EEE 4329

POWER SYSTEM OPERATION AND CONTROL

(Operating Cost of Power System)
 Introduction
• A power station is required to deliver power to a large number of consumers to meet
their requirements.
• While designing and building a power station, efforts should be made to achieve overall
economy so that the per unit cost of production is as low as possible.
• This will enable the electric supply company to sell electrical energy at a profit and
ensure reliable service.
• The problem of determining the cost of production of electrical energy is highly complex
and poses a challenge to power engineers.
• There are several factors which influence the production cost such as cost of land and
equipment, depreciation of equipment, interest on capital investment etc.
• Therefore, a careful study has to be made to calculate the cost of production. In this
chapter, we shall focus our attention on the various aspects of economics of power
generation
 Economics of Power Generation
• The art of determining the per unit (i.e., one kWh) cost of • (ii) Depreciation. The decrease in the value of the power plant
production of electrical energy is known as economics of power equipment and building due to constant use is known as
generation. depreciation. If the power station equipment were to last for ever,
then interest on the capital investment would have been the only
• The economics of power generation has assumed a great
charge to be made. However, in actual practice, every power station
importance in this fast developing power plant engineering. A has a useful life ranging from fifty to sixty years. From the time the
consumer will use electric power only if it is supplied at reasonable power station is installed, its equipment steadily deteriorates due to
rate. Therefore, power engineers have to find convenient methods wear and tear so that there is a gradual reduction in the value of the
to produce electric power as cheap as possible so that consumers plant. This reduction in the value of plant every year is known as
are tempted to use electrical methods. annual depreciation. Due to depreciation, the plant has to be
replaced by the new one after its useful life. Therefore, suitable
• Before passing on to the subject further, it is desirable that the
amount must be set aside every year so that by the time the plant
readers get themselves acquainted with the following terms much retires, the collected amount by way of depreciation equals the cost
used in the economics of power generation : of replacement. It becomes obvious that while determining the cost of
– (i) Interest. The cost of use of money is known as interest. A power production, annual depreciation charges must be included.
station is constructed by investing a huge capital. This money is
generally borrowed from banks or other financial institutions and the
supply company has to pay the annual interest on this amount. Even if
company has spent out of its reserve funds, the interest must be still
allowed for, since this amount could have earned interest if deposited
in a bank. Therefore, while calculating the cost of production of
electrical energy, the interest payable on the capital investment must
be included. The rate of interest depends upon market position and
other factors, and may vary from 4% to 8% per annum.
 Cost of Electrical Energy

Fixed cost

• It is the cost which is independent of maximum demand and units generated.

• The fixed cost is due to the annual cost of central organisation, interest on capital
cost of land and salaries of high officials.
• The annual expenditure on the central organisation and salaries of high officials is
fixed since it has to be met whether the plant has high or low maximum demand
or it generates less or more units.
• Further, the capital investment on the land is fixed and hence the amount of
interest is also fixed.
 Cost of Electrical Energy

Semi-fixed cost
• It is the cost which depends upon maximum demand but is independent of units
generated.
• The semi-fixed cost is directly proportional to the maximum demand on power
station and is on account of annual interest and depreciation on capital investment
of building and equipment, taxes, salaries of management and clerical staff.
• The maximum demand on the power station determines its size and cost of
installation.
• The greater the maximum demand on a power station, the greater is its size and
cost of installation.
• Further, the taxes and clerical staff depend upon the size of the plant and hence
upon maximum demand.
 Cost of Electrical Energy

Running cost

• It is the cost which depends only upon the number of units generated.
• The running cost is on account of annual cost of fuel, lubricating oil, maintenance,
repairs and salaries of operating staff.
• Since these charges depend upon the energy output, the running cost is directly
proportional to the number of units generated by the station.
• In other words, if the power station generates more units, it will have higher running
cost and vice-versa.
 Expression for Cost of Electrical Energy

Three part form

• In this method, the overall annual cost of electrical energy generated is divided into
three parts via fixed cost, semi-fixed cost and running cost

• Total annual cost of energy

= Fixed cost + Semi-fixed cost + Running cost
= Constant + Proportional to max. demand + Proportional to kWh generated.
= RM (a + b kW + c kWh)

• a = annual fixed cost independent of maximum demand and energy output.

• b = constant which when multiplied by maximum kW demand on the station gives the annual
semi-fixed cost.
• c = a constant which when multiplied by kWh output per annum gives the annual running cost.
 Expression for Cost of Electrical Energy

Two part form.

• It is sometimes convenient to give the annual cost of energy in two part form. In this
case, the annual cost of energy is divided into two parts via a fixed sum per kW of
maximum demand plus a running charge per unit of energy. The expression for the
annual cost of energy then becomes :

• Total annual cost of energy

• = RM (A kW + B kWh)

• A = a constant which when multiplied by maximum kW demand on the station gives the annual
cost of the first part.
• B = a constant which when multiplied by the annual kWh generated gives the annual running
cost.
 Basic Economics of Power Generation

• Determining the cost per unit (1 kWh) of production of electrical energy is known
as the economics of power generation.
• Demand for electricity at a moderate rate is a driving force for the development
and construction of power generating facilities that produce electricity at an
acceptable rate to consumers.
• Terms often used in the subject of economics include interest and depreciation.
• Constructing a power station involves investing a large amount of capital in the
project.
• This is generally borrowed from banks or other financial institutions and the plant
owner has to pay an annual interest on the borrowed amount.
• As such, when calculating the cost of production of electricity in a facility, the
interest payable on the capital investment must be included.
 Basic Economics of Power Generation -
Depreciation

• Depreciation refers to the decrease in the value of the power plant equipment
and building due to continuous operation.
• If the power station equipment were permanent, then interest on the capital
investment would be the only cost to be incurred.
• However, although every power station has a useful life ranging from 50 to 60
years, from the time the power station is constructed, its equipment steadily
deteriorates due to wear and tear resulting in a gradual reduction in the value of
the plant.
• This reduction in the value of the facility year on year is known as the annual
depreciation.
 Basic Economics of Power Generation -
Depreciation
• Due to depreciation, a plant has to be replaced by a new one after its useful life
ends.
• Therefore, theoretically, suitable amounts of income must be set aside annually
(the so called depreciation charge) in order that by the time the plant retires, the
collected amount, by way of depreciation, equals the cost of a replacement
facility.
• It is thus important that while determining the cost of production, annual
depreciation charges be included.
 Basic Economics of Power Generation -
Depreciation
Straight Line Method
•In the straight line method, a constant depreciation charge is made every year on the
basis of total depreciation and the useful life of the property; that is, the annual
depreciation charge would be equal to the total depreciation divided by the useful life
of the plant.
•Annual depreciation charge = (𝑃 − 𝑆) / 𝑛

where: P = initial cost of equipment, S = salvage value at end of life, and n = useful life
in years

•However, this method has two major shortcomings which are: the assumption of a constant
depreciation charge year on year which may not be accurate and also the method does
not account for the interest charge, which may be drawn during accumulation.
The figure shows the graphical
representation of the method. It is
clear that initial value P of the
equipment reduces uniformly, through
depreciation, to the scrap value S in
the useful life of the equipment. The
depreciation curve (PA) follows a
straight line path, indicating constant
annual depreciation charge. However,
this method suffers from two defects.
Firstly, the assumption of constant
depreciation charge every year is not
correct. Secondly, it does not account
for the interest which may be drawn
during accumulation
 Basic Economics of Power Generation -
Depreciation
Straight Line Method
• A transformer costing RM 1,000,000 has a useful life of 20 years. Determine the
annual depreciation charge using straight line method. Assume the salvage value
of the equipment to be RM 100,000.

Annual depreciation charge = (1,000,000 – 100,000) / 20 = RM 45,000

 Basic Economics of Power Generation -
Depreciation
Diminishing Value Method
•The depreciation charge is made every year at a fixed rate on the diminished value of the
equipment.
•In other words, the depreciation charge is first applied to the initial cost of equipment and
then to its diminishing value year on year.

•Value of equipment after one year = 𝑃 − 𝑃𝑥 = 𝑃 (1 − 𝑥)

•Value of equipment after 2 years = [𝑃 − 𝑃𝑥] − [(𝑃 − 𝑃𝑥)x]
= 𝑃 − 𝑃𝑥 − 𝑃𝑥 + 𝑃𝑥2 = 𝑃(𝑥2 − 2𝑥 + 1) = 𝑃 (1 − 𝑥)2
•So, value of equipment after n years = 𝑃 (1 − 𝑥)𝑛
𝑆 = 𝑃(1 − 𝑥)𝑛 𝑜𝑟 (1 − 𝑥)𝑛 = 𝑆/𝑃 𝑜𝑟 1 − 𝑥 = (𝑆/𝑃)1/𝑛 𝑜𝑟 𝑥 = 1 − (𝑆/𝑃) 1/𝑛

•Where P = capital cost of equipment, n = useful life of equipment and S = salvage/scrap

value at end of life, 𝑥 = annual unit depreciation
This method is more rational than the straight line method. The
figure shows the graphical representation of diminishing value
method. The initial value P of the equipment reduces, through
depreciation, to the scrap value S over the useful life of the
equipment. The depreciation curve follows the path PA. It is clear
from the curve that depreciation charges are heavy in the early
years but decrease to a low value in the later years. This method
has two drawbacks. Firstly, low depreciation charges are made in
the late years when the maintenance and repair charges are quite
heavy. Secondly, the depreciation charge is independent of the
rate of interest which it may draw during accumulation. Such
interest moneys, if earned, are to be treated as income.
 Basic Economics of Power Generation -
Depreciation
Sinking Fund Method
• A fixed depreciation charge is made every year and interest compounded on it
annually.
• The constant depreciation charge is such that the total of the annual installments plus the
interest accumulated equal the cost of replacement of equipment at end of life.
• Although this method is not applied/used frequently in the power generating industry, in
practical depreciation accounting, it is the fundamental method in economic studies.
• The economics of conventional thermal generation projects differ substantially from
those of intermittent, low marginal cost renewables such as solar and wind.
• The largest differentiator between conventional coal and gas projects tends to be the
cost of input fuels, which are highly localised
 Basic Economics of Power Generation -
Depreciation
Sinking Fund Method
• Cost of replacement = P − S
• Where P = Initial value of equipment, n = Useful life of equipment in years, S = Scrap
value after useful life and r = Annual rate of interest expressed as a decimal
• Amount q deposited at the end of first year becomes = q (1 + r)n−1
• Similarly amount q deposited at the end of n − 1 year becomes = q (1 + r) n−(n−1)
• Total fund = (q (1 + r)n - 1) / r
• This total fund must be equal to the cost of replacement of equipment i.e., P − S = (q (1 +
r)n - 1) / r
• Sinking fund, q = (P − S) (r / (1 + r)n - 1)
• Sinking fund factor = (r / (1 + r)n - 1)
 Basic Economics of Power Generation -
Depreciation
Sinking Fund Method
•A distribution transformer costs RM 1,000,000 and has a useful life of 20 years. If
the salvage value is RM 100,000 and rate of annual compound interest is 8%,
calculate the amount to be saved annually for replacement of the transformer after
the end of 20 years by sinking fund method.

Sinking fund = (1,000,000 – 100,000) ×(0.08 / (1 + 0.08)20 - 1)

= RM 19,667
 Basic Economics of Power Generation -
Depreciation
Exercise
• The equipment in a power station costs RM 2,000,000 and has a salvage value
of RM 150,000 at the end of 25 years. Determine the depreciated value of the
equipment at the end of 20 years on the following methods :
– Straight line method ;
– Diminishing value method ;
– Sinking fund method at 5% compound interest annually.
 Basic Economics of Power Generation -
Depreciation
Exercise
•The equipment in a power station costs RM 2,000,000 and has a salvage value of
RM 150,000 at the end of 25 years. Determine the depreciated value of the
equipment at the end of 20 years on the following methods :
– Straight line method ;

•Annual depreciation = (2,000,000 – 150,000) / 25 = RM 74,000

•Depreciated value after 20 years = 2,000,000 – (74,000 × 20) = RM 520,000
 Basic Economics of Power Generation -
Depreciation
Exercise
•The equipment in a power station costs RM 2,000,000 and has a salvage value of
RM 150,000 at the end of 25 years. Determine the depreciated value of the
equipment at the end of 20 years on the following methods :
– Diminishing value method ;

•Annual depreciation = 1 – (150,000 / 2,000,000)1/25 = 0.0984

•Depreciated value after 20 year = 2,000,000 × (1 – 0.0984) 20 = RM 251,946
 Basic Economics of Power Generation -
Depreciation
Exercise
•The equipment in a power station costs RM 2,000,000 and has a salvage value of
RM 150,000 at the end of 25 years. Determine the depreciated value of the
equipment at the end of 20 years on the following methods :
– Sinking fund method at 5% compound interest annually.

•Annual sinking fund = (2,000,000 – 150,000) ×(0.05/(1+0.05)25 – 1)

•= RM 38,762
•Sinking fund after 20 years = 38,762 × ((1+0.05)20 – 1)/0.05)
•= RM 1,281,702
•Depreciated value after 20 years = 2,000,000 – 1,281,702 = RM 718,297
 Costing of Electrical Power

• Electric power is provided to end users by power plants that are often located in
remote areas, far from the point of consumption.
• The economics of such facilities are largely dependent on cost.
• As with other production technologies, power generation entails fixed and
variable costs.
• The fixed costs of power generation are essentially capital and land costs.
• The capital cost of building a power plant varies from region to region, largely
as a function of labor and regulatory costs, which include obtaining siting
permits, environmental risk assessments and approvals, and so on.
Costing of Electrical Power
 Costing of Electrical Power
• Operating costs for a power plant include fuel, labour and maintenance costs.
• Unlike the fixed capital costs, total operating costs depend on how much electricity the
plant generates and sells.
• The operating cost required to produce each MWh of electric energy is referred to as
the marginal cost.
• Fuel costs dominate the total cost of operation for fossil-fired power plants.
• For example, a 100 MW power station operating at 50% load factor may burn about
20,000 t of coal per month and produce ash to the tune of 10–15% of the fired coal,
that is 2,000–3,000 t of ash.
• In fact, in a thermal station, about 50–60% of the total operating cost consists of coal
purchasing and handling.
• For renewables, fuel is generally free (with the exception of biomass power plants and
depending on the source) and the fuel costs for nuclear power plants are a minor
proportion of total generating costs.
 Costing of Electrical Power

• For coal-fired power plants, the fuel, labour and maintenance costs dominate the
total operating costs.
• In general, power generating facilities face a trade-off between capital and
operating costs.
• Plants that have higher capital costs tend to have lower operating costs.
• Furthermore, fossil-fuel fired plants tend to have operating costs that are
extremely sensitive to changes in the underlying fuel price.
• The typical ranges for operating costs for various types of power plants are also
shown in Table 3.
• The apparent trade-off between capital and operating costs of the different
technologies, makes comparing the overall costs of different power plants somewhat
difficult.
 Costing of Electrical Power

• In general, power plants costs are compared using a measure called the levelised
cost of energy (LCOE).
• According to the EIA (2015), LCOE is often cited as a convenient summary measure
of the overall competiveness of different generating technologies.
• It represents the per-kilowatt hour (kW) cost (in real US$) of building and operating
a generating plant over an assumed financial life and duty cycle.
• Key inputs to calculating LCOE include capital costs, fuel costs, fixed and variable
operations and maintenance (O&M) costs, financing costs, and an assumed utilisation
rate for each plant type.
• The importance of the factors varies among the technologies.
 Costing of Electrical Power

• LCOE changes in rough proportion to the estimated capital cost of generation

capacity.
• For technologies with significant fuel cost, both fuel cost and overnight cost estimates
affect LCOE significantly.
• Overnight cost, a terminology used frequently to describe power plants, is the cost of
constructing a project if no interest was incurred during construction, as if the project
was completed "overnight".
• The unit of measure typically used when citing the overnight cost of a power plant is
$/kW.
• The availability of incentives such as tax credits, can also impact the calculation of
LCOE.
• As with any projection, there is uncertainty about all of these factors and their values
can vary regionally and across time as technologies evolve and fuel prices change.
 Costing of Electrical Power – Impact of
Generators
• ramp rate: a variable that influences how quickly the plant can increase or decrease power output,
in MW/h or in % of capacity per unit of time;
• ramp time: the amount of time (hours) it takes from the moment a generator is turned on, to the
moment it can start providing energy to the grid at its lower operating limit (see below);
• capacity: the maximum output of a plant, in MW;
• lower operating limit: the minimum amount of power a plant can generate once it is started, in MW
• minimum run time: the shortest amount of time (hour) a plant can operate once it is started;
• no load cost: is the cost of starting the plant, but keeping it ‘spinning,’ ready to increase power
output, in US$/MWh. Another interpretation of the no load cost is that it is the fixed cost of
operation; that is, the cost incurred by the generator that is independent of the amount of energy;
• start-up and shut-down costs: are the costs involved in starting the plant and shutting down
operations, in US$/MWh.
 Costing of Electrical Power – Impact of
Generators
• The minimum run time and ramp times determine the flexibility of the generation source;
they vary greatly in different plants and are a function of regulations, type of fuel, and
technology.
• In general, less flexible plants that require longer minimum run times and have slower
ramp times serve as baseload energy, while more flexible plants that require shorter
minimum run times and have quicker ramp times are better suited to satisfying peak
demand.
• Table 4 and Figure 10 show approximate (order of magnitude) minimum run times and
ramp times for several generation technologies.
• It is important to note that, in some sense, these are ‘soft’ constraints, that is changeable
constraints as it is possible, for example, to improve a coal-fired power plant flexibility
although, unless closely monitored and checked, this may impose a large cost in the form of
wear and tear on the plant components.
Costing of Electrical Power – Impact of
Generators
Costing of Electrical Power – Impact of
Generators
 Costing of Electrical Power – Impact of
Generators
• Start-up time represents the time required for a plant to start-up and in particular to synchronise the
generator to the grid frequency and thus deliver load in the following time periods.
• Main impacts and restrictions for start-up times are thermal stress through extreme temperatures and
pressure differences within the thick-walled components of a furnace.
• This is especially the case for baseload power plants with attached steam cycles.
• The start-up time is (among other factors) a function of the state (that is, warmth) of a unit, which may
include cold, warm and hot start-ups: a cold start is when a power plant has been shut down for more
than 50 hours, a warm start is when a power plant has been turned off for >8 hours and <50 hours
and a hot start is when a power plant has been switched off within 8 hours of the next start-up.
• Hot starts are a characteristic of power plants running in a daily cycling mode which are shut down over
night and start generation in the morning.
 Costing of Electrical Power – Impact of
Generators
• Start-up costs are determined by three main factors (Schröder and others (2013):
– Costs of start-up fuels, auxiliary electricity requirements, chemicals and additional
manpower necessary for unit start-up. In general, the use of fuel and manpower is
higher while synchronising turbine and generator, and during the subsequent process
of adjusting and controlling steam pressure and temperature.
– Depreciation of the components exposed to wear along with higher maintenance,
overhaul capital expenditures, unit life shortening, and increased forced outage
rates.
– Lost profits due to lower part load efficiency of power plants when ramping.
 Costing of Electrical Power – Impact of
Generators
• Areas with the greatest potential for adverse effects due to cycling for coal-fired
power plants are the boiler and steam turbine systems.
• When the plant is called upon to operate frequently at rapidly variable output and
with frequent shut-downs and start-ups, resultant changes in temperature and
pressure give rise to increased stresses on their various components.
• The consequences are reduced life, reduced performance and increased costs.
 Costing of Electrical Power – Impact of
Generators
• In the absence of sufficient large-scale electricity storage capability, coal (and gas) fired units in
some countries, such as Germany, are required to deliver greatly varying output to enable the
grid system to meet demand at all times.
• Flexible operation adds thermal and mechanical fatigue stresses to the creep damage that occurs
anyway with time in the pressure parts of a pulverised-coal-fired power plant.
• Creep and fatigue are terms commonly used in engineering mechanics. Creep is time-dependent
change in the size or shape of a material due to constant stress (or force) on that material.
• In fossil-fuelled power plants, creep is caused by continuous stress that results from constant high
temperature and pressure in a pipe or a tube occurring during steady state baseload operation.
• Fatigue is a phenomenon leading to fracture (failure) when a material is under repeated,
fluctuating stresses.
 Costing of Electrical Power – Impact of
Generators
• In a fossil-fuelled power plant, such fluctuating stresses result from large transients in
both pressures and temperatures.
• These transients typically occur during cyclic operation.
• The term creep fatigue interaction suggests that the two phenomena (creep and
fatigue) are not necessarily independent, but act in a synergistic manner to cause
premature failure.
• Materials behave in a complex manner when both types of stresses occur.
• Creep-fatigue interaction is one of the most important phenomena contributing to
component failures and can have a detrimental effect on the performance of metal
parts or components operating at elevated temperatures.
• Creep strains (that is, mechanical deformation as a result of stress) can reduce
fatigue life and that fatigue strains can reduce creep life.
 Costing of Electrical Power – Impact of
Generators
• These, together with corrosion, differential expansion, and other effects, often
synergistically, result in a reduction of the expected life of such components, which are
designed for baseload operation.
• Means of increasing flexibility that were constrained by non- life limiting
considerations, such as better firing systems and better auxiliary motor drive systems,
have been devised.
 Costing of Electrical Power – Impact of
Generators

• There are many features in specific pulverised-coal power plant areas that can be incorporated to
give better flexibility, including:
• Boiler firing systems – changing the size and number of mills and fitting of modern burners to
achieve lower fuel feed rates to reduce number of shut-downs; introduction of lignite pre-drying
(efficiency also improved); installation of hoppers and associated pipework to achieve indirect
firing (efficiency at part load is then also improved).
• Boiler pressure parts – use of alloys of improved strength to permit thinner section components;
installation of external steam preheating to reduce start-up time; reducing minimum load through
means such as modified evaporator designs, economiser water-side bypasses together with
feedwater recirculation, and increasing the mass flow in the evaporator to achieve greater
stability.
 Costing of Electrical Power – Impact of
Generators
• Ensuring emissions control systems remain effective – installing means to maintain selective
catalytic reduction (SCR) NOx control system exit temperature within specification at part load
to avoid catalyst blocking and damage to the air heater; minimising shut-downs and start-ups
of flue gas desulphurisation (FGD) systems, and modernising control systems to reduce energy
demand; for dust separation devices, ensuring adequate temperatures to avoid moisture
condensation on particles.
• Turbine and water-steam systems – providing a turbine bypass so that the rate of steam
temperature change can be managed as the boiler is starting up and shutting down, to reduce
thermal stresses; use of a steam-cooled turbine outer casing to allow thinner sections for faster
start-up; use of sliding pressure boiler-turbine systems for better control of turbine
temperatures and reduced stresses; adding feedwater heater bypasses for greater load
range; providing condensate throttling, feedwater heater bypass or HP stage bypass for
frequency control; adding thermal (feedwater) storage systems for greater load range or
frequency control.
 Costing of Electrical Power – Impact of
Generators
• Control systems – installing new boiler control systems; installing new turbine monitoring and
control systems; installing new self-learning control systems that co-ordinate the main plant
systems by using predictive algorithms.
• Auxiliary plant – using flexible drives.
• Modifying plant configuration – retrofitting gas turbines integrated with the existing water-
steam cycle for efficiency increase and increased output range and ramp rate.
 Importance of High Load Factor

The load factor plays a vital role in determining the cost of energy. Some important
advantages of high load factor are listed below :

• (i) Reduces cost per unit generated :

• A high load factor reduces the overall cost per unit generated. The higher the load factor, the
lower is the generation cost. It is because higher load factor means that for a given maximum
demand, the number of units generated is more. This reduces the cost of generation.

• (ii) Reduces variable load problems :

• A high load factor reduces the variable load problems on the power station. A higher load
factor means comparatively less variations in the load demands at various times. This avoids the
frequent use of regulating devices installed to meet the variable load on the station.
 Importance of High Load Factor

• A generating station has a maximum demand of 50,000 kW. Calculate the cost
per unit generated from the following data : Capital cost = RM 2,000,000 ;
Annual load factor = 40%; Annual cost of fuel and oil = RM 200,000 ; Taxes,
wages and salaries etc. = RM 100,000; Interest and depreciation = 12%
 Importance of High Load Factor

A generating station has a maximum demand of 50,000 kW. Calculate the cost per unit generated
from the following data : Capital cost = RM 10,000,000 ; Annual load factor = 40%; Annual cost of
fuel and oil = RM 600,000 ; Taxes, wages and salaries etc. = RM 500,000; Interest and
depreciation = 12%

• Units generated/annum = Max. demand × L.F. × Hours in a year

(50,000) × (0·4) × (8760) kWh = 17.52 × 107 kWh
• Annual fixed charges
• Annual interest and depreciation = 12% of capital cost
= RM 0.12 × 10,000,000 = RM 1,200,000
• Annual Running Charges
• Total annual running charges = Annual cost of fuel and oil + Taxes, wages etc.
• = RM (600,000 + 500,000) = RM 1,100,000
• Total annual charges = RM (1,200,000 + 1,100,000) = RM 2,300,000
• Cost per unit = RM (2,300,000/17.52 × 107) = RM 0.013
 Importance of High Load Factor

A generating station has an installed capacity of 50,000 kW and delivers 220 ×

106 units per annum. If the annual fixed charges are RM 100 per kW installed
capacity and running charges are 1 sen per kWh, determine the cost per unit
generated.
 Importance of High Load Factor

A generating station has an installed capacity of 50,000 kW and delivers 220 × 106 units
per annum. If the annual fixed charges are RM 100 per kW installed capacity and running
charges are 1 sen per kWh, determine the cost per unit generated.

• Annual fixed charges = RM 100 × plant capacity = RM 100 × 50,000 kW = RM 5,000,000

• Annual running charges = RM 0.01 × 220 × 106 = RM 2,200,000
• Total annual charges = RM (5,000,000 + 2,200,000) = 7,200,000
• Cost per unit = RM (7,200,000 / 220 × 106 ) = RM 0.03
 Example
• A generating plant has a maximum capacity
of 100 kW and costs RM 160,000. The annual
fixed charges are 12% consisting of 5%
intererst, 5% depreciation and 2% taxes. Find
the fixed charges per kWh if the load factor is
(i) 100% and (ii) 50%.
 SOLUTION

Maximum demand = 100 kW, Annual fixed charges = RM 0·12 × 160,000 = RM

19,200
(i) When load factor is 100%
Units generated/annum = Max. demand×L.F.×Hours in a year =
100 × 1 × 8760 = 876,000 kWh
Fixed charges/kWh = RM 19,200/ 876,000 = RM 0·0219 = 2·19 sen
(ii) When load factor is 50%
Units generated/annum = 100 × 0·5 × 8760 = 438,000 kWh
Fixed charges/kWh = Rs 19 200/ 438,000 = RM 0·0438 = 4·38 sen
It is interesting to note that by decreasing the load factor from 100% to 50%, the fixed
charges/ kWh have increased two-fold. Incidentally, this illustrates the utility of high
load factor
 EXAMPLE
• Estimate the generating cost per kWh delivered from a
generating station from the following data : Plant capacity
= 50 MW ;Annual load factor = 40% Capital cost =
RM12mill; annual cost of wages, taxation etc. = RM 400k;
cost of fuel, lubrication, maintenance etc. = 1·0 sen/kWh
generated. Interest 5% per annum, depreciation 6% per
annum of initial value.
 SOLUTION

The maximum demand on the station may be assumed equal to the plant capacity i.e.,
50 MW.
Annual fixed charges
Interest and depreciation = RM 120 × 10e5 × (5 + 6)/100 = RM 13·2 × 105 Wages
and taxation = RM 4 × 10e5
Total annual fixed charges = RM {(13·2 × 10e5) + (4 × 10e5 )} = RM 17·2 × 10e5

Annual running charges

Units generated/annum = Max. demand × L.F. × Hours in a year = (50 × 10e3 ) ×
(0·4) × (8760) kWh = 1752 × 105 kWh
Cost of fuel, lubrication etc. = RM 1752 × 10e5 × 0·01 = RM 17·52 × 10e5
Total annual charges = RM {(17·2 × 10e5) + (17·52 × 10e5 )} = RM 34·72 × 10e5
∴ Cost per kWh = RM 34.72 ×10e5 / 1752 ×10e5 = RM 0·02 = 2 sen