Department of Mechanical Engineering, CUET 1

Power Plant Economics

Power plant: Power plant is an assembly of equipment that produces

mechanical and electrical energy.

Types of power plants:

1. On the basis of fuel used:
i) Steam/thermal power plant (fuel: solid, liquid, gas)
ii) Diesel power plant
iii) Nuclear power plant
iv) Hydro electric power plant (no fuel)
v) Gas turbine power plant (fuel: liquid, gas)
2. On the basis of nature of load:
i) Base load plant
ii) Peak load plant
3. On the basis of service:
i) Stationary
ii) Locomotive

World electricity production by source 2015*

Coal 39.3%
Gas 22.9%
Hydro 16.0%
Nuclear 10.6%
Solar, wind, geothermal & wind 4.9%
Oil 4.1%
Other 2.2%
*
International Energy Agency electricity information 2017.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 2

Terms and definitions:

Connected load: It is the sum of ratings in Kilowatts of equipment
installed in the consumer’s premises. If a consumer has connections
for 4 lamps of 60W and a radio consuming 60W, then the total
connected load is 300W.
Maximum demand: It is the maximum load which a consumer uses
at any time. It can be less than or equal to connected load.
Demand factor: It is the ratio of maximum demand to connected
load.
Load curve: It is graphical representation of load in kilowatt (kW) or
Megawatt (MW) and time in hours. It shows variation of load on the
power station. When it is plotted for 24 hours of a day it is called
daily load curve and if the time considered is of one year (8760
hours) then it is called annual load curve. The areas under the load
curve represents the energy generated in the period considered. The
area under the curve divided by the total number of hours gives the
average load of the power station.

Fig. 1: Daily load curve.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 3

Fig. 2: Yearly load curve.

Load factor: It is defined as the ratio of average load to maximum
demand. Load factor is always less than unity. A high load factor is,
in general, an indication of balanced load curve with relatively small
load changes.
Plant capacity factor: It is defined as the ratio of actual energy
produced in kilowatt hours (kW.h) to the maximum possible energy
that could have been produced during the same period.
E
Plant capacity factor =
C× t
Where,
E = Energy produced (kW.h) in a given period
C = Capacity of the plant, kW
T = Total number of hours in the given period.
Plant use factor: It is defined as the ratio of energy produced in given
time to the maximum possible energy that could have been produced
during the actual number of hours the plant was in operation.
E
Plant use factor =
C × t1
t1 = actual number of hours the plant has been in operation.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 4

Diversity factor: It is defined as the ratio of sum of individual

maximum demand to the simultaneous maximum demand of a
system. Usually the maximum demand of various consumers does not
occur at the same time and simultaneous maximum demand is less
than their total maximum demands. Diversity factor is more than
unity. Diversity helps to improve the economic operation of the power
plant.
Reserve factor: Ratio of load factor to capacity factor.
Load factor = capacity factor (no reserve capacity)
Load factor > capacity factor ( there is reserve capacity)
 High values of demand factor, load factor, diversity factor and
capacity factor are desired for economic operation of the plant
and to produce electricity at less cost.
 Larger the unit size, less is the cost of electricity. Therefore,
larger units are more economical than smaller units as regards
investment per kW and operating expenses per kWh.
Load duration curve: Load duration curve represents re-arrangement
of all the load elements of chronological load curve in the order of
descending magnitude. It indicates for how many hours a certain load
has been required in the course of the day. Daily, monthly and yearly
load duration curves aid better planning for economical utilization of
the power plants, existing or planned.

100
80

Load 60 Load
(MW) curve
40
20
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Time (hours)

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 5

100
80 80 80
70 70
Load 60 60 60
Load
50 50
(MW) 40 40 40
duration
curve
20
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Time (hours)

Base load and peak load power plants:

The power plants used to supply the load of the base portion of load
curve are called base load power plants. Base load plants run
throughout the year at high load factors.
The power plants which supply the load on the top portion of load
curve are called peak load plants. They run for a short period in the
year and work at low load factors.
Hydro and nuclear power stations are usually classified as base load
power stations. Thermal power stations may be taken as intermediate
power stations, whereas diesel power stations are usually classified as
peak load stations.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 6

# Prob 1
The loads on a power plant with respect to time for 24 hours are given
below:
Time 0–6 6–8 8–12 12–14 14–18 18–22 22–
(hours) 24
Load(MW) 40 50 60 50 70 80 40
Draw the load curve and find out the load factor of the power station.
If the loads above 60 MW are taken by a standby unit of 20 MW
capacity, find out the load factor and the use factor of the standby
unit.
# Sol 1

100
80

Load 60
(MW) 40
20
0
0 2 4 6 8 10 12 14 16 18 20 22 24
Time (hours)

Average load
Load factor =
Maximum demand
Energy generated
Average load =
Total time
Energy generated = area under the load curve
= 40×6 + 50×2 + 60×4 + 50×2 + 70×4 + 80×4 + 40×2
= 1360 MW.h

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 7

Average load = 1360/24 = 56.67 MW

Load factor = 56.67/80 = 0.71 ◄
Standby Unit
Energy generated = (70 – 60)×4 + (80 – 60)×4 = 120 MW.h
Time during which the standby unit remains in operation = 4 + 4
= 8 hours.
Average load = 120/8 = 15 MW
Load factor = 15/20 = 0.75 ◄
Energy generated
Use factor =
plant capacity × operating hours
120
= = 0.75 ◄
20 × 8

#Prob 2
A central power station has annual load factor, capacity factor and
use factor as 0.6, 0.4 and 0.45 respectively. The maximum demand
(peak load) is 15 MW. Estimate (a) the annual energy production and
revenue earned if the cost of energy is TK 1/kW.h (b) the reserve
capacity over and above the peak load, and (c) the hours per year the
station is not in service.
#Sol 2
Energy generated
(a) Average load =
Total time

∴ Energy generated = Average load × Total time

Average load
Now, Load factor =
Maximum demand

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 8

Average load
⇒ 0.6 = ⇒ Average load = 0.6×15 MW
15 MW
= 9 MW
∴Energy generated = 9 MW×8760 hr = 78840 MW.hr ◄
Revenue earned = 78840×1000 kW.hr×TK 1/kW.hr
= 78.84×106 TK ◄
Energy generated
(b) Capacity factor =
plant capacity × total time
Average load 9 MW
⇒ 0.4 = =
Capacity Capacity
⇒ Capacity = 9/0.4 = 22.5 MW
∴Capacity over and above the peak load = 22.5 – 15 MW
= 7.5 MW ◄
Energy generated
(c) Use factor =
plant capacity × hours in operation
78840 MW.hr
⇒ 0.45 =
22.5 MW × hours in operation

∴Hours in operation = 7786.67 hr

Hours/yr the station not in service = 8760-7786.67= 973.3 hr ◄

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 9

#Prob 3
A power station of 30 MW capacity has the maximum annual demand
of 25 MW. It supplies loads having maximum demands of 10 MW,
8.5 MW, 5 MW and 4.5 MW. The annual load factor is 45%.
Estimate (a) the average load (b) the energy supplied per year (c) the
diversity factor, and the demand factor.
#Sol 3
Power station
(a)
Capacity = 30 MW
Maximum demand = 25 MW

Maximum 10 MW 8.5 MW 5 MW 4.5 MW

demands

Average load
Load factor =
Maximum demand
Average load
⇒ 0.45 = ⇒ Average load = 0.45×25 MW
25 MW
= 11.25 MW ◄
(b) Energy supplied per year = Av. load×total time
= 11.25×8760 MW.h = 98550 MW.h ◄
Sum of individual maximum demands
(c) Diversity factor =
Simultaneous maximum demand
10 + 8.5 + 5 + 4.5
= = 1.12 ◄
25
Maximum demand 25
(d) Demand factor = = = 0.892◄
Connected load 10 + 8.5 + 5 + 4.5

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 10

#Prob 4
A power station is said to have a use factor of 47% and capacity
factor of 40%. For how many hours in a year was the power station
not in service?
#Sol 4
Energy generated
Capacity factor =
plant capacity × total time
Energy generated
⇒ 0.4 =
Capacity × 8760(hrs )
Energy generated
⇒ = 0.4 × 8760 hr = 3504 hr
Capacity
Energy generated
Use factor =
plant capacity × hours in operation
3504
⇒ 0.47 =
hours in operation
⇒ hours in operation = 3504/0.47 = 7455.3 hr
∴Hours power station not in service = 8760 −7455.3 hr
= 1304.7 hr ◄

#Prob 5
A power generating station has a maximum demand of 10,000 kW
and the daily load on the station is as follows:
Time 6 AM– 8 AM– 12 Noon 1 PM– 5 PM– 7 PM– 9 PM– 11 PM–
8 AM 12 Noon – 1 PM 5 PM 7 PM 9 PM 11 PM 6 AM
Load 3500 8000 3000 7500 8500 10000 4500 2000
(kW)
(a) Draw the load curve and load duration curve.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 11

(b) Calculate the load factor.

#Sol 5
(a)

10000
9000
8000
7000
Load(kW)

6000
5000 Load
4000
3000 curve
2000
1000
0
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 6
Time(hours) AM
AM

10000
9000
8000 Load
7000
Load(kW)

Duration curve
6000
5000
4000
3000
2000
1000
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time(hours)

(b) Energy generated = 3500×2 + 8000×4 + 3000×1 + 7500×4

+ 8500×2 + 10000×2 + 4500×2 + 2000×7
= 132000 kW.hr
Average load = 132000/24 = 5500 kW
Average load
Load factor = = 5500/10000 = 0.55 ◄
Maximum demand
Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam
Department of Mechanical Engineering, CUET 12

Power plant planning

Two parameters to be considered:
1. Total installed capacity (MW)
2. Size of generating units

Total installed capacity required can be determined from:

i) First demand estimated
ii) Growth of demand anticipated
iii) Reserve capacity required
Size of generating units will depend on:
i) Daily load curve
ii) Minimum start-up and shut-down periods of the units.
iii) Maintenance program planned
iv) Plant efficiency vs. size of plant

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.
For conventional base load thermal power plants, factors to be
considered:
(i) Availability of cooling water
(ii) Availability of fuel
(iii) Cost of land
(iv) Character of soil
(v) Main wind direction and water currents in cooling water source in
order to minimize air and water pollution, and other ecological
considerations.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 13

(vi) With coal-fired stations, disposal of ash.

(vii) If the plant is erected far from a town, accommodation for staff.
(viii) Rail and road connections.
(ix) Security considerations.
For nuclear power plants additional factors to be considered:
(x) Density of population in the vicinity.
(xi) Danger of earthquakes.
(xii) Tsunami effect.

Cost of Electrical Energy

The following elements enter into the cost of electrical energy to the
customer:
1. Fixed element
2. Energy element
3. Customer element
4. Investor’s profit

Fixed element:
(i) Capital cost of the power plant
(a) Real estate
(b) Building and equipment
(c) Cost of installation
(d) Engineering fees.
(ii) Capital cost of primary distribution system
(a) Cost of right of way
(b) Cost of line
(c) Cost of substations
Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam
Department of Mechanical Engineering, CUET 14

(iii) Interest, taxation and insurance rates.

(iv) Depreciation
(v) Management cost
(vi) General maintenance (not related to plant operation).

Energy element:
(i) Cost of fuel
(ii) Cost of labor
(iii) Cost of water for,
(a) Boiler feed
(b) Condensers
(c) Cooling
(iv) Oil, waste, and supplies.
(v) Maintenance.

Customer element:
(i) Cost of secondary distribution system
(a) Depreciation, interest, taxes, and insurance, upon the capital
cost of the secondary distribution system.
(b) Line and transformer maintenance and inspection.
(ii) Labor cost of collecting revenue.
(a) Meter reading
(b) Office (clerical)
• Records
• Billing, collecting and accounting.
(iii) Publicity
(a) Public relations
(b) Advertising etc.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 15

Investor’s profit:
The investor expects a satisfactory return on the capital investment.
The rate of profit varies to the business conditions prevailing in
different localities.
5−6%
Electricity price (residential) in Bangladesh
1 unit = 1 kW.hr Tk per unit Tk per unit
1/9/2015−Nov/2017 Dec/2017 −

1 – 50 unit 3.33 3.50

1 – 75 unit 3.80 4.00
76 – 200 unit 5.14 5.45
201 – 300 unit 5.36 5.70
301 – 400 unit 5.63 6.02
401 – 600 unit 8.70 9.30
≥ 601 unit 9.98 10.70
Present bulk rate per unit is Tk 4.90, it will be Tk 5.99.
In agricultural sector per unit is Tk 4.00 (Dec/2017)

Electricity production cost in Bangladesh (28/08/2015)

When the companies are importing their fuel (liquid), production cost
≈ Tk 10/unit. Around 750 MW are being produced of this cost.
When companies are receiving fuel from BPC, production cost ≈ Tk
15−16 /unit. Around 1500 MW are being produced of this cost.
After all this government has deficit of Tk 4300 crore on power
sector. (2015-16).
Installed capacity: 13147 MW (070418)
Production capacity: ≈10000 MW (070418)
Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam
Department of Mechanical Engineering, CUET 16

Average energy per capita (source: Wikipedia, 2016)

Country Average energy per capita
(kWh/person.year)
Bangladesh 294
India 1,122
Pakistan 405
Srilanka 494
Nepal 134
USA 12,077

Typical conversion efficiency of various generating systems

Generation type Unit size (MW) Thermal efficiency (%)
Steam 200 – 800 30 – 40
Nuclear (BWR, PWR) 500 – 1100 31 – 34
Gas turbine 50 – 100 22 – 28
Combined gas turbine 300 – 600 36 – 50
/steam turbine
Diesel engine 10 – 30 27 – 30

Depreciation cost
Depreciation is a reduction in the value of an asset over time, due in
particular to wear and tear.
Depreciation cost is the amount to be set aside per year from income
to meet the depreciation caused by the age of service, wear and tear of
machinery.
Methods for calculating depreciation cost:
(i) Straight line method
(ii) Sinking fund method.

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 17

Straight line method

Based on the assumption that depreciation occurs according to a
straight line law. The amount of this charge depends only on the total
depreciation and the expected life and is independent of the rate of
interest it may draw during accumulation.

Depreciation Depreciation reserve

Total Depreciation
Value Book
Total reserve
value
accumulation
Depreciation
Reserve accumulation Salvage value

Useful life

Age
Present age

Let, P = Principal sum (capital cost of the plant)

S = Salvage value (residual value at the end of useful life)
n = Useful life in years
P −S
∴Annual depreciation reserve =
n
Sinking fund method
In the sinking fund method a fixed predetermined sum is set aside
each year and interest compounded on it periodically.
 r 
Sinking fund payment = (P − S) 
 (1 + r ) − 1
n

r = rate of interest

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 18

Sinking fund
Total Depreciation
Value Depreciation
Final sinking
fund
Salvage value

Useful life

Age

#Prob 6
Determine the generating cost per unit of 80 MW power station with
the following data:
Capital cost = TK 160×107
Annual cost of fuel = TK 32×106
Annual wages and taxes = TK 36×106
Interest and depreciation = 10% of capital cost
Annual load factor = 0.45
#Sol 6
Capacity = 80 MW
Average load
Load factor =
Maximum demand
Average load
⇒ 0.45 = (Assume maximum demand = capacity)
80 MW
⇒ Average load = 80×0.45 = 36 MW
Energy generated per year = Av. Load×8760 hr = 36×8760

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 19

= 315360 MW.hr
Interest and depreciation = 0.1×160×107 TK = 16×107 TK
Total annual cost = Annual cost of fuel + annual wages and taxes
+ interest and depreciation
= 32×106 + 36×106 + 16×107 TK
= TK 228×106
228 × 10 6
Generating cost = TK/MW.hr = TK 0.722/Kw.hr ◄
315360

#Prob 7
The following data pertain to a power plant:
Installed capacity = 200 MW
Capital cost = TK 4000×106
Annual cost of fuel, taxes and salaries = TK 600×106
Rate of interest = 5% of the capital
Rate of depreciation = 6% of the capital
Annual load factor = 65%
Capacity factor = 55%
Energy used in running the plant auxiliaries = 4% of total units
generated.
Determine (a) the reserve capacity (b) the cost of power generation.

#Sol 7
Energy generated Av. load
Capacity factor = =
plant capacity × total time plant capacity
Av. load
⇒ 0.55 = ⇒ Av. load = 110 MW
200
Average load
Load factor =
Maximum demand

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam

Department of Mechanical Engineering, CUET 20

110
⇒ 0.65 = ⇒ Maximum demand = 169.2 MW
Maximum demand

Reserve capacity = Installed capacity – Maximum demand

= 200−169.2 = 30.8 MW ◄
Energy produced per year = Av. load×8760 = 110×8760 MW.hr
= 963600 Mw.hr
Net energy delivered = 963600×(1−0.04) = 925056 MW.hr
Total annual cost = Fuel, taxes and salaries + Interest
+ Depreciation cost
= 600×10 + 0.05×4000×106 + 0.06×4000×106 = TK 1040×106
6

TK 1040 × 10 6
Cost of power generation =
925056 × 1000 kW.hr
= TK 1.12/kW.hr ◄

References
1. P K Nag, Power Plant Enginering, Tata McGraw-Hill, 2002.
2. Frederick T. Morse, Power Plant Engineering, Litton Educational Publishing, Inc., 1953.
-----

Power Plant Engineering (Power Plant Economics) Dr. Bodius Salam