Internal combustion engines and gensets: Unit economics
Cheap to buy, costly to run: the diesel genset trap
What this tab covers What it costs to move a unit of energy this way: capital and operating costs, tariffs, utilisation and how it compares with the alternatives.Engines are cheap to buy but expensive to run on diesel: fuel is 75-80% of the cost of genset power, which is why diesel electricity in India costs about Rs 25-40 per kWh (about USD 260-420 per MWh, calculated) against Rs 13-14 for gas gensets.
Key costs
| Measure | Value | Note |
|---|---|---|
| Diesel genset electricity cost (India) | Rs 25-40 per kWh (about USD 260-420 per MWh, calculated at the mid-2026 rate of Rs 95.35 per USD) INR/kWh (2024)510 | Gas gensets: Rs 13-14 per kWh. The same article also quotes Rs 25-30 for typical diesel generation. |
| Diesel genset purchase price (India, high-speed) | Rs 15-18 million per MW (about USD 160-190 per kW, calculated at Rs 95.35 per USD) INR/MW (2024)510 | Intermediate-speed (1,000 rpm) sets cost Rs 20-25 million; low-speed (600-750 rpm) over Rs 35 million per MW. |
| Gas-engine power plant capital cost (US reference) | 2,240 USD/kW (2022 dollars)6 | 21 MW plant; fixed O&M USD 39.57/kW-year; variable USD 6.40/MWh; heat rate 8,295 Btu/kWh (about 41%, calculated, HHV). AEO2023 is the latest EIA edition with an engine plant case. |
| Fuel cost, US gas engine | about 29 USD/MWh (calculated)67 | 8,295 Btu/kWh at USD 3.45 per million Btu. |
| Diesel price, Delhi | 87.62 Rs per litre (June 2024)5 | |
| Engine start time | about 7 seconds (Caterpillar G3516); 45 seconds (mtu Series 4000 L64); under 2 minutes (Wärtsilä 50SG fast start, Jenbacher J920) to full load34 | Faster than most gas turbines, which is why engines suit backup and balancing. |
Where the money goes
| Item | Share or amount |
|---|---|
| Fuel (diesel gensets) | 75-80% of generation cost (about 80% of lifetime cost)5 |
| Capital | 6-7% of total running costs5 |
| Maintenance, lubricants and labour | remainder, about 13-19% (calculated)5 |
Worked example (calculated): a litre of diesel holds roughly 10 kWh of heat (lower heating value); a genset at 38% efficiency turns that into about 3.8 kWh of electricity. At Rs 87.62 per litre, fuel alone costs about Rs 23 per kWh, consistent with the reported Rs 25-40 total once maintenance and capital are added. For a US gas-engine plant using EIA's reference figures (2022 dollars), at an assumed 8% over 25 years (capital recovery factor 0.0937) and 30% utilisation, capital and fixed upkeep come to about USD 95 per MWh and fuel plus variable costs about USD 35, roughly USD 130 per MWh. That is below Lazard's USD 149-251 for gas peakers, but mainly because the peaker range assumes only 10-15% utilisation: at 12% the engine plant would cost about USD 270 per MWh. Engines win where frequent starts and part-load efficiency matter, not on cost per MWh at very low hours.
Sources
- Wärtsilä 50SG gas engine power plant Wärtsilä, 2025
- Engine Power Plants Surge as Data Centers Drive Unprecedented Demand POWER Magazine, 2026
- Cost Benefits: Key factors driving diesel genset uptake Power Line (India), 2024
- Cost and Performance Characteristics of New Generating Technologies, Annual Energy Outlook 2023 US Energy Information Administration, 2023
- Lazard's Levelized Cost of Energy+ (LCOE+), June 2025 Lazard, 2025
- Rupee rises 15 paise to close at 95.35 against US dollar Deccan Herald (PTI), 2026