Building a fossil fuel power plant requires a significant initial investment, known as Capital Expenditure (CAPEX). This investment covers all costs needed to bring the facility from concept to commercial operation, excluding fuel and ongoing maintenance. Since power plants vary dramatically in size, the most meaningful metric for comparing construction costs is the overnight cost per kilowatt (\(\text{/kW}\)) of electrical generating capacity. This unit cost allows for comparison between technologies, regardless of a plant’s total megawatt output. The final price is influenced by the specific technology chosen, the physical components required, and external market and regulatory conditions.
Capital Costs of Different Fossil Fuel Technologies
The choice of fossil fuel technology determines a plant’s initial capital cost per kilowatt. Natural Gas Combined Cycle (NGCC) plants typically represent the lowest \(\text{/kW}\) investment among utility-scale fossil fuel options. These highly efficient facilities capture waste heat from the gas turbine to generate additional electricity via a steam turbine, a process that can reach efficiencies over \(\text{60%}\). Recent large-scale NGCC projects have reported overnight capital costs ranging broadly from about \(\text{\\)670/kW}$ to over \(\text{\\)2,500/kW}$, reflecting volatility in equipment and construction markets.
Simple Cycle Gas Turbine (SCGT) plants are used primarily for quick-start, peak power generation. While their overall efficiency is lower than NGCC, their capital cost per kilowatt generally falls between \(\text{\\)700/kW}$ and \(\text{\\)1,544/kW}$. SCGT plants require a smaller physical footprint and less complex Balance of Plant (BOP) equipment, leading to a lower total initial investment, but they are built for shorter operating hours.
Coal-fired power plants, particularly modern Ultra-Supercritical (USC) units, represent the highest capital cost among fossil fuel options. A new USC coal plant can have an overnight cost exceeding \(\text{\\)4,000/kW}$. This high figure is driven by the complexity of the steam cycle and the substantial cost of mandatory environmental control systems.
The inclusion of advanced pollution controls significantly increases the capital cost for coal plants. Examples include Flue-Gas Desulfurization (FGD) systems for sulfur dioxide or Selective Catalytic Reduction (SCR) for nitrogen oxides. Adding Carbon Capture and Storage (CCS) technology to either a coal or natural gas plant further escalates the initial investment. A combined cycle plant with \(\text{90%}\) carbon capture can push the capital cost into the \(\text{\\)2,700/kW}$ to \(\text{\\)2,800/kW}$ range, which is roughly \(\text{25-40%}\) higher than a similar plant without CCS.
Major Components of Plant Construction Expenses
Total capital expenditure is divided into three categories: equipment, the Balance of Plant (BOP), and Engineering, Procurement, and Construction (EPC) services. The cost of core equipment is often the largest component, dominated by the main power generation machinery. This includes the gas and steam turbines, heat recovery steam generators (HRSGs) in NGCC plants, and large boilers and generators.
For a natural gas plant, the core turbine equipment alone can account for up to \(\text{40%}\) of the entire capital cost. The price of this specialized machinery is influenced by manufacturer pricing, order backlogs, and the need for components designed to withstand extreme temperatures and pressures.
The Balance of Plant (BOP) costs cover all auxiliary systems and physical infrastructure necessary for the plant to function. This category includes piping networks, electrical switchgear, transformers, water treatment facilities, and control systems. Civil works, such as foundations, structural steel, and cooling towers, are also included within the BOP scope.
The final category is the cost of Engineering, Procurement, and Construction (EPC) services, often grouped as soft costs. This covers wages for the workforce, fees for specialized engineering design, and costs associated with project management and contractor overhead. The EPC component also includes commissioning and startup activities, ensuring the facility operates reliably before being handed over to the owner.
External Factors That Influence Project Costs
Beyond the physical components, external factors introduce significant variability to the final capital cost of a fossil fuel power plant. The specific location and the associated site preparation costs can dramatically alter the budget. Land acquisition, the need for extensive geological surveys, and the challenges of building on unstable or seismic ground often require expensive civil engineering solutions.
Infrastructure access adds another layer of expense, particularly the cost of connecting the plant to the existing electrical grid via transmission lines and to the fuel supply via new pipelines. These interconnection costs are often paid by the project owner and can add hundreds of dollars per kilowatt to the total price tag.
The cost of capital, or financing, is a dynamic variable that can be substantial for projects lasting several years. High interest rates during the construction period mean that the money borrowed to fund the initial CAPEX accrues significant cost before the plant generates any revenue. Regulatory and permitting timelines also contribute to cost escalation, as lengthy approval processes for environmental impact studies or zoning permits can delay the start of construction, thus increasing financing charges and project management overhead.
Economy of scale dictates that larger plants often have a lower capital cost per kilowatt than smaller ones. A \(\text{1,600}\) megawatt (MW) combined cycle plant, for example, will generally achieve a lower \(\text{/kW}\) cost than a \(\text{400}\) MW plant. Spreading the fixed costs of engineering, site preparation, and permitting across a larger generating capacity dilutes the unit cost, making larger projects more economically attractive.