The construction of an electric power generation plant is a highly complex process that demands thorough planning, multidisciplinary technical knowledge, and efficient coordination of human, material, and financial resources.

Building a power plant involves much more than simply choosing a technology or selecting land; it is a complex process that requires strategic planning, regulatory compliance, and a long-term vision.

The first step is to define what kind of power plant will be built, knowing the type of primary energy available in the area, where it will be constructed; carrying out topography studies, geology, reviewing access routes, connectivity, and water availability in case it is required, based on the type of electricity generation.

Once the above is established, there must be an analysis of regulatory requirements and permits, identifying how to enter the electricity market, and submitting all the required documentation to government agencies, which should include environmental and social impact studies as well as community permits if applicable. All this is to obtain approval to request interconnection to the electricity grid market or to be an isolated system. After fulfilling these requirements and having the final plant design, financing sources should be sought or, alternatively, budget funds from a country.

At this point, before deciding to continue with construction and operation of a plant, a brief analysis should be done questioning the exit cost, whether the plant will cover operating costs when operational; the investments made, which will be linked to a period according to the useful life of this new infrastructure, and will depend on the percentage of energy produced based on installed capacity.

Installing a power plant is not simply about saying, I have land and I can place a power station; we must establish if there are transmission lines, substations, know the climatic conditions that may affect the plant, physical security, proximity or distance from communities; and above all establish the investment recovery time, whether public or private, since it is money that has a cost over the life of the plant.

The following list presents some general data that can be considered for the construction of a power plant, using sources from the International Energy Agency, the U.S. Energy Information Administration, and analysis by Lazard regarding the Levelized Cost of Energy (LCOE), which indicates the price needed for any plant to operate. The following data refer to the global average observed across all consulted sources, and we find, for a plant:

• Solar: construction cost alone is about 1,617 dollars per installed KW. The generation percentage relative to installed capacity is 33% (a 100 MW plant produces only 33 MW), with a useful life of 20 years. Construction time is 2 to 4 years and the LCOE cost to market is 1,102 Mexican pesos per KW. For a 100 MW capacity plant, construction cost would be about 162 million dollars, and considering its lifespan, depreciation would be 8 to 9 million dollars annually; with the LCOE cost, investment recovery could be in 10 years by selling all the energy produced daily.
• Wind: construction cost is around 1,738 dollars per installed KW. The generation percentage relative to installed capacity is 35%, and it has a useful life of 25 years. Construction time is 4 to 8 years, and the LCOE cost to market is 1,159 Mexican pesos per KW. For a 100 MW capacity plant, construction cost would be about 174 million dollars, with annual depreciation of 7 to 8 million dollars; and recovery of investment could occur in 10 years, selling all daily generated energy.
• Combined Cycle (Natural Gas): construction cost is about 898 dollars per installed KW. Generation percentage relative to installed capacity is 58%, with a useful life of 40 years. Construction time is 2 to 3 years, and the LCOE cost is 1,482 Mexican pesos per KW. For a 100 MW plant, cost is about 90 million dollars, with annual depreciation between 2 to 3 million; investment could be recovered in 3 to 5 years selling all daily energy generated.
• Nuclear: construction cost around 9,285 dollars per installed KW. Generation percentage is 93%, with a useful life of 80 years. Construction time is 8 to 10 years, and the LCOE cost is 3,420 Mexican pesos per KW. A 100 MW plant would cost about 930 million dollars, with annual depreciation of 10 to 11 million, investment recovery in 4 to 6 years selling all produced energy daily.

• Modular Nuclear Energy: construction cost is around 4,398 dollars per installed KW. Generation percentage is 93%, with a useful life of 80 years. Construction time is 3 to 5 years, and the LCOE cost is 1,922 Mexican pesos per KW. For a 100 MW plant, cost is about 440 million dollars, depreciation of 4 to 6 million annually, and investment recovery in 3 to 5 years selling all generated energy.
• Solar Thermal: construction cost is about 6,672 dollars per installed KW. Generation percentage is 34%, with a useful life of 225 years. Construction time is 4 to 6 years, and LCOE cost is 2,242 Mexican pesos per KW. Building a 100 MW capacity plant would cost around 670 million dollars, with annual depreciation between 20 to 25 million; investment recovery could take 18 to 20 years selling all produced energy.

• It should be noted that these data are global averages and depend on each country’s labor conditions, whether they are producers or importers of the technology used, as well as the type of legislation, regulations, and permits required to operate. This data only helps to understand what building a power generation plant involves. Building a power plant does not depend on goodwill or willingness alone, but on having the initial money for construction and subsequently the necessary sales to cover operations, which includes repaying project leverage.

In Mexico, we must consider this when undertaking a project.

Ramses Pech, analyst in economics and energy. Partner at Grupo Caraiva and founding partner of Grupo Pech Arquitectos.