Everything about Capital Cost totally explained
Capital costs are costs incurred on the purchase of
land,
buildings,
construction and equipment to be used in the production of
goods or the rendering of
services. In other words, the total cost needed to bring a project to a commercially operable status. However, capital costs are not limited to the initial construction of a
factory or other business. For example, the purchase of a new
machine that will increase production and last for years is a capital cost. Capital costs don't include
labor costs except for the labor used for construction. Unlike
operating costs, capital costs are one-time expenses, although payment may be spread out over many years. Capital costs are fixed and are therefore independent of the level of output.
A
fossil fuel power plant's capital costs include the purchase of the land the plant is built on, permitting and legal costs, the equipment needed to run the plant, the cost of the plant's construction, the cost of financing and the cost of commissioning the plant incurred prior to commercial operation of the plant. They don't include the cost of the
natural gas,
fuel oil or
coal used to fire the plant once the plant enters commercial operation or any
taxes on the
electricity that's produced. They also don't include the labor used to run the plant or the labor and supplies needed for
maintenance.
Government generally provides subsidies through
investments and
partnerships in the initial capital costs of
research and manufacturing infrastructure that can't be matched by
investor owned companies.
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