EBF 483
Introduction to Electricity Markets

3.0 Introduction


There are a lot of different technologies and fuels that can be used to generate electricity. Comparing them is often difficult, because there is often a fundamental tradeoff between the cost to build a particular type of power plant and the cost to run a particular type of power plant. In this lesson we'll explore the basic economics of power generation. One thing to note about this lesson is that most of our discussion will be based on so-called "engineering costs" - things like equipment and fuel. Power generation often comes with significant environmental costs, and some technologies for generating electricity are heavily subsidized, which can affect overall project costs. We won't spend a lot of time discussing these factors, although we will touch on how these factors, when monetized, affect the relative costs of different power generation sources.

Learning Outcomes

By the end of this lesson, you should be able to:

  • Identify components of fixed and variable cost for a power plant
  • Define and calculate the heat rate and capacity factor for a power plant
  • Calculate the Levelized Cost of Energy (LCOE) and Annual Revenue Requirement (ARR) for a power plant.
  • Using LCOE and ARR, analyze whether a power plant is likely to be profitable.

Lesson Roadmap

Lesson 3 Roadmap
To Read Online course material This course website
To Do Homework Assignment 3

Exam 1
Submission in Canvas

Taken in Canvas


If you have questions, please feel free to post them to the General Questions and Discussion forum in Canvas. While you are there, feel free to post your own responses if you, too, are able to help a classmate.