Cost Curves for Electricity Generation

Abstract

A problem of some interest and importance is the variation in cost per unit of electricity generation for different sizes of plant. Cross-sectional data, of the kind used here, relating to costs in different generating stations at the same time, when graphed, will give a rough approximation to the long-run cost curve, that is, the envelope of the short-run cost curves for individual stations. Strictly, of course, it cannot be assumed that undertakings are operating at the minima of their short-run curves. Particularly is this true when the commodity is in short supply and produced by local monopolies. The first point is the different meanings to be attached to the term cost . Prior to nationalisation, the Electricity Commission and, later, the Ministry of Fuel and Power, published information on works cost of generation which includes fuel, salaries and wages of generating station staff, maintenance and repairs. No separate information about such generation overheads as management expenses, interest charges, and depreciation provision or sinking fund payments was provided. Examination of data, however, in a small sample of complete local authority accounts suggests that these other items behave in a manner not significantly dissimilar from works cost, so perhaps the inevitable concentration on the latter is not without justification on grounds other than availability of the statistics. Next is the fact that there are several different systems of generation. In I947, the last year for which the Ministry of Fuel and Power reported, in 202 of 334 stations operating the prime-mover was a steam engine, in eighty-two an oil engine, and forty were driven by water-power. On the criterion of size the predominance of steam generation was even more marked. The steam stations accounted for 96.9 per cent. of the total units generated, while 2.8I per cent were generated by water-power. It is thus reasonable, in examining costs, to concentrate on the dominant type-