BOX 7.2

Comparison of Power Plant Capital Costs

The final cost of a plant or other facility consists of several components. Costs that depend strongly on the specific site are typically not included in the estimates. Most of the others are related to the process or facility to be constructed on the site and thus are included.

A primary objective of the cost estimates developed by Princeton Environmental Institute (PEI) researchers and presented in this chapter, and in the chapter on alternative transportation fuels (Chapter 5), is to develop, with consistent assumptions, a set of cost estimates that can be compared for a range of different technologies for the conversion of coal and biomass to electric power and to liquid transportation fuels.

The first step is to estimate the total plant cost (TPC) for the Nth plant for each of the processes (technologies) under consideration. TPC, also referred to as the overnight cost, is the cost to construct the plant if it were put up “overnight.” The TPC estimates are based on 2006 equipment quotes for all of the major pieces of equipment in the plant, as reported in NETL (2007a). These costs are first escalated to mid-2007 using the Chemical Engineering Plant Construction Cost Index. These basecost estimates include cost of installation, materials, labor, some process and project contingencies, and balance of plant (BOP) costs. Where not included in the component equipment quotes, these costs are estimated from historical experience in the power industry. If not already included in the component quote numbers, a typical engineering contingency—ranging from 5 percent to 20 percent, depending on the component—was added. Summing these cost numbers provides a consistent set of TPC estimates.

PEI researchers calculated a levelized capital charge rate (LCCR) on installed capital using EPRI-TAG methodology (EPRI-TAG, 1993) assuming an owner’s cost of 10 percent of TPC, a 55 percent:45 percent debt:equity split, real costs of debt and equity capital of 4.4 and 10.2 percent per year, and a 3-year (i.e., Nth plant) construction period. LCCR was 14.38 percent per year of the total plant investment (TPI), where TPI is the sum of TPC and the allowance for funds used during construction (AFDC), 7.16 percent of TPC. As a result, the cost of installed capital is 15.41 percent of TPC per year.

A number of cost components that could be significant under various economic environments and for early or first-of-a-kind (as opposed to “Nth”) power plants are not included in the capital costs estimates, although some may be accounted for in computing levelized costs per kWh. These components may include the following:

  • Additional project contingency and risk. Especially for relatively immature technologies, an additional total project cost contingency is often added to account for unforeseen or underestimated costs that could come up during construction of the facility. Some project contingency was included in the PEI estimates. However, the amount depends on the facility type, construction location, construction environment, and whether the contractor or utility bears the risks associated with cost increases. In the rising-construction-cost environ-



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