1) The location of power plants depends on several factors including availability of cooling water, fuel sources, distance from load centers, and environmental considerations. 2) The total annual cost of a power plant is determined by fixed costs, operation and maintenance costs, and fuel costs. Reliability is also important for reducing costs. 3) Construction costs decrease with larger plant sizes, while fixed costs include interest, depreciation, insurance, and taxes on the capital investment. Fuel consumption and costs increase with lower plant loads and efficiencies.

1. Plant Economics
Prof. Swapnil Y. Gadgune, Department of Electrical Engineering, PVPIT, Budhgaon, Sangli
Photo Credit:
mckinsey.com

2. LOCATION OF POWER PLANTS
• The location of hydroelectric power plants is usually predetermined
by the availability of water and the water head which is utilized.

3. LOCATION OF POWER PLANTS
• For conventional base load thermal power plants, the following
factors are to be considered:
1) Availability of cooling water (if cooling towers
are used the possibility of adequate make-up
water).
2) Availability of fuel (water, rail or pipe connection
to the fuel source, and the cost of fuel
transport).
3) Distance from the center of gravity of load
demand.
4) Cost of land (including space for extension,
maintenance workshop and storage yard).
5) Character of soil.
6) Main wind direction and water currents in
cooling water source (sea, lake or river) in order
to minimize air and water pollution, and other
ecological considerations.
7) With coal-fired stations, disposal of ash.
8) If the plant is erected far from a town,
accommodation for staff.
9) Rail and road connections.
10) Security considerations.

4. LOCATION OF POWER PLANTS
• For nuclear power plants two additional factors are to be considered:
1. Density of population in the vicinity.
2. Danger of earthquakes.

5. POWER PLANT ECONOMICS
• A power plant should provide a reliable supply of electricity at minimum
cost to the consumer. The cost per 𝑘𝑊ℎ𝑛𝑒𝑡 (annual amount of electricity
sent out by a power plant) is determined by:
1. Fixed costs (FC), mainly interest, depreciation, insurance, taxes,
depending on the capital invested, i.e. on the construction costs of the
plant including the cost of the land.
2. Operation and maintenance (O & M) costs covering salaries and wages,
overhauling of equipment, repairs including spare parts, water,
lubricating oil, chemicals and miscellaneous expenses.
3. Fuel costs, dependent on the amount of electricity generated.
4. 𝑘𝑊ℎ𝑛𝑒𝑡 of electricity sent out per year.

6. POWER PLANT ECONOMICS
• The total annual costs (𝐶𝑡) in a power plant can be calculated from:
𝐶𝑡 = (
𝐼+𝐷+𝑇
100
)𝐶𝑐 + 𝑊 + 𝑅 + 𝑀 + 𝐶𝑓………(1)
Where, 𝐼- interest %
𝐷- depreciation %
𝑇- taxes and insurances %
𝐶𝑐- construction cost
𝑊- wages and salaries
𝑅- Repairs (maintenance)
𝑀- miscellaneous
𝐶𝑓- fuel cost

7. POWER PLANT ECONOMICS
• The annual amount of electricity sent out by a power plant (𝑘𝑊ℎ𝑛𝑒𝑡)
is given by
𝑘𝑊ℎ𝑛𝑒𝑡 = 𝑘𝑊𝑖𝑛𝑠𝑡 × 8760 × (1 −
𝐿𝑎𝑢𝑥
100
) × 𝑛……….(2)
Where,
𝑘𝑊𝑖𝑛𝑠𝑡- rated or installed output of generators
𝐿𝑎𝑢𝑥- power consumption by auxiliaries %
𝑛- plant capacity factor

8. POWER PLANT ECONOMICS
• In order to calculate the electric power cost to a consumer, in
addition to the production cost (fixed cost, operation and
maintenance, and fuel cost), the transmission cost, distribution cost,
administrative expenses, and return or profit on the investment have
to be taken into consideration.

9. POWER PLANT ECONOMICS
• A measure for the reliability of a power plant is the forced outage rate
defined by the annual ratio of
𝑓𝑜𝑟𝑐𝑒𝑑 𝑜𝑢𝑡𝑎𝑔𝑒 ℎ𝑜𝑢𝑟𝑠
𝑠𝑒𝑟𝑣𝑖𝑐𝑒 ℎ𝑜𝑢𝑟𝑠 + 𝑓𝑜𝑟𝑐𝑒𝑑 𝑜𝑢𝑡𝑎𝑔𝑒 ℎ𝑜𝑢𝑟𝑠
• As forced outages raise operation and maintenance costs,
• Proven reliability of equipment and regular preventive maintenance
work are essential, not only to guarantee electric supply but also for
the overall economy of the power plant.

10. POWER PLANT ECONOMICS
• The costs, however, have a continuous upward trend due to monetary inflation,
rising fuel prices and increased demand for measures protecting the
environment.
• The cost of power generation can be reduced by
(a) selecting equipment of longer life and proper capacities,
(b) running the power station at high load factor,
(c) increasing the efficiency of the power plant,
(d) carrying out proper maintenance of power plant equipment to avoid plant
breakdowns,
(e) keeping proper supervision, since good supervision is reflected in lesser
breakdowns and extended plant life, and
(f) using a plant of simple design that does not need highly skilled personnel.

11. Construction Costs
• The construction costs per kW decrease with size. The construction costs of
a plant consist of expenses for:
(i) planning and design;
(ii) land and preparation of site, including road (and rail) connections;
(iii) buildings and machinery foundations;
(iv) plant equipment, including transport to site;
(v) erection and testing of equipment;
(vi) interest during construction (for payments made before commissioning
of the plant); and
(vii) administrative work.

12. Fixed Costs and Depreciation
• Fixed costs consist of annual costs for interest, depreciation, insurance and
taxes on property and estimated income calculated as a percentage of the
capital investment.
• Interest rates 𝑰 depend on general financial conditions at the time of
construction and on the source of funding international, national, public,
private or bond issues.
• Depreciation rates 𝑫 are determined by the life expectancy of the
equipment.
• The power plant and equipment in the station will have a certain period of
useful life. After years of use, the equipment loses its efficiency or becomes
obsolete and needs replacement. Sometimes, equipment may have to be
changed even when fairly new, if more efficient equipment has come into
the market. To enable this to be done when necessary, some money is put
aside annually, and is known as the Depreciation fund.

13. Fuel Cost
• The fuel consumption depends on the amount of electrical energy
produced. As load on the prime movers increases, the fuel
consumption increases and so does the cost.
• The efficiency of the prime mover is the highest at the rated load. At
lower loads, the efficiency decreases and so the fuel consumption
increases. Therefore, the cost of electricity generation is the
minimum at rated load and it increases as load decreases.
• The cost of fuel also depends on the calorific value, availability and
transportation charges.

14. References
• P K Nag, "POWER PLANT ENGINEERING", Fourth Edition (Book),
McGraw Hill Education (India) Private Limited, NEW DELHI