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The total cost of electrical energy generated can be
divided into three parts, namely ;
1)Fixed cost ; (ii) Semi-fixed cost ; (iii) Running or operating cost. (i) Fixed cost. The fixed cost includes the annual expenses for the central organization, interest on the capital cost of land, and salaries of high officials. These costs remain constant regardless of the plant's maximum demand or the amount of electricity it generates. (ii) Semi-fixed cost. It is the cost which depends upon maximum demand but is independent of units generated. Semi-fixed costs depend on the maximum demand but not on the units generated. These costs include interest, depreciation on buildings and equipment, taxes, and salaries of management and clerical staff. They increase with the size of the power station, which is determined by the maximum demand. (iii) Running cost. It is the cost which depends only upon the number of units generated. Running costs depend solely on the number of units generated. These costs include fuel, lubricating oil, maintenance, repairs, and salaries of operating staff. Since they are tied to energy output, running costs increase as the station generates more units and decrease when fewer units are produced.
