# Service Costing for Power House (Electricity Generation)
## Background
Electricity is an intangible "service" sold per unit (kWh). Power houses (thermal, hydro, etc.) use service costing to determine cost per unit of electricity generated.
## Classification of Costs — Three Categories
The costs of a power house are conventionally classified into Fixed, Semi-Variable, and Variable:
### 1. FIXED COST
Costs incurred regardless of units generated:
- Rent of premises
- Rates and taxes
- Depreciation on plant & buildings
- Insurance
- Salary of permanent staff
- General administration
### 2. SEMI-VARIABLE COST
Costs that have a fixed component plus a variable component:
- Meters (some maintenance fixed, some usage-related)
- Tools and consumables
- Furnaces (firing cost partly fixed, partly variable)
- Repairs and maintenance
### 3. VARIABLE COST
Directly vary with units of electricity generated:
- Fuel (coal, gas, diesel)
- Water used in boilers/turbines
- Wages of casual labour engaged on actual production
- Note: any scrap value of raw material (e.g., ash sale) is reduced from variable cost
## Cost per Unit
```
Cost per kWh = Total Cost (Fixed + Semi-variable + Variable - Scrap value)
─────────────────────────────────────────────────────────────
Net units generated (or sold)
```
## Practical Notes
- Distinguish between units generated and units sold — transmission losses are a fact of life.
- For tariff fixation, regulators often expect classification into fixed and variable so that consumers can see a 'demand charge' (fixed) and an 'energy charge' (variable) separately.