The cost of electricity

The cost of electricity can be divided into plant-level costs, grid-level costs, and other costs. Plant-level costs consist of capital, operation and maintenance, and fuelling cost. Capital cost is reflected in the cost of generation by way of interest on debt and return on equity. For nuclear power plants, capital cost is high, but fuelling cost is low. For coal-fired power plants, capital cost is low, but fuelling cost is high. The capital cost of solar and wind is continuously decreasing; fuelling cost is nil.

Electricity reaches a consumer through the grid. Laying a grid needs significant investment. A distributor buys electricity from a generator, adds transmission and distribution charges, a charge to recover technical losses, operating expenses, and his profit to determine the tariff to be charged from a consumer. Since several generators are connected to the grid, interaction with the grid and grid-management policies influence the working of a generator. At present, electricity markets do not assign any price to system effects, that is, to the complex interactions among various generators connected to the grid.

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