Power Generation Economics : Concepts - 4

(B) Variable Cost :

These costs vary in some proportion of the power generated in a plant. These costs consist of

(i) Cost of fuel :

Cost of fuel is directly related with the amount of power generated. For generating more power, more fuel is required. Cost of fuel may be 10% to 25% of the total cost of production. In case of hydroelectric plants the cost of fuel is zero.

(ii) Maintenance and Repair Charges:

In order to keep the plant in running condition, certain repairs are always needed. Stock of some consumable and non- consumable items has got to be maintained. All chargers for such staff are considered as operating costs.

(iii) Wages:

Salaries including allowances bonus, benefits etc. for the workers are considered as operating costs.

Total cost of production is thus sum of the fixed charges and the operating charges. As the plant load factor improves, the cost per kWh decreases. The sum of the charges for various factors will give an optimum load factor where such charges will be least.

Tariff :

A tariff is the rate of charge per kilowatt hour of energy supplied to a consumer. The cost of generation of electrical energy may be conveniently split into two parts e.g. fixed charges plus the operating charges. So a tariff should be adjusted in such a way that the total receipts balance the total expenditure involved in generating the energy. There are several solutions to this problem, some of which are given below :

1. Uniform Rate Tariff :

In this case there is a fixed rate per unit amount of energy consumed. The consumption of energy is measured by the energy meter installed at the premises of the consumer. This type of tariff accounts for all the costs involved in the generation of power. This is the simplest tariff easily understood by consumers. However, this type of tariff does not distinguish between small power domestic consumer and bulk power industrial consumers.

2. Two Part Tariff:

In this the total charges are split into two parts - fixed charges based on maximum demand (in kW) plus the charges based on energy consumption (in kWh). This method suffers from the drawback that an additional provision is to be incorporated for the measurement of maximum demand. Under such tariff, the consumers having 'peaked' demand for short duration are discouraged.

3.Block Rate Tariff:

In this the fixed charges are merged into the unit charges for one or two blocks of consumption, all units in excess being charged at low or high unit rate. Lower rates for higher blocks are fixed in order to encourage the consumers for more and more consumptions. This is done in case the plant has got larger spare capacity. Wherever the plant capacity is inadequate, higher blocks are charged at higher rate in order to discourage the consumers for higher than minimum consumption.

4. Three Part Tariff :

It is an extension of the two part tariff in that it adds to the consumer some fixed charges irrespective of the energy consumption or maximum demand. In this ever if the consumer has got zero power consumption, he has to pay some charges merely because a connection has been provided to him.

5. Power Factor Tariff :

In ac power supply size of the plant is determined by the kVA rating. In case the power factor of a consumer installation is low, the energy consumption in terms of kW will be low. In order to discharge such consumers, power factor tariff is introduced, which may be of the following types.

(a) Maximum kVA demand Tariff :

In this instead of kW. the kVA consumption is measured and the charge are Based partly or fully on this demand.

(b) Sliding Scale tariff :

In this case the average power factor is fixed say at 0.8 lagging. Now if the power factor of a consumer falls below by 0.01 or multiples there of, some additional charges are imposed. A discount may be allowed in case the power factor is above 0.8.

The depreciation on the plant is charged by any of the following methods
1. Straight Line method
2. Sinking fund method


3. Diminishing value method.

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