- Cost of Electrical Energy Definition: The cost of electrical energy involves fixed, semi-fixed, and running costs associated with generating electricity.
- Fixed Costs: These are constant expenses, such as operational costs, interest, rent, and salaries, that do not change with the amount of electricity produced.
- Semi-fixed Costs: These depend on the plant size and its capacity to meet peak demand, covering capital investment interest, taxes, and management salaries.
- Running Costs: These vary with the amount of electricity generated and include fuel, maintenance, and operating staff salaries.
- Cost Calculation: The total cost per unit of electricity combines fixed, semi-fixed, and running costs, with expressions used to calculate these annually.
There are three kinds of expenditures involved in generating electricity. These are fixed cost, semi-fixed cost, running or operating cost.
Fixed Cost of Electricity
In every manufacturing unit, there are fixed costs. These costs remain the same whether one unit or a thousand units are produced. In an electric generating station, fixed costs are independent of the amount of electricity produced. These include annual operational costs, interest on capital, land rent, salaries of high officials, and loan interests. Many other expenses also remain constant regardless of the rate of production of electrical energy.
Semi-fixed Cost of Electricity
There is another type costing for any manufacturing or production or any similar type of industries. These costs are not strictly fixed and also not fully dependent on the number of items manufactured or produced. These costs depend on the size of the plant. These actually depend on the assumption of a maximum number of items which can be produced from the plant at a time during peak demand period. That means the forecasted production demand of the plant determines how big will be the manufacturing or production plant. Likewise, the size of an electrical generating plant depends on the maximum demand of the connected load of the system. If the maximum demand of the load is quite higher than the average demand of the load, then the power generating plant should be constructed and well equipped to fulfill that maximum demand of the system even the peak demand lasts for less than an hour. This type of costs is referred as semi-fixed cost. It is directly proportional to the maximum demand on the power station. The annual interest and depreciation on capital investment of building and equipment, taxes, salaries of management and clerical staff, expenditure for installation etc. come under semi-fixed costs.
Running Cost of Electricity
Running costs are straightforward. They depend on the number of units generated. In a power generating plant, the main running cost is the fuel burned per unit of electrical energy. Other running costs include lubricating oil, maintenance, repairs, and operating staff salaries. These costs are directly proportional to the number of units generated. More units require higher running expenditures and vice versa.
This covers the basic concept of the cost of electrical energy.
Expressions for Cost of Electrical Energy
The total cost of per unit generation of electrical energy can be expressed in the following ways.
First, calculate the plant’s total expenditure, including the organization’s fixed yearly costs. Let’s call this amount ‘a’. This represents the fixed cost for the entire year’s electrical energy production.
In the same way, we have to calculate the total semi-fixed cost of the plant throughout the year. The semi-fixed cost is proportional to maximum demand of the plant. So, we have to find the maximum demand of the year. So the proportionality constant b can easily be calculated. Therefore, the semi-fixed cost of the plant for the year is b(maximum demand kilowatt).
Now, we will calculate entire running expenses of the plant for producing total kWh units of energy generated in the year. If c is the running cost per unit of generated electricity then 0
Total cost of the plant for producing entire electric throughout the year is
Sometimes it is assumed that entire capital cost and other costs except for the running expenses for producing electricity entirely depend on the maximum demand of the plant. In that case, it is assumed that there is no absolute fixed cost. The expression for the annual cost of energy then becomes
Where A is the cost per unit /maximum demand and B is the running cost of producing one unit of electrical cost.
