The total cost of electrical energy generated can be divided into three parts

(i) Fixed cost ; (ii) Semi-fixed cost ; (iii) Running or operating cost

(i)Fixed cost. •

It is the cost which is independent of maximum demand and units generated. • The fixed cost is due to the annual cost of central organization, interest on capital cost of land and salaries of high officials. • The annual expenditure on the central organization and salaries of high officials is fixed since it has to be met whether the plant has high or low maximum demand or it generates less or more units. • Thecapital investment on the land is fixed and hence the amount of interest is also fixed.

(ii) Semi-fixed cost.

• It is the cost which depends upon maximum demand but is independent of units generated. • Thesemi-fixed cost is directly proportional to the maximum demand on power station and is on account of annual interest and depreciation on capital investment of building and equipment, taxes, salaries of management and clerical staff. • Themaximumdemand on the power station determines its size and cost of installation. • The greater the maximum demand on a power station, the greater is its size and cost of installation. Further, the taxes and clerical staff depend upon the size of the plant and hence upon maximum demand.

(iii) Running cost. •

It is the cost which depends only upon the number of units generated. • The running cost is on account of annual cost of fuel, lubricating oil, maintenance, repairs and salaries of operating staff. Since these charges depend upon the energy output, the running cost is directly proportional to the number of units generated by the station. • if the power station generates more units, it will have higher running cost and vice-versa.

(i) Three part form. •

The overall annual cost of electrical energy generated is divided into three parts viz fixed cost, semi-fixed cost and running cost Total annual cost of energy = Fixed cost + Semi-fixed cost + Running cost = Constant + Proportional to max. demand + Proportional to kWh generated. = Rs (a + bkW+ckWh) Where a=annual fixed cost independent of maximum demand and energy output. b =constant which when multiplied by maximum kW demand on the station gives the annual semi-fixed cost. c = aconstant which when multiplied by kWh output per annum gives the annual running cost.

(ii) Two part form. •

Annual cost of energy in two part form. • Theannual cost of energy is divided into two parts viz., a fixed sum per kW of maximum demand plus a running charge per unit of energy. • Total annual cost of energy = Rs. (AkW + B kWh) whereA= a constant which when multiplied by maximum kW demand on the station gives the annual cost of the first part. B=aconstant which when multiplied by the annual kWh generated gives the annual running cost