 Hello everyone. Myself, Dr. Sunil Dutta and Kulkarni, Assistant Professor, Department of Mechanical Engineering, Vajchan Institute of Technology, Solaapur. Today I am going to deliver a video session on Economics of Power Plant. At the end of this session, the student will be able to explain how to calculate the cost of electrical energy, differentiate between fixed cost and operating cost, state various components of fixed and variable cost. Contents of this video session are economics of power plant, cost of electrical energy, fixed and operating cost and depreciation. Now let us see the introduction. What do you mean by economics of power generation? A power station is required to deliver a power to a large number of consumers to meet their requirements. The consumers can be domestic or residential, industrial, commercial and many other types of consumers are there. So when we need to deliver a power, the power station should be able to deliver a power with as per the requirement of the consumer and at a reasonable cost. So while designing and building a power station, the effort should be always made to achieve a overall economy so that the per unit cost of production is as low as possible. This will enable the electric supply company that is electric generation company to sell the 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 the power engineers. There are several factors which influence the production cost of electrical energy 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 of electrical energy. Hence we need to focus on the various aspects of economics of power generation. Now let us see the definition of economics of power generation. The art or even we can say the science of determining the per unit cost. Per unit means we know that the electrical energy is measured with the unit 1 kilowatt hour. 1 kilowatt hour equals 1 unit. So the art of determining the per unit cost of production of electrical energy is known as economics of power generation. A consumer will use electric power only if it is supplied at reasonable rate. Therefore, the power engineers have to find convenience methods to produce electric power as cheap as possible so that consumers are tempted to use electrical energy. Following terms are used in connection with economics of power generation. The first term is capital cost. Now whenever the power plant is to be designed and developed, the capital cost is involved. The capital cost of the plant consists of expenses for planning and designing of the plant. Now when we say the planning, it means we need to plan the power plant capacity for meeting minimum 10 years of future requirement. So based on that, the calculations are to be made and designing is to be carried out for the required capacity of the power plant. Then land and preparation of site. So cost of land plus preparation of site including the rail road connections etc. Then building and machinery foundation including the cost of equipment. Then plant equipment including the transport expenses to the site. Erection and testing of the equipment and interest during construction. Now this interest is the interest for the payments made before commissioning of the plant. So capital cost is the huge cost which consists of the various components just now as we have discussed. Now next will be the fixed cost. Now when the plant starts commissioning, it always consists of the fixed cost. The fixed cost consists of annual cost of interest, depreciation, insurance and taxes on the property. Now interest is what? The cost of use of money is known as interest. As we know that whenever we borrow money, we require to pay the cost for that particular money which is borrowed. So that we call it as interest. A power station is constructed by investing a huge capital amount. So this money is generally borrowed from banks or other financial institution and the supply company has to pay the annual interest on this amount. The rate of interest depends upon the market position and other factors and it may vary from 4 to 8% per annum. Depreciation. Now we know that whenever we use any equipment or building, then there is a decrease in the value of that particular equipment and building. Similarly in case of power plant, the equipment and building cost or value will decrease due to constant use and it is known as depreciation. So what we need to consider to account for the depreciation? Let us pause the video and let us think for a while. So we know that every power station will have a certain useful life ranging from 50 to 60 years. So from the time the power station is installed, its equipment steadily deteriorates due to wear and tear so that there is a gradual reduction in the value of the plant. So this reduction in the value of the plant every year is known as annual depreciation. Due to depreciation, the plant has to be replaced by new one after its useful life. Therefore suitable amount must be set aside every year so that by the time when the plant retires or when the useful life of the plant is expired the collected amount by way of depreciation equals the cost of replacement. Therefore it becomes obvious that while determining the cost of production the annual depreciation charges must be included. Now let us come to the operating cost. It is a cost which depends only upon the number of units generated. The operating cost is on account of annual cost of fuel, lubricating oil, maintenance, repairs and salaries of the operating staff including various other chemicals etc. Now since these charges depend upon the energy output the operating 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 operating cost or running cost and vice versa. Now let us see lastly how to calculate the cost of electrical energy. The total annual cost can be calculated in a power plant as follows. The equation can be written as CT which stands for total cost equal to I plus D plus T divided by 100 into CC plus W plus R plus M plus CF. Now let us try to understand the meaning of these terms. So CT as I have told you is the total annual cost. I stands for interest percentage, D stands for depreciation percentage, T stands for taxes and insurance. I have combined both them in single term for convenience. CC is the capital cost. So if we go back and see this equation. So interest plus depreciation plus taxes and insurance their percentage is divided by 100. These are in fixed proportion with the capital cost of the plant. Now plus when we go to the operating cost it is wages and salaries W, R is for repairs and maintenance and M stands for miscellaneous. And CF is the fuel cost which also comes under the operating cost. Therefore the annual cost of electrical energy sent out by a power plant that is kilowatt hour net is given by. Now why we are writing net? I will explain you because out of the total installed capacity if we run the plant for 8760 hours then this will be the total unit generated. Out of which some are consumed by the auxiliary equipments which are present in the power plant as well as the plant may not operate for 8760 hours of the year. And therefore the kilowatt hour net is given by where N is actually the capacity factor. So kilowatt hour net is given by kilowatt hour install into 8760 into bracket 1 minus L auxiliary divided by 100 into N. So therefore kilowatt hour install is the installed output of generators. L auxiliary is power consumption by auxiliary in percentage. N is the plant capacity factor which is nothing but the average load upon plant capacity. And then in order to calculate the electric power cost to the consumer in addition to the production cost we need to consider the transmission cost, distribution cost. Because now in this particular equation we have considered only the cost of production of electrical energy but power stations are usually located far away from the consumer. So this power generated has to be transmitted as well as to be distributed to the load or to the consumers at the load point. And therefore whenever we consider the electric power cost to the consumer in addition to the production cost we need to add transmission cost, distribution cost, administrative expenses and return on investment or profit. These have to be taken into consideration. These are the references. Thank you.