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Economics Analysis of Building Power Plant

19 Aug 2016Economics Essays

The goal of the project

The goal is to construct and operate independent power plants (IPPs) for the generation, The goals of power privately owned power plant are to minimize cost in its operation. To be assured of uninterruptible power supply. To isolate the company from the problems such as sudden price changes, inadequate power supply and government legislation concerning the power industry. Also, the purpose of this project is to serve in the  transmission and distribution of power to its own industrial own power needs. And to complement the Government's efforts to improve the power sector by helping to bridge the huge energy gap in a timely manner, and to alleviate the pains of several industrialists in the country. The goal of Independent Power Plant is to initiate the emergence of high reliability in the power supply, especially for the industrial sector.  Some of the goals are attributed to its operations. The company can control the level of generation, the cost of producing the electricity, Also to help the government in the electricity shortage. The result of the project is there will be available power supply for other new company. The company can maximize production thus giving more job opportunities. the government can earn more taxes. And these will be used for more infrastructure project for the macroeconomics of the country.

The Opportunity  Cost of the Project

The opportunity cost of the project is the cost of investing the money to a more profitable endeavor instead of the project. The cost of saving the $500,000.00 in a bank it will earn interest with the prevailing interest of 16 percent per year. This money can use as added capital for the company it will be converted into finished product and will earn markup with a conservative estimate of fifty percent per unit. The money can be invested in money market  which yields an interest of doubling its amount for a certain period. This project entails of acquiring an increase in fixed assets which makes the company highly leveraged. These fixed assets incur more cost in operation, operating supplies, taxes, and maintenance, now this cost can be considered as the opportunity lost such that this money could be could use for a profitable investment. This amount can be estimated to doubling the capitalization. Several industries are poised to expand production capacity, and those which have shut down because of power supply problems are expected to come back on stream after the completion of this power plant. Because there will be available power that can use for the other companies. The generation of electrical power is a growth industry. The opportunity cost  could be that this will be invested in a more profitable project which yields higher profit as compared to this power plants.  The privately owned plants are being constructed to profit from the emerging energy market resulting from deregulation. These power operations are gearing up perhaps to sell energy in other companies. Furthermore, the effect of this project on the destruction  the environment  will pose an irreversible opportunity cost. Because without this project, the environment will remain as it is in good condition. Now this good environment will result in healthy business because people can maintain its buying power and the amount of the opportunity cost will be equal to the net income of the company before tax. The best example for this the  projected power plants in Arizona. Viewed individually the plants do not consume large quantities of water, but their collective water use is significant. Also, the likely prospect that additional power plants will be proposed for the state raises further water concerns. This provides grounds for a debate about the implications of an increased number of power plants using a greater share of the state’s water.  Some find little reason for concern. They view the new and expanded plants and their water needs as mainly a shift in water use from agriculture to industry. Water formerly used for agriculture will now be utilized for power generation. In fact, a case can be made that shifting water rights from agriculture to industry results in water savings because of the formula that is used to convert an irrigation grandfathered right to a Type I water right. The five acre-feet used annually to irrigate cotton converts to a three-acre foot Type I water right.

Others, while conceding some advantages to power plants are still uneasy about the development. Some employees will question the long-range planning has been done to determine if power plants represent the best use of the companies resources. Some fear that an putting the amount for power generation will possibly close out future options for the company.

Value Added To the Company

The power plant will give added value to the company in terms of stable power supply, The company will no longer dependent to other electric utilities for the power needs of the company. However, the company can control to what level of production and cost of operation of the power plant. This project entails of acquiring an increase in fixed assets which makes the company highly leveraged. The company will somehow earn more profits in the future when this will be operational. Alternatives Choices in Taking this Project. The company could choose the alternatives in the source power its either water, fuel, geothermal, coal or another type of power. This study examines the potential range of electric power costs for some major alternatives. Coal-Fired Plants. The transition from present day PC-FGD plants to future PFBC plants

with carbon sequestration. The transition to the PFBC as the preferred means

of burning coal for electric power produces a further cost reduction of about 5–7 miles/kWh. Natural Gas. The use of natural gas also includes potential greenhouse gas problems. Both methane ( the principal component of natural gas) and CO2 formed by natural gas burning are greenhouse gasses. The release of methane to the atmosphere would occur if there was leakage from the system or incomplete combustion. A methane penalty was not assessed in this study. The COE associated with the natural-gas-fired CCCT plant. The plant heat rates are expected to improve, producing. Future production of electricity. Fortunately, there are routes to achieve this goal. Hydropower plant and Gas-fired technologies should also remain as viable alternatives for future large-scale base-load power generation. It is expected that renewable energy sources such as wind power and solar photovoltaic electric power will also be viable in some localities. Some technologies, however, may have environmental and safety concerns that may add to their cost or even eventually make them unacceptable.

There are concerns about fossil fuel burning technologies and their greenhouse gas emissions. Improved plant efficiencies and coal gasification with CO2 sequestering can significantly reduce the amount of CO2 released into the atmosphere per kilowatt-hour of electricity generated, but with incremental costs. Future fission reactors will reduce some of nuclear power’s safety

concerns with their “passive safety” features. Such concepts include advanced light-water reactors.

The cost of Supply of Goods.

The cost of supply of goods varies from a different kind of power source. The most viable supply power is the water its cost is minimal only the maintenance of the generating units.  Its safety is also low but the effect in the environment is questionable. Coal-fired is an expensive source but the pollution to the environment is huge. The third is the diesel fuel power plant again this is expensive. And the supply of fuel is intermittent.


  1. Electric Power Annual 1998 Volume 1, U.S. Department of Energy, Energy Information. Administration, DOE/EIA-0348 (98)/1.
  2. Annual Energy Outlook 1998, U.S. Department of Energy, Energy Information Administration, DOE/EIA-0383 (1999), December 1998.
  3. U.S. Coal Reserves: 1997 Update, U.S. Department of Energy, Energy Information
  4. Administration, DOE/EIA-0529 (97), February 1999.

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