EBF 483
Introduction to Electricity Markets

3.5 Summary and Final Tasks

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Summary

This lesson focused on the economics of electric power generation (the basic economics of electric power transmission and distribution are pretty simple, since power line costs consist almost completely of capital). We discussed that capital (fixed) costs and fuel/O&M (variable) costs can be very different for different power plant technologies. In general we observe a tradeoff between capital and operating costs. For power plants that burn fossil fuels purchased at market prices, the short-run marginal cost of energy production is driven by two primary factors — the price of fuel and the fuel conversion efficiency of the plant (the 'heat rate'). We also discussed two ways of comparing the overall lifetime cost of different power plant technologies - the Levelized Cost of Energy and the Annual Revenue Requirement.

Reminder - Complete all of the Lesson 3 tasks!

You have reached the end of Lesson 3! Double-check the to-do list on the Lesson 3 Introduction page to make sure you have completed all of the activities listed there before you begin Lesson 4.