In general the cost of generating electrical energy can be divided into the following three elements: 1. Fixed Cost 2. Semi-Fixed Cost 3. Running or Operating Cost.
Type # 1. Fixed Cost:
This cost is independent of maximum demand and energy output. It is due to the annual cost of central organisation, interest on the capital cost of land (especially if some land is held for future development) and salaries of high officials.
The annual expenditure on 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 energy (units). Further, the capital investment on the land is fixed and hence the amount of interest is also fixed.
Type # 2. Semi-Fixed Cost:
This cost depends upon the maximum demand but is independent of energy output. The semi-fixed cost is due to annual interest and depreciation on the capital cost of the generating plant, transmission and distribution network, buildings and other civil works, all types of taxes and insurance charges and salaries of management and clerical staff. Also yearly compensation given to the workers is included under this head. The semi-fixed cost is approximately proportional to maximum demand.
ADVERTISEMENTS:
The size and cost of the installation is governed by the maximum demand on the power plant. The greater the maximum demand on the power plant, the greater is its size and cost of installation. Further, the taxes, insurance charges and the strength of clerical staff depend upon the size of the plant and hence upon the maximum demand.
Type # 3. Running or Operating Cost:
This cost depends upon the number of hours the plant is in operation or upon the number of units of electrical energy generated. The running or operating cost is due to annual cost of fuel, lubricating oil, water, maintenance and repair cost of equipment and wages and salaries of operational and maintenance staff and salaries of supervisory staff engaged in the running of the plant. The operating cost is approximately proportional to units generated.
Total annual cost incurred in the power generation is represented by the expression:
E = a + b kW + c kWh
ADVERTISEMENTS:
Where a, b and c are constants. Fixed and semi-fixed cost being independent of the amount of energy generated is also called “standing cost”.
In deciding any scheme for any given service the choice must be such that the total operating cost (sum of annual fixed cost, semi-fixed cost and operating cost) be minimum.