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Plant Economics

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Two types of cost

  • Fixed: capital cost, fixed O&M, staff
  • Variable: fuel, CO2 Bid = variable cost

Variable cost

VC=fuel price (€/MWhfuel)η+CO2 costVC = \frac{\text{fuel price (€/MWh}_{fuel})}{\eta} + \text{CO2 cost}

Average cost

AC=capital cost (€/MW/y)operating hours (h/y)+VCAC = \frac{\text{capital cost (€/MW/y)}}{\text{operating hours (h/y)}} + VC

Build vs run

DecisionFixed costCompare
Run an existing plantsunkVC only → Merit Order
Build a new plantnot spent yetAC=Cfh+CvAC = \frac{C_f}{h} + C_v at the expected hours
  • Few hours → Cfh\frac{C_f}{h} dominates → lowest CfC_f wins
  • Many hours → CvC_v dominates → lowest CvC_v wins
  • Break-evens shift with fuel prices, CO2 price, renewables
Exam favourite: CO2 price at which wind beats coal

Steps: MWh/y = MW × h → capital per MWh; fuel: 3.6 GJη\frac{3.6 \text{ GJ}}{\eta} → t coal/MWh → €/MWh; CO2 = t coal/MWh × t CO2/t coal

  • New coal vs new wind: full AC both sides (capital + fuel + p⋅p \cdot CO2) → lower CO2 price (e.g. 20.2 €/t)
  • Existing coal vs new wind: coal capital is sunk → wind AC vs coal VC only → much higher CO2 price (e.g. 48.17 €/t)
  • Insight: existing fossil plants make new renewables harder to justify → the transition needs a higher CO2 price
Calc traps
  • W vs Wh: 1 MWh = 3600 MJ = 3.6 GJ (energy), MW = power
  • “per MWh” = per MWh of electricity, not per plant or per hour
  • Don’t round intermediate steps (1/0.57 → 1.75 gives 35.00, not 35.09)
  • Check every cost term: fuel, CO2, capital, O&M
  • Order of magnitude: power prices ~ €50–100/MWh

Links: Merit Order, Investment Cost Recovery, Sunk Cost, Shutdown Rule