Cost of Electrical Energy

The cost associated with the electrical energy can be divided into three parts
i) Fixed cost
ii) Semi fixed cost
iii) Running cost.

1.1 Fixed cost

        This the cost which is independent of the maximum demand and the units which are generated. It is the cost which must be spent for purchase of assets such as land and equipments required for plant. It also consists of annual cost of central organization, interest on capital cost of land and salaries of high officials. Irrespective of whether plant is generating energy or unit, whether the maximum demand is low or high, the annual expenditure of central organization and salaries of high officials is fixed. The capital investment on land and rate of interest is also fixed.

1.2 Semi Fixed Cost

        The cost which is not dependent on the number of units generated but depends on maximum demand is called semi fixed cost. It is proportional to maximum demand and is due to annual interest and depreciation on capital investment of buildings and equipments, different types of taxes, insurance charges along with salaries of management and clerical staff. The size and the cost associated with installation of plant is determined from the maximum demand. With increase in maximum demand, the size and cost of installation of plant is greater. With increase in size, the taxes and clearical staff will also be large.

Operating or Running Cost
       It is defined as the cost which is dependent on the number of units generated. It consists of following costs.
i) Fuel cost
ii) Cost associated with lubricating oil and water
iii) Maintenance and repairing cost of the equipment in generation, transmission and distribution sections.
iv) The salaries of operating and supervising staff.

       All these costs are dependent on output energy from the plant. The running cost is always proportional to number of units generated by the station. High running cost indicates that the number of units generated by station is high.