The cost of the next kilowatt-hour of generated energy, also referred to in the industry as the next unit. Incremental costs change as production increases or decreases, but these changes don't always occur in a predictable pattern. As an example, incremental costs typically decrease as production rises to comfortable capacity. But once that limit is reached, incremental costs increase because additional costs (construction of new facilities, costs of stressing production facilities, etc.) need to be factored into the cost of the next unit.

Incremental cost is often used interchangeably with marginal cost, but incremental cost is a strict value applied to the next unit only, whereas marginal costs are often expressed as averages of large numbers of next units.

See also: