# Internal combustion engines and gensets: Unit economics

Cheap to buy, costly to run: the diesel genset trap

Source page: https://www.materialinsights.org/energy/e_engines/economics/

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)^[5](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/)^[10](https://deccanherald.com/business/markets/rupee-rises-15-paise-to-close-at-9535-against-us-dollar-4094458) | 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)^[5](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/)^[10](https://deccanherald.com/business/markets/rupee-rises-15-paise-to-close-at-9535-against-us-dollar-4094458) | 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](https://www.eia.gov/aeo/assumptions/pdf/elec_cost_perf.pdf) | 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)^[6](https://www.eia.gov/aeo/assumptions/pdf/elec_cost_perf.pdf)^[7](https://www.lazard.com/media/uounhon4/lazards-lcoeplus-june-2025.pdf) | 8,295 Btu/kWh at USD 3.45 per million Btu. |
| **Diesel price, Delhi** | 87.62 Rs per litre (June 2024)^[5](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/) |  |
| **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 load^[3](https://www.wartsila.com/energy/solutions/engine-power-plants/wartsila-50sg-gas-power-plant)^[4](https://www.powermag.com/engine-power-plants-surge-as-data-centers-drive-unprecedented-demand/) | 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](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/) |
| **Capital** | 6-7% of total running costs^[5](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/) |
| **Maintenance, lubricants and labour** | remainder, about 13-19% (calculated)^[5](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/) |

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

1. [Wärtsilä 50SG gas engine power plant](https://www.wartsila.com/energy/solutions/engine-power-plants/wartsila-50sg-gas-power-plant) Wärtsilä, 2025
2. [Engine Power Plants Surge as Data Centers Drive Unprecedented Demand](https://www.powermag.com/engine-power-plants-surge-as-data-centers-drive-unprecedented-demand/) POWER Magazine, 2026
3. [Cost Benefits: Key factors driving diesel genset uptake](https://powerline.net.in/2024/07/30/cost-benefits-key-factors-driving-diesel-genset-uptake/) Power Line (India), 2024
4. [Cost and Performance Characteristics of New Generating Technologies, Annual Energy Outlook 2023](https://www.eia.gov/aeo/assumptions/pdf/elec_cost_perf.pdf) US Energy Information Administration, 2023
5. [Lazard's Levelized Cost of Energy+ (LCOE+), June 2025](https://www.lazard.com/media/uounhon4/lazards-lcoeplus-june-2025.pdf) Lazard, 2025
6. [Rupee rises 15 paise to close at 95.35 against US dollar](https://deccanherald.com/business/markets/rupee-rises-15-paise-to-close-at-9535-against-us-dollar-4094458) Deccan Herald (PTI), 2026

## Other sections

- [Summary](https://www.materialinsights.org/energy/e_engines/index.md)
- [Overview](https://www.materialinsights.org/energy/e_engines/overview/index.md)
- [Correlation](https://www.materialinsights.org/energy/e_engines/correlation/index.md)
- [Science and limits](https://www.materialinsights.org/energy/e_engines/science/index.md)
- [Value chain](https://www.materialinsights.org/energy/e_engines/valuechain/index.md)
- [Engineering methods](https://www.materialinsights.org/energy/e_engines/methods/index.md)
- [Equipment and suppliers](https://www.materialinsights.org/energy/e_engines/equipment/index.md)
- [Relationships](https://www.materialinsights.org/energy/e_engines/links/index.md)