The Variable Load Problem

Economic Analysis of Power Plants

Theory of Rates
Variable Load on Power Plants

• Variable load means that the load on a power plant varies as

the demands of consumers – these demands are very
uncertain in nature
– An ideal load on a power station is the one which remains
constant in magnitude and duration
– The load on the power station depends on the activities of the
consumers connected to that station
Effects of Variable Load on Power Plants

• Increase in production cost

– An alternator works most efficiently when it is run near its rated
capacity
• If a single alternator is used, efficiency thus varies with the variation of
load
• In practice, a number of alternators of different capacities are used in
power stations
– This, in turn, increases initial costs of the power plant and hence, the
production costs
Effects of Variable Load on Power Plants

– One of the worst effects of variable loading is the change of

frequency when the load increases or decreases
• For proper operation, the frequency must be within the permissible
limits (usually ± 3%)
• Any change in frequency would destabilise the power transmission
grid
• Special type of control equipment must be installed to keep the
frequency within limits
• Such equipment increase the cost and complexity of the system
Electricity Demand and Power Plant Choice
and Operation

• The ratio of minimum daily output to maximum daily output is between 0.5
to 0.8
– This ratio is even smaller for annual minimum to annual maximum
• Due to these variations, a certain percentage of power plant capacity
remains unused – frequently called the annual system capacity factor,
which is generally 60%
Electricity Demand and Power Plant Choice
and Operation
• Base level of demand is met with “baseload” generating units
which have low variable operating costs
– Baseload units can also meet some of the demand above the
base, and can reduce output when demand is unusually low
• The units do this by “ramping” generation up and down to meet
fluctuations in demand

• The greater part of the daily up and down swings in demand

are met with “intermediate” units (also referred to as load-
following or cycling units)
– These units can quickly change their output to match the change
in demand (that is, they have a fast “ramp rate”)
Electricity Demand and Power Plant Choice
and Operation
– Load-following plants can also serve as “spinning reserve” units
that are running but not putting power on the grid, and are
immediately available to meet unanticipated increases in load or
to back up other units that go off-line due to breakdowns
• The highest daily loads are met with peaking units
– These units are typically the most expensive to operate, but can
quickly startup and shutdown to meet brief peaks in demand
– Peaking units also serve as spinning reserve, and as “quick start”
units able to go from shutdown to full load in minutes
– A peaking unit typically operates for only a few hundred hours a
year
Selection of Power Plant Units
• The number and sizes of units should approximately fit the
annual load curve
• The units should preferably be of different capacities
• The total capacity in the system should be made 15% to 20%
more than the maximum demand to meet the future demand
• There should be a spare generating unit so that repairs and
overhauling of the working units can be carried out
• It is wise not to chose smaller units to exactly fit the load curve
Classification of Electric Power Generation Units
• Base-load units
– Nuclear power plant
– High-performance steam turbine plant
– Advanced combined gas and steam turbine plant
– Hydroelectric plant
• Intermediate (medium-load), load-following or cycling
generating units
– Simple steam turbine plant
– Old base-load plant
– Combined gas and steam turbine plant
Classification of Electric Power Generation Units

• Peak-load generating units

– Gas turbine
– Diesel engine
– Hydro pumped storage plant
– Old simple steam turbine plant
Load Curves
The Load Curve
• The curve showing the variation of load on the power station
with respect to time is known as a load curve
– These load variations during 24 hours are recorded half-hourly or
hourly and are plotted against time on the graph – the curve thus
obtained is known as daily load curve
– Average values of power over a month at different time of the
day are calculated and plotted against time to obtain monthly
load curve
– A yearly load curve is similarly obtained
• The yearly load curve is generally used to determine the annual load
factor
Daily Load Curves
Daily Load Curves
Importance of the Daily Load Curves

• The importance of daily load curves are

– It shows the variation of load on the power station during different
hours of the day
– The area under the load curve gives the number of units
generated in the day – i.e., Units generated per day = Area (in
kWh) under daily load curve
– The area under the daily load curve divided by the total number
of hours gives the average load on the station in the day – i.e.,
Average load = (Area (in kWh) under daily load curve) / 24 hours
Importance of the Daily Load Curves
– The ratio of the area under the load curve to the total area of the
rectangle in which it is contained gives the load factor (LF) – i.e.,
Load factor = average load over a given time interval / maximum
demand during the same time interval
– The load curve helps in selecting the size and number of
generating units
• The number and size of the generating units are selected to fit the
load curve which helps in operating the units at or near the point of
maximum efficiency
– The load curve helps in preparing the operation schedule of the
station
Important Terms and Factors

• Connected Load – is the sum of continuous ratings of all the

equipment connected to the supply system
• Maximum Demand – is the greatest demand of load on the
power station during a given period
– The knowledge of maximum demand is very important as its helps
in determining the installed capacity of the station
• Demand Factor – is the ratio of maximum demand on the
power station to its connected load, i.e., demand factor =
maximum demand / connected load
Important Terms and Factors
• Average Load or Average Demand – is the average of loads
occurring on the power station in a given period (day or
month or year), e.g., daily average load = no. of units (kWh)
generated in a day / 24 hours
• Load Factor (LF) – is the ratio of average load to the
maximum demand during a given period, i.e., load factor =
average load / maximum demand
– If the plant is in operation for T hours then load factor = (average
load x T) / (maximum demand x T) = units generated in T hours /
(maximum demand x T)
– The LF plays key role in determining the overall cost per unit
generated
Important Terms and Factors
• Diversity Factor – is the ratio of the sum of individual maximum
demand to the maximum demand on power station, i.e.,
diversity factor = sum of individual maximum demand /
maximum demand on power station
– The maximum demand on the power station is always less than
the sum of individual demands of the consumers – diversity factor
is always greater than 1
– The greater the diversity factor, the lesser is the cost of genration
of power
• Plant Capacity Factor – is the ratio of actual energy
produced to the maximum possible energy that could have
been produced during a period, i.e.,
Important Terms and Factors
• Plant capacity factor = actual energy produced / maximum
energy that could have been produced = (average demand
x T) / (plant capacity x T) = average demand / plant capacity
– The plant capacity factor is an indication of the reserve capacity
of the plant
Reserve capacity = Plant capacity – maximum demand
• Plant Use Factor – is the ratio of kWh generated to the
product of plant capacity and the number of hours for which
the plant was in operation, i.e., plant use factor = station
output in kWh / (plant capacity x hours of use)
Economic Dispatch and Heat Rate
• The generating units available to meet system load are
“dispatched” (put on-line) in order of lowest variable cost
– This is referred to as the “economic dispatch” of a power system’s
plants
• For a plant that uses combustible fuels (such as coal or natural
gas) a key driver of variable costs is the efficiency with which
the plant converts fuel to electricity, as measured by the
plant’s “heat rate” – heat energy input needed to produce
one kWh of electricity output
– A lower heat rate equates with greater efficiency and lower
variable costs
Load Duration Curve (LDC)
• When the load elements of a load curve are arranged in the
order of descending magnitudes, the curve thus obtained is
called a load duration curve

25 25
20 20
Load in MW

Load in MW
15 15
10 10
5 5
0 0
12 4 8 12 16 20 24 0 4 8 12 16 20 24
Time of day Hours duration
Load curve Load duration curve
Load Duration Curve (LDC)
• The following points may be noted about the
LDC
– The LDC gives the data in a more
presentable form; in other words, it readily
shows the number of hours during which
the given load has prevailed
– The area under the LDC is equal to that of
the corresponding load curve
– The LDC can be extended to include any
period of time; the variation and distribution
of demand for an entire year can be
summarised in one curve – the annual load
duration curve
Load Duration Curve (LDC)
• When planning a power plant, the two basic parameters to
be decided are
– Total power output to be installed (kWinst)
– Size of the generating units

• Total installed capacity required can be determined from

– First demand (kWmax) estimated
– Growth of demand anticipated
– Reserve capacity required
Load Duration Curve (LDC)

• The size of the generating units will depend on

– Variation of load (load curve) during 24 hours (summer, winter,
weekdays, holidays)
– Total capacity of units connected to the electric grid
– Minimum start-up and shut-down periods of the units
– Maintenance programme planned
– Plant efficiency versus size of unit
– Price and space demand per kW versus size of units
Types of Load
Types of Load

• The various types of loads on the power system are

– Domestic load: consists of light, fan, refrigerator, heater and
cooler, television, small motor for pumping etc.
• Most of the domestic load occurs only for some hours of the day and
as a result, the LF is low (10% to 12%)
– Commercial load: Commercial load consists of lighting for shops,
fans and electrical appliances used in restaurants, etc.
• This class of load occurs for more hours of the day than the residential
load and it has seasonal variations
Types of Load
– Industrial load: The magnitude of industrial load depends upon
the type of industry
• These loads are not generally weather dependent
– Municipal load: This type of load includes street lighting, power
required for water supply and drainage systems
• Both street lighting and water pumping occur during the night thereby
improving the LF of the power system
– Irrigation load: This is seasonal in nature
– Traction load: This type of load includes tram cars, trolley buses,
underground/metro rails, etc.
• It has a wide variation – reaches its peaks in the morning and evening
on weekdays
Location of Power Plants
Location of Power Plants
• The site selection of a power plant depends on a number of
different factors
• The location of hydroelectric power plant is usually
predetermined by the availability of water and the water
head which is utilised
• For conventional power plants, the factors to be considered
are:
– Availability of cooling water
– Availability of fuel, also considering the cost of fuel transport
– Distance from the centre of gravity of load demand
Location of Power Plants

– Cost of land (including space for extension, maintenance

workshop and storage yard
– Soil characteristics
– Wind direction, flow of water in cooling water source in order to
minimise environmental pollution, and other ecological
considerations
– Disposal of power plant waste (e.g., ash from coal power plant)
– Communication systems with commercial centres
– Accommodation for employees
– Overall security of the plant
Location of Power Plants

• For nuclear power plants a couple more factors need to be

considered
– Density of population in the vicinity of the power plant
– Danger of natural disasters like, earthquake, tsunami, hurricane,
etc
Power Plant Economics
Power Plant Economics – System Analyses
• Prime objective is cost minimization
– Very complex because of different design, performance
characteristics, and different costs at various times
– One method of calculating the costs of generation is present
worth method
• Requires the consideration of time value of money
• A number of present value equations are used
• Applying the present value equations to various cost components
gives the least-cost option
• Sensitivity analyses should be done before recommending an option
since future costs are always subject to uncertainty
Power Plant Economics – System Analyses

• Total installed cost does not portray a least-cost option

• Time value of money is a concept which says that Tk. 100
received in future is worth less than if it were received today
• Time value measurement is the determination of a future
value through compounding
Power Plant Economics – System Analyses
• Time value measurement uses some parameters, such as:
– Future value
– Compounding and escalation rate
– Present value
– Discount rate
– Uniform series (annuities)
– Uniform series equal to a present value
– Levelized values
– Levelized values for constant percentage cost increases
– Busbar costs
Power Plant Economics

• The basis of most design decisions is economic

• Cost of electricity is made up of fixed cost and variable cost
• Fixed charges are direct function of the level of capital
investment and does not vary with production
– Continues over the life of an investment
• The components of fixed cost are
– amortization
– interest and discount rate
Power Plant Economics – Fixed Charges
– depreciation cost
– administrative and general expenses
– insurance and taxes
• Amortization is a regular payment of debt as well as gradually
writing off the initial cost
– The return on equity and debt is also known as the minimum
acceptable return
• A plant wears out and may also become technically obsolete
– The Annual depreciation charge is fixed in such a way that the
plant’s original cost is recovered by the end of its economic life
Depreciation Methods

Straight-Line Depreciation
Power Plant Economics

• Variable costs are chiefly operation and maintenance costs

– fuel cost
– operating labour cost
– cost of maintenance
– cost of supplies, and supervision
– operating taxes
Power Plant Economics – Other Costs
• Indirect costs include expenses for general costs such as
equipment check-out and testing, start-up costs, operator
training, taxes other than sales taxes, miscellaneous
construction expenses as well as engineering services, field
construction management services, and certain owner costs
– They are expressed as percentages of the fixed costs
– Depends on the unit size

• Another important cost component is the allowance for funds

used during costruction (AFUDC)
Power Plant Economics

• The factors that determine the cost of electricity from new

power plants are, among others
– land cost
– construction costs
– equipment and installation costs
– fuel expense
– costs due to environmental regulations
– financing costs
– overhead costs, viz., transportation cost, inventory costs, etc.
Economics of Power Generation
• In general, economics drives the design of power plants
– The main aim of the power generating utilities is to produce
electricity at the lowest possible cost
– Energy diversity and security
• Ways to reduce the cost of generation are
– Selection of equipment of longer life and proper capacities
– High load factor
– Efficiency of power plant
– Proper maintenance and supervision
– Technology of the power plant
Uncertainty in Project Cost Estimation

• Power generation technologies are capital intensive

• Many factors contribute to the overall uncertainty of cost
estimates
– Technical
– Economic
– Regulatory
– Estimation
– Others
Economic Methodologies

• Total present worth method

• Cumulative present worth method
• Capital equivalent method
• Levelized annual cost method
• Capital recovery period method
Economic Methodologies

• In total present worth method, sum of all capital and

operating costs is calculated over the plant’s economic life
– Relatively easy to apply
• In cumulative present worth method, annual present worth
costs are added and stated on a year-by-year basis
throughout the evaluation period
– It can evaluate alternatives at different times, or with different
lifetime
– More complex
Economic Methodologies
• Capital equivalent cost method is used for bid analyses
• Levelized annual cost method is a widely used method across
the electricity industry
– Easy to apply
– But, the total levelized costs does not differentiate between
options by capital intensity
• Capital recovery period method indicates how long it would
take for savings in operating costs to justify a higher capital
cost
Levelising Equations

• In power plant design many technical and economic factors

vary from year to year – the fuel price and plant capacity
factor are good examples
• To compare various design alternatives, it is often desirable to
have the equivalent, but the constant term that can
represent the factor that changes throughout plant life – the
levelized value of this factor
Levelised Cost of Electricity
• The levelised cost of electricity (LCOE) represents an
annualized cost of generating electricity over the lifetime of
the unit, including initial capital, return on investment, and
costs of operation, fuel and maintenance. LCOE calculations
are based on assumptions regarding future unit operations,
operating costs, fuel prices, financing terms, and inflation
Theory of Rates
Theory of Rates
• Consumers of electricity are charged for their maximum
demands (kW) as well as the energy (kWh) consumed
• Few requirements for the tariff are, it should –
– be easy to understand
– provide low rates for high consumption
– encourage the consumers having high load factors
– take into account maximum demand charges and energy
charges
– provide less charges for power connections than for lighting
– avoid the complication of separate wiring and metering
connections
Theory of Rates

• There are various types of tariffs in use, these are

– Flat demand rate
– Straight line meter rate
– Step meter rate
– Block rate tariff
– Two part tariff (Hopkinson Demand Rate)
– Three part tariff (Doherty Rate)
Theory of Rates
• The various types of tariffs can be derived from the following
general equation
Y = DX + EZ + C
– where
• Y = Total amount of bill for the period considered
• D = Rate per kW of maximum demand
• X = Maximum demand in kW
• E = Energy rate per kWh
• Z = Energy consumed in kWh during the given period
• C = Constant amount to be charged from the consumer during each
billing period
Theory of Rates – Flat Demand Rate

• It is based on the number of lamps installed and a fixed

number of hours of use per month or per year
• The rate is expressed as a certain price per lamp or per unit of
demand (kW) of the consumer
• This energy rate eliminates the use of metering equipment
Theory of Rates – Straight Line Meter Rate
• The amount to be charged from the consumer depends upon
the energy consumed in kWh which is recorded by a means
of a kilowatt hour meter
• It is expressed in the form
Y = EZ
• This rate suffers from a drawback that a consumer using no
energy will not pay any amount although he has incurred
some expense to the power station due to its readiness to
serve him
• Secondly, since the rate per kWh is fixed, this tariff does not
encourage the consumer to use more power
Theory of Rates – Step Meter Rate
• The charge for energy consumption changes as the energy
consumption becomes more
• This tariff is expressed as follows:
Y = EZ If 0 ≤ Z ≤ A
Y = E1Z1 If A ≤ Z1 ≤ B
Y = E2Z2 If B ≤ Z2 ≤ C
– And so on
– Where E, E1, E2 are the energy rate per kWh and A, B and C, are
the limits of energy consumption
Theory of Rates – Block Rate Tariff

• A certain price per units (kWh) is charged for all or any part of
block of each unit and for succeeding blocks of energy the
corresponding unit charges decrease
• It is expressed by the expression
– Y = E1Z1 + E2Z2 + E3Z3 + E4Z4 + ...
– where E1, E2, E3... are unit energy charges for energy blocks of
magnitude Z1, Z2, Z3,... respectively
Theory of Rates – Two Part Tariff (Hopkinson
Demand Rate)

• The total charges are based on the maximum demand and

energy consumed
• It is expressed as
Y = D . X + EZ
• A separate meter is required to record the maximum demand
Theory of Rates – Three Part Tariff (Doherty Rate)

• The customer pays some fixed amount in addition to the

charges for maximum demand and energy consumed
• It is expressed by the expression
Y = DX + EZ + C