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An Empirical Cost Analysis of Electricity from Diesel Powered Electrical

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International Journal of Engineering Innovation & Research

Volume 4, Issue 3, ISSN: 2277 5668

An Empirical Cost Analysis of Electricity from Diesel

Powered Electrical Generator
K. A. Akinlabi

V. O. Oladokun

Email: tundelabi@yahoo.com

Email: vo.oladokun@ui.edu.ng

Abstract Diesel Powered Electrical Generator is mostly

used as Captive Power Plant by homes and businesses in
Nigeria due to epileptic public power supply. There is need to
develop a model for determining the Unit Cost of Electricity
(Naira/KWh) generated and also evaluate the effect of
Exchange Rate, Crude Oil price and Diesel price on the Unit
Cost. This study considers Unit Cost of Electricity as a
function of Annual Cost and Effective Energy Output. The

With the crisis in the sector as result of the relatively poor

generating capacity and fragile transmission/distribution
systems, Nigeria is experiencing electricity poverty with
meagre electricity per capita of 140Kwh against a
Report Work
projected requirement of 1,110Kwh [10],[6],[7], [1].Most
consumers have resorted to in-facility captive power plants
to meet their industrial and non-industrial requirements.

Annual Cost comprises the Fuelling Cost, Routine Service

Cost, Parts Repairs Cost and Miscellaneous Cost. The data
for the work was sourced from banking sector being Cost
Sensitive and having higher data integrity compared with
public sector. The analysis breaks the total cost into Fuelling

These
Power
plants,
mostly
powered
diesel
enginesCaptive
help the
industry
players
render
their by
business
services with minimal disruption to service delivery and
ensure prompt and efficient customer services. They will
continue to play important roles in bridging the supply gap

public sector. The analysis breaks the total cost into Fuelling
Cost at 86%, 12% for Servicing, Repairs 0.8% and
Miscellaneous 1.2%. The calculated average Unit Cost of
Electricity is N33.20/KWh. There is relative significant
contribution of each variable on the Unit cost with exchange
rate having most significant effect. It also shows that 63.7%

continue to play important roles in bridging the supply gap

in electricity. Also many of the new players in the
deregulated power are augmenting their energy supply
base with diesel powered captive systems[3]. There is a
need therefore to have a pricing template and framework

of the variance in Unit Cost of Electricity can be attributed to

composite contribution of Exchange Rate, Diesel Prices and
Crude Oil Prices.

for
cost The
benchmark
forof diesel
powered
electricity
system[5].
objectives
this study
are to develop
an
empirical cost model for determining the Unit cost of
Electricity (Naira/KWh) from Diesel Generator and
evaluate the effect of some macroeconomic parameters
such as the Naira Exchange Rate, Crude Oil price and
Diesel price etc on the cost.

Keywords
Captive Power, Costing, Diesel Generators,
Electricity, Electricity Pricing.

I.INTRODUCTION
An analysis of Nigeria's electricity supply problems and
prospects found that the electricity demand in Nigeria far
outstrips the supply, which is epileptic in nature. The acute
electricity supply hinders the country's development,
notwithstanding the availability of vast natural resources
in the country [2]. The need for empirical cost analysis of
running diesel generator cannot be over emphasized
because over 60% of the Nigeria population depends on
diesel powered generator [4]. With less than 40% of the
population of the country having access to regular
electricity from the national grid there is obviously a wide
gap to be bridged in order to meet national aspiration for
development. Nigerias energy crisis is exemplified by
such indicators as electricity black-outs and brown-outs
and pervasive reliance on self-generated electricity.
Nigerias double digit transmission and distribution losses
considered extremely large by international standards are
among the highest in the world [6], [7]. Some of the
problems that have confronted the power sector in
Nigeria are poor maintenance planning, inadequate
funding, poor electricity pricing, monopoly, lack of proper
energy mix, inadequate gas supply, vandalizing of power
facilities, poor inventory management and drought. Also
fresh investments in the power sector stagnated for a long
time with no new infrastructure built in the country for the
period between 1989 and 1999 and the newest power
plant, before the current deregulation, was built in 1990.

II.UNIT COST OF ELECTRICITY

Cost is an amount paid or required in payment for a
purchase. The Unit cost of electricity (Naira/KWh)
generated by different sources is a calculation of the cost
of generating electricity at the point of connection to a
load or electricity grid[8]. Typical operating costs of
generating electricity from diesel generator consist mainly
of operation, maintenance and repair costs, fuel costs, site
and overall system supervision. The servicing cost
includes the costs of fuel filter, oil filter, oil, air filter,
handling and sundries, labor, transport and value added tax
[9]. A unit cost is the cost of producing one unit of output
or providing one unit of service. Unit costs are determined
by dividing the total cost of inputs used to produce outputs
by the total quantity of units of output produced. Basically,
it is the relationship of resources consumed to outputs
produced.
Unit Cost =

Total Cost
Total Output

III.MODEL DEVELOPMENT AND DATA

GATHERING
Three Data Collection Cards were designed by this
study to collect data on the basic and operational
information of the Generator, Monthly running cost and

Copyright 2015 IJEIR,

428 All right reserved

Copyright 2015 IJEIR,

428 All right reserved

International Journal of Engineering Innovation & Research

Volume 4, Issue 3, ISSN: 2277 5668

expenses(in Naira), Load (KW) and Period of Usage

(hours). The data were collected from a cluster of twelve
branches of a first generation highly rated commercial
bank in Nigeria: the case study branches are located in
Ibadan Southwest Nigeria. Data cover a twelve month
contiguous operational period of January to December
2013.
The choice of the banking sector for the study is
predicated
on the
factor
Nigerian
banks,operation
more thancosts
any
other sector,
keeps
record
of their
especially for the statutorily required account auditing
exercise. Also being a very competitive sector Nigerian
banking player is under constant pressure to minimize
operational costs. Hence that sector being a cost sensitive
one runs relatively efficient resource utilization
operations: we assume this will impact on their power
system. In fact a recent Banking Cost Management report
by a leading global consulting group Accenture reported
that Nigeria banking executives have adopted various
aggressive cost reduction these efforts exceed most other
industries[11].

IV.MODEL FORMULATION
Unit cost of Electricity in this work has been conceived
to be a function of the Total Cost of generating Electricity
and
Effective
Energy
with that
cost.
The the
Cost
comprises
the Output
Fuellingproduced
Cost, Routine
Service
Cost, Parts Repairs Cost and Miscellaneous Cost.
Effective Energy Output is the total power output in KWh

mUCE:
EEO:
ATCE:
MCE:

Unit Cost of Electricity/month (/kWh)

Effective Energy Output(KWh/yr)
Annual Total Cost of Electricity ()
Monthly Cost of Electricity ()
mFC: Monthly Fuelling Cost()
mRSC: Monthly Routine Service Cost ()
mPRC: Monthly Parts Repairs Cost ()
mMC: Monthly Miscellaneous Cost ()
aFC: Annual
()Cost ()
aRSC:
AnnualFuelling
RoutineCost
Service
aPRC: Annual Parts Repairs Cost ()
aMC: Annual Miscellaneous Cost ()
t: Total time of operation/months (Hrs)
T: Total time of operations/annum (Hrs)
UCE: Unit Cost of Electricity (/kWh)
PR: Real Power Rating (KW)
Pr: Apparent Power Rating (KVA)
Pf: Power Factor (%)

VI.MODEL FOR COST OF ELECTRICITY

Unit Cost of Electricity/Month is a function of the
Monthly Cost of generating Electricity (MCE) and
Effective Energy Output (EEO) from the generating set.
That is
mUCE = fMCE,

EEO
Or Unit Cost of Electricity/annum
UCE = fATCE,

EEO.

+ mRSC + mPRC + mMC

Where MCE = fmFC

+ aRSC+ aPRC + aMC.

OrATCE = faFC

Effective Energy Output is the total power output in KWh

within the reference period, e.g annually. The following
assumptions were adopted for the analysis:
a) The diesel generators were assumed to operate under
ideal optimum conditions without breakdowns due to
sabotage throughout their normal working life.
b)
Maintenance is effective enough to minimize the effects
of depreciation.

V.NOTATIONS AND TERMINOLOGIES

The notation and terminology adapted in this study are
as follows:

However with Effective Energy Output

EEO = PR T = PF Pr T

UCE =

ATCE
PR T

(aFC+aRSC +aPRC +aMC)

PF Pr T

(1)

VII.DATA ANALYSIS
Factor

Contribution: Using

real life electricity

consumption and cost data in twelve branches of a leading
bank the components of equation 1 were obtained for a
one year period. Table 1.0 shows the power consumption
data for the twelve branches

Table 1: Unit Cost of Electricity (UCE) per Branch

Branches

Maximum

Generator

Apparent

Power

branch
Load
(Kw)

Size (kva)

Power
Rating
Pr(Kw)

Rating
PR(Kw)

Total Period

Effective

of
Energy
Output
Operation/a
/annum
nnum T(hrs)
PRT(Kwh)

Annual Total

Unit Cost

Cost of
Electricity
ATCE()

of
Electricity
(/Kwh)

1
2
3
4
5
6

A
B
C
D
E
F

160.64
53.18
59.16
56.93
59.27
62.71

350
160
150
114
114
114

280
128
120
91.2
91.2
91.2

224
102.4
96
72.96
72.96
72.96

2945
693
1784
1780
1652
1876

659680
70963.2
171264
129868.8
120529.92
136872.96

9059371
2770554
5689104
3847563
3600296
4039996

13.73
39.04
33.22
29.63
29.87
29.52

7
8
9
10
11
12

G
H
I
J
K
L

65.68
52.25
48.61
37.60
35.59
31.79

114
100
80
65
60
60

91.2
80
64
52
48
48

72.96
64
51.2
41.6
38.4
38.4

2307
1148
2019
2004
2039
1771

168318.72
73472
103372.8
83366.4
78297.6
68006.4

2983796
2519300
2697104
2522596
3011996
2878796

17.73
34.29
26.09
30.26
38.47
42.33

Copyright 2015 IJEIR, All right reserved

429

International Journal of Engineering Innovation & Research

Volume 4, Issue 3, ISSN: 2277 5668

While Figure 1.0 is the summary of the percentage

contributions of the four costs.
The effect of the Exchange rate (Naira/dollar), Crude
Oil Price and Diesel Price, (sourced from CBN and OPEC
websites) were also considered on the Unit Cost of
Electricity on a monthly basis. The average UCE across
the 12 locations are shown in Table 2.0 and graphically
depicted in Fig 2.0.

Cost Elements Percentage

Contributions
[FC=86%,RSC=12%,PRC=0.8%,
MC=1.2%]
FC
RSC
PRC
MC

Fig 1. Percentage Contribution of the Cost Elements to

UCE

Further analysis (Table 3.0) shows the Pearson Moment

Correlations between the Independent Variables
(Exchange Rate, Diesel Prices and Crude Oil Prices) on
Unit Cost of Electricity, it reveals that there is highly
statistical significant effect of Exchange Rateon Unit Cost
of Electricity, significant at P<0.05. The computed
outcome has significant at (2 tailed) p=0.025. There are
moderate positive correlation (r = 0.318 and 0.281)
betweenCrude Oil Prices, Diesel Prices and Unit Cost of
Electricity, which implies that a unit increase in crude oil
price or Diesel price leads to an increase in the Unit Cost
of Electricity. It also reveals that there is a negative
correlation (-0.575) between Exchange Rateand Unit Cost
of Electricity. That is a unit decrease in Exchange Rate or
Diesel price leads to a decrease in the Unit Cost of
Electricity. The table also shows that 12 months were
considered in the study.
If Crude Oil Price, Diesel Price and Exchange rate are
x1, x2and x3respectively and Unit Cost of Electricity is y;
we can deduce that:-

y = 0.318x1 + 0.281x2 + 0.575x3

180
160
140
120
100
80
60
40
20
0

Exchange Rate
(Naira/Dollar)
Crude Oil Prices
(USD/Barrel)

(2)

Fig.2. Graphical Relationship of UCE and the 3 Variables

Month YR2013
January

Table 2: UCE vs Each Variable for the Year 2013

Exchange Rate
Crude Oil Prices
Diesel Prices
Calculated Unit Cost of Electricity
(Naira/Dollar)
(USD/Barrel)
(N/Litre)
N/kWh
156.0307
105.04
155
45.46

February

157.6153

107.66

150

38.89

March
April

158.1808
158.5541

102.61
98.85

155
150

31.24
27.65

May

158.1168

99.35

154

32.06

June

158.1827

99.74

150

32.53

July

161.9665

105.21

145

29.70

August

160.3323

108.06

148

32.73

September

162.5581

108.78

150

30.06

October
November

161.0322
158.9478

105.46
102.58

150
155

34.57
30.53

December

158.4909

105.49

156

32.94

Copyright 2015 IJEIR, All right reserved

430

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