New Horizon Institute of Technology & Management

Program: (BE-Choice Based)

Academic Year: 2019-20         
Class: BE Semester: VII

Course Name:  (Power Plant Engineering)         

Course Code: (MEDLO8041)

Presented By: Mr.Dayanand D More
Designation:Assistant Professor
Department:Mechanical

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©New Horizon Institute of Technology and Management,
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 New Horizon Institute of Technology & Management

Module No: VI
Module Title: Economics of Power Plant
Part -I

Topics to be covered:
1.Introduction
2.Cost analysis

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©New Horizon Institute of Technology and Management,
Thane
New horizon Institute of Technology and Management
Thane(Mumbai)

Module 6:-Power Plant Economics

Mr.Dayanand D More
Assistant Professor
Mechanical Department
POWER PLANT ECONOMY

 The main purpose of design and operation of the

plant is to bring the cost of energy produced to
minimum.

 Effective utilization of resources, minimize the

losses in order to increase the profit of the power
corps
COST ANALYSIS

 Capital Cost /
OPERATIONAL COST
FIXED COST / CAPITAL COST

 The cost analysis of power plant includes fixed cost

and running cost.
1. Fixed cost:
(i) Land, building and equipment cost:
 Cost of land and building will depend upon the
location of the plant. If the plant is situated near the
cities, the land will be costlier than the case if it is
located away from the cities.
 The cost of equipment or the plant investment cost
is usually expressed on the basis of kW capacity
installed.
(ii) Interest:

 All the enterprises need investment of money and

this money may be obtained as loan, through bonds
and shares, or from owners of personal funds.
 The interest on the capital investment must be
considered because otherwise if the same amount
was not invested in power plant, it would have
earned an annual interest.
 A suitable rate of interest must be considered on
the capital invested.
(iii) Depreciation cost:
 Depreciation accounts for the deterioration of the
equipment and decrease in its value due to
corrosion, weathering, and wear and tear with use.
 It also covers the decrease in value of equipment
due to obsolescence. It is required to replace the
generating plant machinery after its expiry of useful
life.
 Therefore, a certain amount is kept aside every
year from the income of the plant to enable the
replacement of plant at the end of its useful life.
This amount is called depreciation amount.
 The following methods are used to calculate the
depreciation amount:
 Straight line method
 Sinking fund method
 Diminishing value method
Let P = Initial cost of plant
S = Salvage value at the end of the plant life,
n = Plant life in years,
r = Annual rate of interest on the
invested capital,
A = The amount to be kept aside per year as
depreciation amount.
(a) Straight line method:
 According to this method, annual amount to be set aside is
calculated by using following formula:
P-S
A=
n
 In this method, the amount set aside per year as depreciation
fund does not depend on the interest it may draw. The interest
earned by the depreciation amount is taken as income.
 This method is commonly used because of its simplicity.
(b) Sinking Fund Method:
 In this method, the amount set aside per year consists
of annual installations and the interest earned on all
the installments.

(C) DIMINISHING VALUE METHOD:

 In this the in value of equipment

method
from year to deterioration into account and
amount of depreciation
year is calculated
taken the upon actual
value for each year. It thus,residual
reduces for successive years.
(iv) Insurance:
The costly equipment and the buildings must
be insured for the fire risks, riots etc. A fixed sum is
set aside per year as insurance charges. The
insurance charge depends upon the initial cost of the
plant and the insurance coverage.

(v) Management cost:

This includes the salaries of management,
security and administrative staff, etc. working in the
plant. This must be paid whether the plant is working
or not. Therefore, this is included in fixed charges of
the plant.
 In a thermal station fuel is the heaviest item of operating
cost. The selection of the fuel and the maximum
economy in its use are, therefore, very important
considerations in thermal plant design.
 It is desirable to achieve the highest thermal efficiency
for the plant so that fuel charges are reduced.
 The cost of fuel includes not only its price at the site of
purchase but its transportation and handling costs also.
 In the hydro plants the absence of fuel factor in cost is
responsible for lowering the operating cost.
 Plant heat rate can be improved by the use of better
quality of fuel or by employing better thermodynamic
conditions in the plant design.
 The cost of fuel varies with the following:
(1) Unit price of the fuel.
(2) Amount of energy produced.
(3) Efficiency of the plant.
 For plant operation labour cost is another item
of operating cost. Maximum labour is needed
in a thermal power plant using. Coal as a fuel.
 A hydraulic power plant or a diesel power
of equal capacity requires a lesser number
plant
persons.
of
 In case of automatic power station the cost of
labour is reduced to a great extent. However
labour cost cannot be completely eliminated
even with fully automatic station, as they will
still require some manpower for periodic
inspection etc.
COST OF MAINTENANCE AND REPAIRS

 In order to avoid plant breakdowns maintenance

is necessary. Maintenance includes periodic
cleaning, greasing, adjustments and overhauling
of equipment.
 The material used for maintenance is also
charged under this head. Sometimes an arbitrary
percentage is assumed as maintenance cost.
 A good plan of maintenance would keep the sets
in dependable condition and avoid the necessity
of too many stand-by plants. Repairs are
necessitated when the plant breaks down or
stops due to faults developing in the mechanism.
 The repairs may be minor, major or periodic
overhauls and are charged to the depreciation
fund of the equipment.
 This item of cost is higher for thermal plants
than for hydro-plants due to complex nature of
principal equipment and auxiliaries in the former.
 COST OF STORES

 The items of consumable stores other than fuel include such

articles as lubricating oil and greases, cotton waste, small
tools, chemicals, paints and such other things.
 The incidence of this cost is also higher in thermal
stations
than in hydro-electric power stations.

SUPERVISION
 In this head the salary of supervising staff is included. A good
supervision is reflected in lesser breakdowns and extended
plant life.
 The supervising staff includes the station superintendent,
chief engineer, chemist, engineers, supervisors, stores
incharges, purchase officer and other establishment.
 Again, thermal stations, particularly coal fed, have a greater
incidence of this cost than the hydro-electric power stations.
TAXES

 The taxes under operating head includes the

following:
(i) Income tax
(ii) Sales tax
(iii) Social security and employee’s security etc.
(iv) Recently added goods and service tax(GST)
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