Theory and evidence for using the economy-of-scale law in power plant economics

Technical Report · Fri May 01 04:00:00 EDT 1987

DOI:https://doi.org/10.2172/6304295· OSTI ID:6304295

Phung, D. L.

This report compiles theory and evidence for the use of the economy-of-scale law in energy economics, particularly in the estimation of capital costs for coal-fired and nuclear power plants. The economy-of-scale law is widely used in its simplest form: cost is directly proportional to capacity raised to an exponent. An additive constant is an important component that is not generally taken into account. Also, the economy of scale is perforce valid only over a limited size range. The majority of engineering studies have estimated an economy of scale exponent of 0.7 to 0.9 for coal-fired plants and an exponent of 0.4 to 0.6 for nuclear plants in the capacity ranges of 400 to 1000 MWe. However, the majority of econometric analyses found little or no economy of scale for coal-fired plants and only a slight economy of scale for nuclear plants. This disparity is explained by the fact that economists have included regulatory and time-related costs in addition to the direct and indirect costs used by the engineers. Regulatory and time-related costs have become an increasingly larger portion of total costs during the last decade. In addition, these costs appeared to have either a very small economy of scale or to be increasing as the size of the power plant increased. We conclude that gains in economy of scale can only be made by reducing regulatory and time-related costs through design standardization and regulatory stability, in combination with more favorable economic conditions. 59 refs.

• Research Organization: PAI Corp., Oak Ridge, TN (USA)
• DOE Contract Number: AC05-84OR21400
• OSTI ID: 6304295
• Report Number(s): ORNL/TM-10195; ON: DE87011960
• Country of Publication: United States
• Language: English

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