Interest on Capital Invested in Construction

A rational method proposed for calculating interest accumulation on capital invested in construction facilitates the estimation of average unit cost of energy throughout the life of an electric utility project. The accumulated interest is related to the time elapsing between increments of construction expenditure and buildup of energy demand. The sum of the net first cost and the accumulated interest, divided by the plant capacity, gives the unit cost per kilowatt of capacity to be used as a rate base. Annual interest, depreciation, operating, maintenance, and other charges applied to this rate base by conventional methods give directly the average unit cost of energy throughout the life of the project. The simplicity of the method proposed for calculating unit costs is illustrated by an example.