs), taxes, salaries of management & clerical staff and the costs of the equipment’s of the electricity.
- Such interest may range up to 8% depending upon the market conditions.
- Due to wear and tear, the depreciation occurs and such depreciation costs are also included in the fixed and semi-fixed charges.
Running or Operating cost: Running charges will depend mainly upon the energy (in units or kWh) generated by the plant. If the power station generates more units, it will have higher running cost and vice versa. Running cost includes:
- Cost of fuel
- Cost of maintenance and repairs: As a plant ages, wear and tear occur, and maintenance is needed. The wear and tear of the plant necessitate the use of lubricating oil which has its own cost.
- Salaries of the operating staff.
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