ECONOMICS OF POWER GENERATION

4.1 Introduction
The power system must be operated such that the overall costs of producing electricity, including
all attendant losses in the generation and delivery systems, are minimized. The most economical
conditions derive not only from proper operating procedures but also from efficient system
planning and design.

Before any project of building a power station is taken, the engineer should prepare the following
reports:
i) Estimate the probable load and station capacity
ii) Future load conditions
iii) Total cost of the station
iv) Annual running charges
v) The rate at which the power will be sold to the customer

4.2 Categories of Electrical Loads

Electrical loads are commonly grouped into four categories - Residential, commercial, industrial,
and others.

Residential loads are private homes and apartments. They include lighting, cooking, comfort
heating and cooling, refrigerators, water heaters, washers and dryers, electronic gadgets for
entertainment, pressing irons and many more different appliances.

Commercial loads include office buildings, department stores, grocery stores and shops.
Industrial loads consist of factories, manufacturing plants, steel, lumber, paper, mining, textile
and other industrial factories. In addition, industrial loads contain various types and sizes of
motors, fans, presses, furnaces, etc.

Electrical load refers to the amount of electrical energy or electrical power consumed by a
particular device or by a whole community. It is also referred to as electrical demand. At the
individual consumer level, the electrical demand is quite unpredictable. However, as the
demands of the various users are accumulated and added at a feeder or a substation, they begin to
exhibit a definite pattern.

4.3 Load-Duration Curve

A typical plot of the electrical load is shown in Fig 4.1, and it is referred to as a load curve. The
period of interest is normally one day; thus, it is called a daily load curve. The daily load curve
shows the kilowatt demand from midnight to noon to midnight (i.e, over a 24-hour period).

Fig 4.1 Daily load curve

The daily load curves for Monday through Friday are similar in shape and peak values. Weekend
curves are generally different, particularly for industrial and commercial customers because of
shutdown of operations on Saturdays and Sundays.

Load curves may be constructed for feeders, substations, generating plants, or for the whole
system. Load curves are also drawn for different periods or seasons of year. Thus, the system
peak load for the hot season, or rain season, or cold season (e.g. Harmattan), may be read as the
highest ordinate from the corresponding load curve.

The daily load curves may be accumulated for the whole year and presented in another curve, the
annual load duration curve (LDC). A typical LDC is shown in Fig 4.2.

Fig 4.2 Load duration curve

The LDC shows the 8760 hourly loads during the whole year, although not in the order in which
they occurred. Rather the LDC shows the number of hours during which the load exceeded a
certain kilowatt demand. If the area under the LDC curve is calculated and divided by the total
number of the hours, the average demand is determined. Several factors used in the electricity
supply industry may be defined in terms of parameters of load and load-duration curves and are:

4.3.1 Load Factor

The characteristics of a daily load curve on a gross basis are indicated by peak load and the time
of its occurrence and load factor defined as:
Load factor, m = Average load over a given interval
Peak load during the same time interval

The average load determines the energy consumption over the day while the peak load along
with considerations of standby capacity determines plant capacity for meeting the load. A high
load factor helps in drawing more energy from a given installation.

Thus, if a plant’s peak load is 1000MW but the average annual load is 350MW, its annual load
factor would be only 0.35. Most of its capacity remains un-utilized for the major part of the year
and so the cost would be high. The average load is estimated by dividing the area under the daily
load curve by the time period considered.

Average load = Area under load curve (kWh)

24(h)

4.3.2 Diversity Factor

This is defined as the sum of individual maximum demands by the consumers, divided by the
maximum load on the system, i.e.
Diversity factor = Sum of individual consumer groups maximum demand
Actual peak load of the system

This factor gives the time diversification of the load and is used to decide the installation of
sufficient generating and transmission plant. If all the demands came at the same time, i.e. unity
diversity factor, the total installed capacity required would be much more. Luckily, the factor is
much higher than unity, especially for domestic loads.

A high diversity factor could be obtained by:

1. Giving incentives to farmers and/or some industries to use electricity in the night or
during light load periods
2. Using day-light saving as in many other countries.
3. Staggering the office timings.
4. Having different time zones in the country like USA, Australia etc.
5. Having two-part tariff in which a consumer has to pay an amount dependent on the
maximum demand he makes, plus a charge for each unit of energy consumed.

Sometimes a consumer is charged on the basis of kVA demand instead of kW to penalize load of
low power factor. Diversity helps to improve the load factor and the economic operation of the
power plant. A high load factor is, in general, an indication of balanced load curve with
relatively small load changes. High values of demand factor (define below), load factor, diversity
factor and capacity factor (define below) are desired for economic operation of the plant and to
produce electricity at less cost.

4.3.3 Other Factors

Other factors frequently used in connection with power plants are:

Demand factor = maximum demand
Connected load
Demand factors are generally used for determining the capacity and hence cost of the power
equipment required to serve a given load.

Plant capacity factor = Actual kWh produced

Installed plant kW capacity
= Average load
Installed capacity

Plant use factor = Actual kWh produced

Plant capacity (kW) × Time (in hours) in operation
= kWh generated in a year
8760xkWinstall
The maximum demand is the maximum load which a consumer uses at any time. It is always less
than or equal to the connected load. It is the ratio of the energy produced in a given time to the
maximum possible energy that could have been produced during the same time of operation. If
the operating time is one year (or 8760) hours, the plant use factor is equal to the capacity factor.
If the rated capacity of the plant is equal to the peak load, then the load factor and capacity factor
will be numerically equal. The difference between load factor and capacity factor is an indication
of the reserve capacity.

Reserve factor = kW instal = load factor

 kW max capacity factor

If the daily load curve of a power station shows a peak demand that is greater than the installed
capacity of the station, then the peak load is shared by other stations interconnected with it.

The load duration curve is usually divided into three parts

1. Base load
2. Intermediate load
3. Peaking load.

The base load is the load below which the demand never falls and is supplied 100% of the time.
The peaking load occurs for about 15% of the time. The intermediate load represents the
remaining region of the LDC.

4.4 Cost of Generation

Whenever any project is sponsored by an individual or by a group of people or by the state, a
certain amount of capital is required. The total capital required can be sub-divided into the
following two heads:
 Fixed capital
 Running capital

The fixed capital comprises that part of the capital which is to be spent for the purchase of assets
such as land, plant and equipment etc., on which the further operation of the project depends. For
an electrical installation the fixed capital may be grouped under the following:
a) Capital cost of generating equipment.
b) Capital cost for transmission system.
c) Capital cost for distribution system both HT and LT

The running capital is the capital required for the purchase of raw materials, payment of salary,
wages etc, for the continuous operation of the project.

Annual Cost
The economy of the project is not judged from total investment made for it, but from the actual
cost. The annual cost can again be subdivided into the following two heads:
a) Running cost or operational cost – which is dependent upon the manner and extent to
which the equipment is being used. The annual running charges of an electric station
comprise: fuel cost, maintenance and repairing cost of the equipment in the generating,
transmission and distribution sections; wages of contract workers; cost of water,
lubricating oil etc.
b) Fixed charges – which comprise the annual charges on the assets covered under fixed
capital. These depend upon the equipment acquired independent of the use it is being put
in and the capital cost incurred on the other assets such as buildings etc. The annual fixed
charges comprise: taxes, insurance charges and depreciation or sinking fund. Includes
also most of the salaries and wages of staff.

4.5 TARIFFS
4.5.1 Introduction
Tariffs are prices charged by a utility for supplying the energy needs of consumers. The costs
involved in the generation, transmission and distribution of electrical energy fall into three major
categories.
i) The cost incurred due to maximum demand on the power system (i.e. the capital
expenditure of providing sufficient generating plant to supply the maximum needs of all
consumers).
ii) The cost incurred in operating the power system (i.e. fuel costs for generation of power,
maintenance costs, personnel emoluments, etc).
iii) Ability of the customer to pay

Tariffs may be structured such as to influence the load curve and improve the load factor. Some
of the tariff structures are:
a) Flat rate tariff
b) Two-part tariff
c) Block rate tariff
d) Power factor tariff

4.5.2 Flat rate tariff

The flat rate tariff differs from the simple tariff in the sense that the different types of consumers
(domestic, industrial, public etc) are charged at different rates. The rates for each type of
consumer is arrived at by taking into account its load factor and diversity factor. Such tariff has
an advantage that it can be understood by the consumer easily. The main drawback in this tariff
is that it is very difficult to derive the load factor and diversity factor to be used in deciding the
tariff.

4.5.3 Two-Part Tariff

In this tariff structure electrical energy charges are divided in two parts:
a) A fixed charge on the basis of the maximum demand in kVA
b) A running charge based on energy consumed in kWh.

For the fixed charge either a maximum demand (MD) meter is installed in the consumer
premises to indicate the maximum kVA demanded in a prescribed period of time (e.g. a month)
or it is assessed based on installed capacity. Whether or not an MD meter is installed usually
depends on the size of demand. When maximum demand is not likely to exceed 50 kVA an
assessment is made. The cost of metering is of necessity quite high because of the accuracy
required to avoid errors which can amount to large cost to the consumer. Consumers of electrical
energy may be divided into classes depending on their load characteristics. Typical classes
include the following:
• Residential
• Commercial (shops, offices, etc)
• Industrial
• Street lighting
• Special Class (e.g. Agro-allied enterprises involved in farming; crop cultivation; religious
houses; Government and Teaching Hospitals; Government Research Institutes; Education
and Secondary Schools; Water Boards).

Advantages of 2-part tariff

• It is easily understood by consumers.
 • It caters for the fixed charges that depend on maximum demand but are independent of
units consumed.

Disadvantages
• Fixed charges have to be paid whether energy is consumed or not
• Requires additional MD meter cost or else there is always error in assessing the
maximum demand.

4.5.4 Block Rate Tariff

His type of tariff the main consideration to be made is that as the number of units generated are
increased t of generation per unit decreases, hence the consumer having large demand of number
of units has to pay less as compared to the consumer having lower demand. Say, for example, in
a domestic load –
The first 25 units may be charged at the rate of 25 GHP
The first 25 units may be charged at the rate of 20 GHP
The first 25 units may be charged at the rate of 15 GHP

The tariff structure has the advantage of encouraging energy consumption and the utility needs
only one meter for the purpose. It is usually convenient for domestic or residential consumers.

4.5.5 Power Factor Tariff

This is devised to make a distinction between overall charge to be made to types of consumer:
those with good pf and those with poor power factor. PF tariff is divided into three main classes
a) Maximum demand (kVA) tariff
b) Average power factor tariff
c) kWh and kVARh tariff: kWh and kVARh are charged separately. A poor power factor
means more kVARh and consequently more charge per unit of energy consumed.

4.6 POWER FACTOR CORRECTION

4.6.1 Introduction
The power factor (p.f) of a given circuit is equal to the cosine of the phase angle between the
circuit voltage and current phasors. The voltage is always taken as reference. An ordinary
consumer of electrical energy is not interested in the phase angle between the voltage and the
current applied to the equipment (e.g. electric motor). Concern is usually not with the power
factor but with the actual real power output (kW) of the equipment. However, for constant
voltage and output power, the current, I, through the supply feeder depends on the power factor
according to the relation,
I = ____P i n
√3 VL cosφ

where
Pin is the power supplied by the feeder,
VL is the line voltage, and
cosΦ is the power factor.
Note that from eqn. above, a reduction in the power factor (cosΦ) from unity to 0.8 will result in
a 25% increase in current I. Conversely, an increase (or improvement) in the p.f will result in a
reduction in the current, which will reduce the following:
a) The losses in the feeder (I2R).
 b) The required size of feeder conductors (conductor size depends on current carrying
capacity).
c) The required rating of the transformer and other station equipment (e.g., a lower rated
transformer can serve)
d) The losses in the transformer.
e) The voltage drop in the feeder. This results in improved voltage regulation.

In general, the efficiency of power generation, transmission and distribution equipment is

improved when operating near unity power factor. Consequently, utilities encourage consumers
of electric energy to improve or correct the power factor of their electrical load. An improved
power factor implies reduced reactive power supplied by the source.
Equipment that compensate for the reactive power demand of the load are often used: e.g. static
capacitors, synchronous condensers, and phase advancers.

4.6.2 USE OF STATIC CAPACITORS

The least expensive way to achieve near unity p.f is with the use of power-factor correction
capacitors. Capacitors provide a static source of leading reactive current and can be installed
close to the load. The leading current drawn by the capacitors may partly or completely
neutralize the lagging reactive component of the load current. This raises the p.f of the load.

4.6.3 Advantages of static capacitors

• Low losses (almost negligible)
• Require little maintenance as there are no moving parts
• Can be easily installed as they are light and require no foundation
• Operate under ordinary atmospheric conditions

4.6.4 Disadvantages static capacitors

• Short service life ranging from 8 to 10 years
• Easily damaged when the voltage exceeds the rated value
• It is un-economical to repair damaged capacitors

4.6.5 USE OF SYNCHRONOUS CONDENSERS

A synchronous motor draws a leading current when over-excited and therefore behaves like a
capacitor - hence the name synchronous condenser. When connected to the power supply the
leading current it draws may partially or completely neutralize the lagging reactive component of
the load current – thereby improving the pf.

4.6.6 Advantages of synchronous condensers

• The motor can provide output torque and leading or lagging KVAR to the power
network.
• The operation is very smooth since by varying the field excitation the magnitude of
current drawn by the motor
• Can be changed by any amount – hence step-less control of p.f is achievable.
• Faults can easily be removed.
• Effects of harmonics and switching problems are less severe than is the case with
capacitors.

4.6.7 Disadvantages of synchronous condensers

• There are nominal losses in the motor
 • High maintenance cost (bearings, ventilation, etc)
• Produces noise
• Except for sizes above 500 kVA the cost is greater than that of sane rated static capacitors
• Since it has no self-starting torque, auxiliary equipment has to be provided to run it to
synchronous speed

It should be noted that neither the consumer nor supply authority benefits by over-correction of
power factor. An optimal value of power factor can be computed based on economic
considerations. In any case corrective appliances should be switched on or off with the loads
which they correct.