Generation Tariff

T K Ray
Senior Faculty Member

Power Management Institute

NTPC Limited

rayt3@asme.org

11-Nov-10

T K Ray NTPC

Presentation Outline
Electricity Pricing
Cost elements
elements, Objectives
Objectives, Power gen
gen. eco
eco.
Single part and two part tariff
ABT
Features, Mechanisms, Benefits
Scheduling, Real Time Operation
Trading Opportunities

11-Nov-10

T K Ray NTPC

C t Elements
Cost
El
t
Fixed costs
Interest on loan,, Return on equity,
q y, Depreciation,
p
,
O&M expenses, Insurance, Taxes , Interest on
working capital

Variable costs (Fuel costs)

Coal
C l and
d oilil iin case off th
thermall plants
l t
Nuclear fuel in case of nuclear plants

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Objectives to be fulfilled
Encourage economic generation
Save
S
natural
t l resources
Help protect environment

Ensure grid stability

Protect equips. of customers and generators
Import = Load - Gen

Establish a level playing field

For all the constituents

Beneficiary

Gen

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Load

Power Generation Economics

Preference to units with lower incremental cost of gen.
when load demand increases

Priority
P i it tto plants
l t with
ith llower variable
i bl costt off gen.
when reserved units are to be in service

Low price in power surplus situation

High price in power deficit situation

11 November 2010

REC Presentation

Evolution of tariff

Single part

Two part- K P Rao

ABT

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Single Part Tariff

FC used to be calculated assuming Gen. at 5500 hrs
This rate was used even if generation was higher
than 5500 kWh/kW/yr
Collection of fixed charges above the actual fixed charges.
GENCOs started dumping power even when frequency was high.
SEBs found that total cost to be paid to GENCOs was higher than
the marginal cost of their station.
Led to sharp
p diff. bet. CGs & SEBs on who should back down.
Discouraged Merit Order Operation

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Since November92, the tariff notifications for different stations based on

K.P. Rao committee recommendations were issued by GOI
It has two parts:

Recovery off charges

1. Fixed Charges
2 Variable charges
2.

Fixed charges were recoverable at 62.8%

Availability

Fixed charges include

1. Return on equity
2. O&M charges
3. Interest on loans
4. Interest on working capital
5. Depreciation.
6. Taxes and Duties

Incentive at the rate of 1 P/kWh for every

1% increase in PLF
above 68.5%
Availability.
Disincentive as graded reduction in fixed
charges below 62.8% subject to a
minimum of 50% of fixed charges at nil
generation.
ti
Fixed charges and incentives/ disincentive
are paid by beneficiaries in proportion to
their energy drawals.

Variable Charges i.e. cost of fuel, varies

directly with level of generation, consists of Variable charges in P/kWh subject to FPA
1 Primary fuel (Coal/Gas)
1.
2. Secondary fuel - Oil
SEBs saw this as a flat rate as recovery of fixed charges was based on energy drawals.

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K P Rao /GOI Tariff Recovery

y
Fixed Cost of SEB A for the year = AFC x EA/TE
EA = Energy drawn by SEB A in a particular year
TE = Total Energy sold in the year
AFC = Annual Fixed Cost to be paid based on annual
availability (deemed PLF)
one beneficiary to pay at a higher rate due to less drawal by another

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ProblemsinGridoperation
Peak
Freq
Freq.
(Hz)
Load
(MW)

Off-Peak
Ti (hours)
Time
(h
)

1 Low frequency: 2 High frequency: 3 Rapid change:

48 48.5
48 5 Hz
50.5
50
5 51 Hz
H
1 Hz
H iin 5 10
minutes;
many hours everyday
4 Frequent grid disturbances:
Generator tripping,
supply interruptions,
grid disintegration
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Frequency
q
y problems
p
Wide frequency fluctuations:
- cause serious damages at generation/load ends
- damages are not perceived, quantified or evaluated
- not acceptable all over the world
No progress has been made to control these problems due to:
- absence of direct incentives or penalties for the utilities
- reluctance to introduce financial incentives or disincentives

Conflicting commercial interest in the tariff structure- SEBs/CGs

Lack of generating capacity and transmission systems

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Central Transmission Utility (CTU)'s

resol tion
resolution

Maximisation of generation

Load curtailment equal to the deficit in generation.

Peak

Load
(MW)

Off-Peak

Backingdownofgenerationtomatchthesystemload
ki d
f
i
h h
l d
reductionkeepingthemeritorderofgenerationinview

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Presentation Outline
Electricity Pricing
Cost elements
elements, Objectives
Objectives, Power gen
gen. eco
eco.
Single part and two part tariff
ABT
Features, Mechanisms, Benefits
Scheduling, Real Time Operation
Trading Opportunities

11-Nov-10

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13

Availability based Tariff

Recommended by M/s ECC of USA in 1994, under a study sponsored by the
World Bank and ADB.

ABT implementation
Western region: July 2002
Northern region: December 2002
Southern Region: January 2003
Eastern Region: April 2003
North Eastern Region: November 2003

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Tariff Determination

Section 62 of the Electricity Act 2003

Tariff for supply of electricity by a generating company to a
distribution licensee to be determined by Appropriate Commission

As p
per Sec 79,, CERC has the jjurisdiction to regulate
g
tariff for the
generating companies owned & controlled by the CG

CERC from time to time notifies the tariff Regulations

which specify the principles and methodology for working out
the tariff of generating companies under its jurisdiction.

CERC has notified the Tariff Regulation applicable from

1.4.2009 to 31.3.2014

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ABT Features

First ABT order dated January 4, 2000 of CERC

A day is divided into 96 time blocks of 15-minute each; Dayahead declaration for each time block:
Availability by Generators and Demand by beneficiaries;

Capacity Charges
based on the availability or DC of the generating station

Energy charges
based on scheduled drawal by the beneficiary

UI charges
payable/receivable by both generators/ beneficiaries for
deviating from the schedule; also subject to the grid conditions

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ABT Features
Capacity charges are recovered at NAPAF & pro-rata recovery
below that.
that For generation above NAPAF,
NAPAF incentive at the rate of 25
P/kWh beyond NAPAF (DC=85%).
Energy charges are based on actual fuel price and normative
operating parameters. Energy charges are paid based on scheduled
generation.
UI charges
h
are linked
li k d to
t frequency
f
and
d are levied
l i d on deviations
d i ti
from schedules.

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Part I: Capacity (Fixed) charge

Annual Capacity Charge (ACC) payable to the generator =
Annual Fixed Charge (AFC) * Availability (%)
--------------------------------------------------------85%
25 MW

ISGS 500 MW

Aux
475 MW ex-bus

SEB1
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SEB2
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AFC components
a) Return on equity;
b) Interest on loan capital;
c) Depreciation;
d) Interest on working capital;
e) Operation and maintenance expenses;
f) Cost of sec fuel oil (for coal-based and lignite stations);
g) Special allowance in lieu of R&M or separate
compensation allowance, wherever applicable.

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The capacity charge (inclusive of incentive) payable to a

thermal generating station for a calendar month shall be
calculated in accordance with the following formulae
Generating station in Commercial Operation<10 years

Generating station in Commercial Operation>10 years

AFC x ( NDM / NDY ) x ( PAFM / NAPAF )

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11-Nov-10

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Part
a t II. Energy
e gy (Variable)
( a ab e) charge
c a ge
The energy charge is worked out on the basis of
P/kWh rate on ex-bus energy scheduled to be sent out
from the generating station

Energy
gy Charges
g
= ECRX RLDC SG(Ex-Bus)
(
)

ECR = { (GHR SFC x CVSF) x LPPF / CVPF} x 100 / (100 AUX)

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Part III. UI Charge

Designed to ensure grid discipline
Only paid when deviation from the schedule
based on actual & scheduled generation/drawal

Average Frequency linked charge

worked out for each 15 min. time block

Drawing power from

surplus grid: low cost
deficit grid: high cost
UI charges will accrue to the benefit of the party who is
adversely affected on account of the indiscipline

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UI Charges

UI RATE
U

UI RATE Vs FREQUENCY
800
700
600
500
400
300
200
100
0
48.5

UI RATE

735, 49.2

UI RATE FOR
BENEFICIARIES

408, 49.62

UI RATE FOR
GENERATORS

480, 49.5
180 50
180,

49

49.5

50

50.5

FREQUENCY

UI rate is capped at 408 paise per kWh for all generating stations using coal or
li it or gas supplied
lignite
li d under
d Administered
Ad i i t d Price
P i Mechanism
M h i
(APM) as the
th fuel
f l in
i
case when actual generation is higher or lower than the scheduled generation in the
frequency range between 50.3
50 3 Hz and upto 49.2
49 2 Hz
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Day by day Scheduling

The station foresees a capability
p
y to deliver 900 MW ((exbus) on the next day, and advises the same to the RLDC
by 9 AM.
p, and advise the three SLDCs
The RLDC would break it up,
by 10 AM that their entitlements in the Central station for
the next day.
Entitlements in the other Central stations would also be
advised by RLDC to the SLDCs similarly.
Simultaneously, the SLDCs would receive availability
status from their intra - State stations as well.
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Scheduling and Mechanism of Operation

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 They would then carry out a detailed exercise as to how

best to meet the expected
p
consumer demand in their
respective States
For this, they would compare the variable costs of
various intra - State p
power stations,, and with energy
gy
charge rates of the CGS
The total dispatch schedule for the CGS of 900 MW
during
g the day
y time and 740 MW during
g the night
g hours

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 This would be issued by the RLDC by 5 PM, and would

be effective from the following midnight
unless
l
modified
difi d iin th
the iintervening
t
i h
hours

States A, B and C shall pay CC for the whole day

corresponding to DC of 270, 270 and 360 MW
and the GS would get CC corresp.
corresp to 900 MW
MW.

EC payments by the three States would be for 270 x 24

MWh, 270 x 24 MWh, and (200 x 24 + 160 x 16) MWh.
att the
th specified
ifi d EC rate
t off the
th generating
ti station
t ti .

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Deviation from Schedule

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Trading Opportunity
GeneratingStations
The two areas marked X represent the off-peak
hour capability
p
y of the Central generating
g
g station
i)

Back down the station during off-peak hours,

the station gets CC for the day corresponding to its
DC (900 MW), and EC to fully recover its fuel cost
for generating the scheduled quantum of energy.
energy

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Trading Opportunity
Generating Stations
GeneratingStations
ii) Find a buyer (other than State - C)
As long as the energy sale rate agreed upon is higher
than the fuel cost per kWh of the station.
It

would

also

reduce

the

technical

problems

associated with backing down of the station and

i
improve
th stations
the
t ti efficiency.
ffi i
The agreement has to be non-firm or interruptible.
Low price
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Trading Opportunity
GeneratingStations

iii) The station may accept the schedule given by the RLDC,
but generate power to its full capability of 900 MW even
during off-peak hours.

11-Nov-10

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Trading Opportunity
State
The options for the generating station arise only in
case a State
St t has
h nott requisitioned
i iti
d it
its ffullll entitlement
titl
t in
i
the first place.
In fact, the same three options are available to State C before they get passed on to the Central station
C,
i) Requisition power from the Central station only
as per its own requirement,
requirement and draw power as per
the resulting schedule.
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Trading Opportunity
State
ii) Requisition full entitlement of 360 MW from the Central
station for the entire 24 - hour period, find a buyer for the offpeak surplus, and schedule a bilateral sale. This would make
sense as long as the sale rate per kWh is more than the
energy charge rate of the Central station.

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Trading Opportunity
State
iii) Requisition the full entitlement for the entire 24 - hour
period but draw power only according to its actual
period,
requirement . UI

Availability of various and similar options

options, both for
the beneficiaries and for the generating companies,
means that the mechanism is sound and equitable.

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Real time operation

What all can happen on the day of operation?

1))

Prospective
p
revision of ISGS availability
y

Entitlement revised for remaining part of the day.

States options
Rework the requisitions to ensure maximum economy in
the operation of power system in the state.

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Real time operation

2)

Tripping of an ISGS unit

Immediate frequency dip

All units pick up extra MW

St t (SEB)s
State
(SEB) drawal
d
l reduces
d
and
d it receives
i
UI
payment

States options
Draw less than schedule & get UI
Reduce net drawal further by increasing own
generation & get additional UI
Draw as per schedule & forego UI
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Real time operation

3)

Tripping of the States own generating unit?

Statess net drawal increases and it has to pay UI

State

States options
Continue to overdraw and pay UI
Reduce
R d
nett drawal
d
l by
b lload-shedding
d h ddi or b
bringing
i i
up all available generation

Increase ISGS requisition

Enter into bilateral with other SEBs for idle

capacity,
p
y, if anyy
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Real time operation

4)

Load crash in the state

Frequency increases and state underdraws from the
grid with UI implications
St t options
States
ti

Reduce own g
generation if respective
p
energy
gy rate is higher
g
than the UI rate

Restore disconnected loads (if the recovery rate is higher

then the UI rate))

Reduce ISGS requisition if ISGS energy rate is higher

than the UI rate

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Penalty for Gaming

Generator required
q
to demonstrate the declared capability
p
y as and
when asked by the RLDC of the region

Penalty for: Over declaration to increase fixed charges

First time: charges corresponding to two days fixed charges.
Second time: fixed charges for four days
Subsequent time: multiplied in the same geometrical progression

Penalty for: Under declaration to increase unscheduled

interchange charges
UI charges for extra generation reduced to zero;
Amount credited towards UI account of beneficiaries in the ratio of
their share

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ABT Advantages

By bifurcating the method of charging (CC & EC), the incentive

for trading in power is enhanced:
(i) beneficiaries have a claim on the capacity, which
they can trade either within or outside the region
(ii) By isolating the variable charge, a beneficiary
can again
g
trade such p
power depending
p
g upon
p its
needs, market demand and the economics of power in
the home state

Facilitates Merit Order Dispatch

Helps enforce grid discipline and control frequency excursions

More relevant incentives and disincentives encourage better

performance

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Benefits of ABT
a)

Grid discipline

b)

Effective load management

c)

Utilization of resources

d)

Merit order dispatch

e)

Power Trading

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Grid discipline: Frequency improvement

Region

post-ABT

pre-ABT

Western:
violations below 49HZ

111

267

15.3% of time

24% of time

Southern:
frequency in IEGC band

99.45% of time

31.14% of
time

Eastern:
frequency in IEGC band

95% of time

Northern:
frequency out of IEGC
band

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Thanks
tapankray@ntpc.co.in
@
rayt3@asme org
rayt3@asme.org
11 November 2010

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