Availability Based tariff

Presented By:WASEEM HASHMATDY.SUPDT (CHP-O)

Outline of Presentation

• Old Tariff Methodology• Chronological Sequence of Implementation of ABT• CERC Tariff regulations• Concept of ABT• How the mechanism work with scheduling• Components of Fixed cost• Computation of Energy Charge -Thermal• Advantage of ABT

OLD TARIFFOLD TARIFF

SINGLE PART TARIFF :

A system of single-part tariff was in vogue in India for pricing of thermal power prior to 1992.

The single-part tariff for a station was calculated so as to cover both the fixed cost as well as the variable (energy) cost at a certain (normative) generation level.

A sort of incentive and disincentive was inherent in the single-part tariff.

This had induced maximization of generation all the time (in peak load as well as off-peak hours).

Led to sharp difference between CGs & SEBs on who should back down.

OLD TARIFFOLD TARIFFTWO PART TARIFF :

It has two parts:

1. Fixed Charges

2. Variable charges

Fixed charges include1. Return on equity2. O&M charges3. Interest on loans4. Interest on working capital5. Depreciation. 6. Taxes and Duties

Variable Charges i.e. cost of fuel, varies directly with level of generation, consists of

1. Primary fuel (Coal/Gas)

2. Secondary fuel - Oil

K P Rao Tariff did not encourage grid discipline

Low frequency during peak hours High frequency during off-peak hours Rapid changes in frequency and fluctuating voltages

Reasons

Conflicting commercial interest in the tariff structure- SEBs/CGS

Lack of generating capacity and transmission systems

Two Part Tariff ……..Two Part Tariff ……..DrawbacksDrawbacks

Chronological Sequence of Implementation of ABT

1990 : K. P. Rao Committee – Proposed Two – Part Tariff structure consisting of Fixed and Variable charges

1993-94 : A structured study by M/s ECC, USA, funded by ADB, sponsored by World Bank as a covenant of loans to POWERGRID

→ Availability Based Tariff (ABT)

1995-98 : NTF / RTFs, formed for ABT implementation. NTF/RTF-National/Regional task force

1999 : Matter transferred to CERC : Hearings etc.

2000 : CERC Order, but stayed due to petitions

2001-02 : Problems of regional grid operation continued : Many intractable commercial disputes also arose

2002-03 : ABT implemented successfully. ADB-Asian development bank

GEN. TARIFF DETERMINATION GEN. TARIFF DETERMINATION PROCERDUREPROCERDURE

Tariff Regulations issued by CERC

Petition to CERC prepared in line with the Regulations

Financial Details Operational Details

Serve a Copy of application on each

beneficiarySUBMIT THE APPLICATION TO CERC WITH

• Proof of Dispatch of Application to beneficiaries• Address of Website hosting the Application

•Application fee draft

Post the application on Website

Publish Notice in at least two daily newspaper, one in English & other Vernacular Language within 7

days

Tariff Policy Issued by GOI taken as Guidelines by CERC

CERC Tariff Regulations

Terms and Conditions of Tariff for three year period

Effective from 1.4.2001 to 31.3.2004.

CERC Notification dated 26

March,2001,CERC Regulation-2001.

CERC Notification dated 21 September,

2001 (First Amendment).

CERC Notification dated 08 July, 2002, (First Amendment).

CERC Notification dated 01 May, 2003 (First Amendment).

Several petitions filed by NTPC during the period 2001-2004Several petitions filed by NTPC during the period 2001-2004E.g. Petition number- E.g. Petition number- R P 82/2001 in 2/99R P 82/2001 in 2/99

Petition for removing difficulties faced during ABT implementation .

CERC Tariff Regulations

CERC-(Terms & Conditions of Tariff) FY 2004-09

On 26th March 2004

Petition number- Petition number- I.A. No. 49/2008157/2004

Approval of tariff in respect of Singrauli Super Thermal Power Station (2000 MW) Approval of tariff in respect of Singrauli Super Thermal Power Station (2000 MW)

for the period from 1.4.2004 to 31.3.2009.for the period from 1.4.2004 to 31.3.2009.

CERC-(Terms & Conditions of Tariff) FY 2009-14

On 19th January 2009

Petition number- Petition number- Petition No. 225/2009

Approval of tariff in respect of Singrauli Super Thermal Power Station (2000 MW) Approval of tariff in respect of Singrauli Super Thermal Power Station (2000 MW)

for the period from 1.4.2009 to 31.3.2014.for the period from 1.4.2009 to 31.3.2014.

It is a performance-based tariff for the supply of electricity by generators owned and controlled by the central government.

It is also a new system of scheduling and despatch, which requires both generators and beneficiaries to commit to day-ahead schedules. 

System of rewards and penalties to enforce day ahead pre-committed schedules

(though variations are permitted if notified One and one half hours in advance). 

It has three parts: Fixed charge (FC) payable every month by each beneficiary to the

generator for making capacity available for use. The FC is not the same for each beneficiary.

It varies with the share of a beneficiary in a generators capacity. The FC, payable by each beneficiary, will also vary with the level of availability achieved by a generator.

Concept of ABT

Energy charge (variable charge) (defined as per the prevailing operational cost norms) per kwh of energy supplied as per a pre-committed schedule of supply drawn upon a daily basis.

Charge for Unscheduled Interchange (UI charge) for the supply and consumption of energy in variation from the pre-committed daily schedule.

This charge varies inversely with the system frequency prevailing at the time of supply/consumption.

Settlement period of 15 minutes.

Applicability - Central Stations and drawal from the grid by beneficiaries

Concept of ABT

How the mechanism work*

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TIME TABLE FOR EXCHANGE OF INFORMATION

IN RESPECT OF SCHEDULINGBy 10.00 hrs. ISGSs shall advise NRLDC the Station-wise MW and MWh capabilities

By 1100 Hrs. NRLDC shall advise the States / Beneficiaries the Station wise MW & MWh entitlements.

By 1500 hrs. SLDCs/ Beneficiaries shall communicate the Station-wise requisitions and details of bilateral exchanges to NRLDC.

By 1700 hrs. NRLDC shall convey the ex-power plant despatch schedule to each ISGS and net drawal schedule to each State / Beneficiary. The details of unrequisitioned surpluses shall also be intimated.

By 2200 hrs.* ISGSs / States / Beneficiaries shall inform the modifications, if any, for incorporating in the final schedule

By 2300 hrs. NRLDC shall issue the final despatch and drawal schedule for the next day.

* Since issuing the final despatch and drawal schedule is a critical activity and considerable time is involved in its preparation and carrying out requisite moderation, if any, it has been agreed to complete this activity by 2100 hrs.

How the mechanism work

The CGs/ISGS declare their expected output capacity for the next day to RLDC by 9 am referred as DC in MWs

RLDC break-up the DC as per beneficiaries plant-wise share and convey their entitlement to their SLDCs by 10 am.

SLDCs sent back their requisition and drawal schedule by 3 pm.

RLDC aggregates these requisitions and determines dispatch schedule (Schedule generation) for CGs and drawal schedule for beneficiaries.

duly incorporating any bilateral agreement and adjusting for transmission losses.

Schedule are then issued by RLDC to all concerned and become operational datum by 5 pm

How the mechanism work

During contingencies, the CGs can revise their DC and beneficiaries can prospectively revise requisition and schedule will be revised by RLDC.

The schedules are also used for determination of the amounts payable as energy charges.

Each day starting from 00.00 Hrs will be divided into 96 time blocks of 15 minutes intervals.

Deviations from schedules are determined in 15-minute time blocks through special metering.

These deviations are priced depending on frequency.

As frequency, AG and SG can vary ,so average of these for 15 minutes with be final figure for calculation.

Generating StationGenerating Station1000 MW1000 MW

Coal fired

Three beneficiaries A,B & C

RLDC

DC-900 MW (ex-bus) for next day

State

-A (30%

)270 MW

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10 am

State

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State

-C (40%

)360 MW

10 am

10 am 9 am

3 pm 3 pm

3 pm

The Daily Scheduling process

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Suppose requisition received from SLDC to RLDC ( by 3 pm) A- Fully requisition of their share -270 MW (24 hrs) B- Fully requisition of their share -270 MW (24 hrs) C- Requisition 360 MW during day but 200 MW during night

Now RLDC issue dispatch schedule to both generating stations as well as beneficiaries by 5 pm.

and would be effective from following midnight (unless modified in the intervening hours) and will be called Scheduled generation.

A, B and C shall pay capacity (Fixed) charge for whole day corresponding to plant availability of 900 MW.

(generating station will get fixed cost corresponds to 900MW)

Energy charge payment by three states corresponds to:

[270x24MWh ,270x 24 MWh and (360x16 + 200x8) MWh] Hence, energy charge payment will be made for scheduled generation.

The Daily Scheduling process

Forced Outage: RLDC To Revise The Schedules Based On Revised Declared

Capability As Advised By The Generator. The revised schedules to become effective from the 4th time- block

Planned Outage Or Asked By Beneficiaries: The Revised Schedules / Declared Capability To Become Effective

From The 6th Time-block.

RLDC, on its own, can revise the schedules in the interest of better system operation.

Merit Order Scheduling Beneficiaries to pay the capacity charges as per entitlement.

Energy charges on schedule generation and not on actual generation.

Comparison of own generation with UI rate based on variable charge.

Low UI At High Frequencies Encourage Backing down By Costly Units And Over Drawl By Beneficiaries.

High UI Rate At Low Frequencies Encourage Maximum Generation By All And Curtailment Of Over Drawl.

How the beneficiaries share the payment

Beneficiaries pay the fixed cost in proportion to their share in respective plant.

Payment of fixed cost dependent on Declared capacity (DC) of the plant for the day.

Variable cost paid by beneficiaries would be the fuel cost for energy scheduled to be supplied to them.( Schedule of generation as sent by RLDC).

If beneficiaries draw more power than scheduled to be supplied, he has to pay excess drawal at the rate dependent on system condition.

If beneficiaries draw less power he gets paid back for energy not drawn dependent on system condition.

The actual energy supplied by generating station may differ from what was scheduled.

This deviation from the schedule technically termed as Unscheduled Interchange (UI).

The generating station receive or pay back for excess or shortfall of the scheduled generation, supplied at a rate dependent on frequency at that time.

The relationship between UI rate and grid frequency, for the interconnected system is specified by CERC.

Latest UI regulation by CERC is effective from 03/05/2010. (First amendment of principal UI regulation-2009)

Deviation from schedule

Deviation from schedule Most recent UI regulation which was supposed to be effective

from 2nd April 2012 is on hold due to petition. (Second amendment of principal UI regulation) Below 50.2 Hz and upto 49.7 Hz, linear in 0.02 Hz step, at the rate 15.5 paise / kWh.

Below 49.7 Hz and upto 49.5 Hz, linear in 0.02 Hz step, at the rate 47.0 paise /kWh.

Below 49.50 Hz at the rate 873.00 paise /kWh.

UI rate is zero above frequency 50.2 Hz and the break even frequency was considered 50.06 Hz

Unscheduled Interchange

Additional UI for over drawal: Below 49.5 Hz to 49.2 Hz@40% of the UI Charges at 49.5 Hz of Rs. 8.73/kWh. Below 49.2 Hz @100% of the UI Charges at 49.5 Hz of Rs. 8.73/kWh

Additional UI for Under Injection:Below 49.5 Hz & up to 49.2 Hz, Additional UI is 20% of the

Unscheduled Interchange Charge of 873.0 Paise/kWh (corresponding to the grid frequency of below 49.5 Hz)

Below 49.2 Hz, Additional UI is 40 % of Unscheduled Interchange Charge of 873.0 Paise/kWh

Additional UI

UI Price Vector

04/13/23 28CERC

New UI Regulation

UI charge when Actual Generation is in excess of 105 % of Declared Capacity in a Time Block or in excess of 101 % of average Declared Capacity over a day corresponding to grid frequency interval of below 49.70 Hz and not below 49.68 Hz i.e. 403 paisa/kWh.

Earlier it was zero.

New UI Regulation

Under injection of electricity by a generating station during a time block shall not exceed 12% of scheduled injection when frequency is below 49.7 Hz and 3% on daily aggregate basis for all time blocks when frequency is below 49.7 Hz.

CAPACITY CHARGES

ENERGY CHARGES

UI MECHANISM

FIXED CHARGES

+ +

VARIABLECHARGES BALANCE

Based on Declared CapacityTarget avl-85%

Based on ScheduleGeneration

Components of ABT

for recovery of Annual

Fixed Costs)

for recovery of Primary Fuel Costs

for deviation from the schedule

As per frequency linked rate

Fixed cost – These costs are permanent in nature independent of level of production/generation.

Components of Fixed costComponents of Fixed cost : :

1. Return on Equity1. Return on Equity2. Interest on Loan Capital2. Interest on Loan Capital3. Depreciation3. Depreciation4.4. Interest on Working CapitalInterest on Working Capital5.5. Operation and Maintenance ExpensesOperation and Maintenance Expenses

New addition to AFC – New addition to AFC – Applicable for Coal Stations onlyApplicable for Coal Stations only6.6. Cost of Secondary Fuel Oil Cost of Secondary Fuel Oil **7.7. Either Compensatory Allowance for coal based stations upto Either Compensatory Allowance for coal based stations upto

25 years of life or Special Allowance in lieu of R&M beyond 25 years of life or Special Allowance in lieu of R&M beyond 25 years.25 years.**

** Included in CERC tariff regulation 2009-14 Included in CERC tariff regulation 2009-14

Annual Fixed Charges

Definition of 'Return On Equity – ROEDefinition of 'Return On Equity – ROE’(RONW)’(RONW)** The amount of net income returned as a percentage of shareholders The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation’s profitability by revealing equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have how much profit a company generates with the money shareholders have invested.invested.

ROE is expressed as a percentage and calculated as:ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income (PBTReturn on Equity = Net Income (PBT****)/Shareholder's Equity (Rs))/Shareholder's Equity (Rs) Indirect method of taking profit through fixed cost.

Every generating station has certain percentage of debt (loan) and equity i.e., 70:30 for new plant and 50:50 for existing plants, existing before 1/4/2009.(As per CERC tariff regulation 2009-14).

Certain percentage of that equity (money by shareholders) will be taken as fixed cost (percentage will be decided by CERC).

*RONW-Return on net worth **PBT-Profit before tax

1. Return on equity

ROE will be used for capacity addition or giving dividend to share holders or can be kept as reserve and surplus.

If equity employed is less than 30%, the actual equity and

loan shall be considered for determination of return on equity.

Pre Tax Return to incentivise investment in sector.

Rate of Return will be 15.5% for existing stations (CERC Regulation 2009-14)

Reason for increase in ROE is the Prime Lending Rate (PLR) of the public sector banks have increased during this period. (March 2004 10.25% -January 2009 14.00%)

Return on equity

Actual equity in excess of 30% will be treated as loanActual equity in excess of 30% will be treated as loan

ROE will be 23.481% for the companies paying normal tax.

This is given by formula:

Rate of pre-tax return on equity = Base rate / (1-t)

Where t is the applicable tax rate

Base rate is 15.5 %. t = 33.99 % for company paying normal tax.

Objective

To provide fair return on the investment by the investor and for generation of internal resources for capacity additions.

Return on equity

Return on equity

Return on equity

(CoG)(CoG)

Return on equity

(CoG)(CoG)

Approval for return on equity for SSTPS for the period 2009-14 given by hearing on petition no- 225/2009

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Products / services which are basic need of society, used by all sections of society irrespective of their status , infrastructure / basic amenities normally falls in this category . Prices/ tariffs are determined by the Govt. body / independent regulator . During the price determination , all the costs required to produce the product / services along with reasonable profit ( return on capital/equity ) are considered. Cost plus method is employed to avoid stranded cost of redundant assets , to insulate the consumers from vide market fluctuations, market abuse by dominant players .

Examples – Electricity, Petroleum, Fertilizer, Railways etc.

Price = Cost+ Profit

Cost Plus Price Mechanism

Interest on loan is calculated based on the weighted average rate of interest and applied to the outstanding loans.

Loans are reduced to the extent of repayment each year during the tariff period.

No interest element is included in tariff after repayment of the entire loan.

To be charged from 1st year of CoD irrespective of moratorium.

2. Interest on Loan CapitalInterest on Loan Capital

CERC tariff regulation 2009-14

Depreciation is an important element of cost and forms a part of the fixed cost recovery. The objective is that the recoveries through depreciation should be adequate to provide resources to the investor to replace the assets after their useful life.

Depreciable value 90% (except land).

Depreciable life:

Thermal - 25 years for both coal and gas station

Hydro - 35 years

Rates as per latest CERC notification for coal based stations 3.6% of capital cost.

AAD (Advance against depreciation) is removed from CERC Regulation 2009-14,hence rate of depreciation in increasing.

3. DepreciationDepreciationC

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9-14

Coal Based StationsCoal Based Stations

1.5 months fuel expenses for pit head and 2 months for 1.5 months fuel expenses for pit head and 2 months for non pit head.non pit head.

Secondary fuel oil for 2 monthsSecondary fuel oil for 2 months Maintenance spares @ 20% of O&MMaintenance spares @ 20% of O&M Receivables for 2 monthsReceivables for 2 months O&M expenses for 1 monthO&M expenses for 1 month

Cost of fuel wrt Price & GCV of preceding 3 months. Cost of fuel wrt Price & GCV of preceding 3 months.

Rate of interest will be SBI PLR as on 1.4.2009 Rate of interest will be SBI PLR as on 1.4.2009 and no fuel escalation will be permitted in and no fuel escalation will be permitted in working capital whereas rebate will be payable working capital whereas rebate will be payable at current priceat current price

4. Interest on Working CapitalInterest on Working Capital

CERC tariff regulation 2009-14

For SSTPSFor SSTPS

4. Interest on Working CapitalInterest on Working Capital

Petition No. 225/2009

5. Operation and Maintenance Operation and Maintenance ExpensesExpenses

COMPONENTS OF O&M EXPENSES The Operation & Maintenance cost :

Expenditure incurred on the employees including gratuity, CPF, medical, education allowances etc

+Repair and maintenance expenses including stores and consumables,

+ Consumption of capital spares which are not a part of capital cost

+Security expenses,

+Administrative expenses etc. of the generating stations

+ Corporate expenses apportioned to each generating stations

+Others (water Charge+ insurance etc)

5. Operation and Maintenance Operation and Maintenance ExpensesExpenses

Methodology adopted by CERC while fixing O&M Norms The actual O&M expenses of Central utilities for the years

2003-04 to 2007-08 are taken and then averaged.

Then incentive & ex-gratia paid to its employees, donations, loss in stock, prior period adjustments, claims and advances are written off.

Based on escalation rates for the year 2003-4 to 2007-08, the annual escalation rate worked out as 5.72%.

The average normalized operation and maintenance expenses at 2007-08 price level shall be escalated at the rate of 5.72% to arrive at the operation and maintenance expenses for year 2009-10

5. Operation and Maintenance Operation and Maintenance ExpensesExpenses

Provided that operation and maintenance expenses for the year 2009-10 shall be further rationalized considering 50% increase in employee cost on account of pay revision.

As per CERC regulation 2009-14 the O&M will be:

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5. Operation and Maintenance Operation and Maintenance ExpensesExpenses

In addition to the normative O&M cost the regulator has also allowed a separate compensation allowance for meeting the expenses on new capital assets, which will be based on year of

completion of the project.

CERC tariff regulation 2009-14

Reasons for shifting secondary oil cost to Capacity charge

Secondary oil is required occasionally,and at a load above about 70% it is normally not required to be fired. Therefore, energy charge consisting of Coal as well as oil charges does not give real situation on merit order.

Generators are scheduled to generate as per "merit-order.

6. Cost of Secondary Fuel Oil Cost of Secondary Fuel Oil

CERC tariff regulation 2009-14

Expenses on secondary fuel oil in Rupees shall be computed corresponding to normative secondary fuel oil consumption

= SFC x LPSFi x NAPAF x 24 x NDY x IC x 10Where,

SFC – Normative Specific Fuel Oil consumption in ml/kWh

LPSFi – Weighted Average Landed Price of Secondary Fuel in Rs./ml considered initially

NAPAF – Normative Annual Plant Availability Factor in percentage

NDY – Number of days in a year

IC - Installed Capacity in MW.

6. Cost of Secondary Fuel Oil Cost of Secondary Fuel Oil

CERC tariff regulation 2009-14

Alternatively, we may avail a ‘special allowance’ for coal based station @ Rs. 5 lakh / MW / year with annual escalation of 5.72% during 2009-14 as compensation for meeting the R&M expenses beyond the useful life.

Compensatory Allowance for SSTPS

7. Special Allowance in lieu of Special Allowance in lieu of R&M or Compensatory Allowance R&M or Compensatory Allowance

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Station for 08-09 for 09-10

Singrauli Nil 9.2

Rihand-I Nil 3.5

Rihand-II Nil 0

Unchahar-I Nil 1.5

Unchahar-II Nil 0

Unchahar-III Nil 0

Tanda Nil 1.5

Annual fixed cost of claimed by the petitioner (SSTPS) for 2009-14

Petition No.189/2009

Annual Fixed Charges

Annual fixed cost Approved by CERC for SSTPS:

Petition No. 225/2009 Date of Order-7/8/2012

Annual Fixed Charges

44 paisa100 % Fixed cost at 85 % Availability

Comparison of fixed cost from 2009-12 with 2004-09

Annual Fixed Charges

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Annual Fixed Charges

Incentive: Incentive will be in the form of increased AFC with

respect to Availability. Again, this incentive will be double for Old stations

w.r.t. new stations.– For stations > 10 years = (AFC x NDM / NDY) x (PAFM / NAPAF) – For stations <= 10 years = (AFC x NDM / NDY) x 0.5 (1.0 + PAFM / NAPAF)

Case : Singrauli If availability is increased by 1%,then station will get

extra 6.62 Cr/Yr (base is 85 %)

Or station will get extra 37.77 paisa/Unit above 85% of availability.

Normative Annual Plant Availability Factor (NAPAF) normative annual plant availability factor’ or ‘NAPAF’ in

relation to a generating station means the availability factor.

At 85% of availability, full Fixed Charge will be recovered. If this availability increases above 85%, then Fixed charge will also increase.

Annual Fixed Charges

Computation of Energy Charge -Thermal

The energy charge shall cover the primary fuel cost(Energy charge rate in Rs./kWh) x {Scheduled energy (ex-bus) for the month in kWh.}

Computation of Energy charges (EC)Computation of Energy charges (EC)

Energy Charge covering primary fuel cost shall be payable for total Energy Charge covering primary fuel cost shall be payable for total ex-bus energy scheduled to be supplied to the beneficiary during ex-bus energy scheduled to be supplied to the beneficiary during the calendar month, at the specified energy charge rate.the calendar month, at the specified energy charge rate.

Energy charge rate (Energy charge rate (ECECRR) in Rs. per kWh on ex-power plant basis:) in Rs. per kWh on ex-power plant basis: For coal or lignite fired based stationsFor coal or lignite fired based stations

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

CERC tariff regulation 2009-14

Computation of Energy Charge -Thermal

Landed Cost of CoalLanded Cost of Coal

Price of coal corresponding to the grade and quality inclusive Price of coal corresponding to the grade and quality inclusive of royalty, taxes and duties applicable & transportation cost.of royalty, taxes and duties applicable & transportation cost.

Considering normative transit and handling losses :Considering normative transit and handling losses : Pit head stations : 0.2% ; Non-Pit head stations : 0.8%Pit head stations : 0.2% ; Non-Pit head stations : 0.8%

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Computation of Energy Charge -Thermal

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Energy charges for thermal power stations are linked to the normative

operational parameters as specified by the regulator Heat rate comparison of 2004-9 and 2009-14Heat rate comparison of 2004-9 and 2009-14

Computation of Energy Charge -Thermal

The Energy Charge Rate claimed by the SSTPS and approved.However, energy charge on month to month basis will be billed by

the petitioner as per the 2009 Tariff Regulations.

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Advantages of ABT GRID DISCIPLINE

Adherence to the schedule Commercial incentives for operational discipline leads to better load management. Backing down under high frequency is encouraged.

FACILITATES TRADING IN CAPACITY AND ENERGY

MERIT ORDER OPERATION

ECONOMIC GENERATION

Capacity Charge and Energy Charge do not depend on actual plant generation / drawal. No metering required for this as they are based on off-line figures. All deviations taken care of by UI

PERFORM, ACHIEVE AND TRADE