The Economics of Power Generation

Economics of Power GenerationThere are two crucial factors in any power generating system: performance and economy. As we know, higher efficiency is naturally more desirable, though higher efficiency plants usually come with the price of high cost investment. A power system would simply not be feasible should one neglect one of the two main factors. A highly efficient plant would not be feasible in practice if it gives no financial incentives to the producer as well as the end-user. A good power plant design must possess a good balance of efficiency and economy.

One of the main goals in power generation practice is to deliver the lowest possible cost per unit of electricity to meet the growing demand. Often in practice, economic assessment of a power plant is depicted by their levelized cost of energy (LCOE), also known as  levelized energy cost (LEC), which is the average price per unit of power delivered to break even with total cost (capital and operating) over the length of its operating lifetime.

Generally, cost factor which contributes to power generation can be categorized into two main groups: capital cost and operating charges. Capital cost (usually consisting of a series of fixed cost factors which do not vary with the level of output) encompasses equipment, rent/land cost, and any other costs associated with the establishment of the power generation plant, up until when it’s ready to operate. This is a critical data point needed for accurate investment decision making. Whereas operating cost (combination of fixed, semi-fixed and variable charges) covers all costs related to daily operational and/or production cost incurred – which should include maintenance, fuel, feed water, etc.

In most cases, operators are able to see the apparent trade-off between capital and operational cost. More often than not, power generation variations which require lower capital cost (i.e coal, natural gas and IGCC) have a higher average operational cost compared to more sophisticated implementations such as nuclear or hydroelectric generators.

Additionally, the lifetime of a power plant has to be taken into consideration. Generally, power generation plants do not just run forever at their ideal condition where performance is optimized. Although maintenance elongates the equipment’s life expectancy, equipment performance depreciates over time and so does the capital value.

The load factor (total energy used divided by possible total energy) is found to be an important aspect whilst determining the cost of power generated. The load factor should be high to minimize the cost of energy. With the plant operating at maximum demand, it generates more units of power and also reduces variable load problems since high load power plants generally are more constant.

SoftInWay, Inc. finalized the automation of their power generation economic feasibility module in the past year. AxCYCLE houses an internal library of models for main power plant equipment, providing the capability to perform simulations of cash flow scenarios, operating life cycle assessments and economic measures analysis with minimal inputs – giving users ease to compare capital costs for a variety of projects.

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