Monday, August 20, 2012

Tariff Determination

 General Concepts & Definitions in reference to Tariff determination

(a) Auxiliary energy consumption:-

The quantum of energy consumed by auxiliary equipment of the generating station, and
transformer losses within the generating station, expressed as a percentage of the sum of
gross energy generated at the generator terminals
 of all the units of the generating station.

(b) Date of Commercial Operation’ or ‘COD’:-

The date declared by the generating company after demonstrating the maximum continuous
rating (MCR) or the installed capacity (IC) through a successful trial run after notice to the
beneficiaries, from 0000 hour of which scheduling process as per the Indian Electricity Grid
Code (IEGC) is fully implemented, and in relation to the generating station as a whole, the
date of commercial operation of the last unit or block of the generating station.

(c) Declared capacity:-

The capability to deliver ex-bus electricity in MW declared by such generating station in
relation to any time-block of the day or whole of the day, duly taking into account the
availability of fuel or water, and subject to further qualification in the relevant regulation.

(d) Gross calorific value:-

The heat produced in kCal by complete combustion of one kilogram of solid fuel or one litre
of liquid fuel or one standard cubic meter of gaseous fuel, as the case may be.

(e) Gross station heat rate:-

The heat energy input in kCal required to generate one kWh of electrical energy at generator
terminals of a thermal generating station.

(f) Infirm power:-

Electricity injected into the grid prior to the commercial operation of a unit or block of the
generating station.

(g) Installed capacity:-

The summation of the name plate capacities of all the units of the generating station or the
capacity of the generating station (reckoned at the generator terminals), approved by the
Commission from time to time.

(h) Operation and maintenance expenses:-

The expenditure incurred on operation and maintenance of the project, or part thereof, and
includes the expenditure on manpower, repairs, spares, consumables, insurance and

(i) Plant availability factor (PAF):-

The average of the daily declared capacities (DCs) for all the days during that period
expressed as a percentage of the installed capacity in MW reduced by the normative auxiliary
energy consumption.

(j) Conversion of MW into Million Units (MUs):-

1 MW = 1MW x 365days x 24hr x PLF xAvail Factor x 1000
(k) Tariffs:-
 Nominal tariff
 Discount Tariff
 Levelized Tariff

Nominal Tariff:-

The tariff calculated at for each year (fixed cost + variable cost)

Discount Tariff:-

The tariff calculated at present value of the future tariffs. This is done by discounting future
tariffs by discount rate (given by CERC)
Discount tariff= Nominal tariff x Discount factor

Levelized tariff:-

The tariff calculated for all years. This is a simple tariff representing the tariffs throughout the
plant life.
In concept, this is “Weighted Mean” of all tariffs with weights as discounting factors.

Levelized Tariff =  ∑Nominal Tariffi x ∑Discount Ratei
                                            ∑ Discount Rate i
where i varies from 1 to n.
n is the life of plant

Tariff determination exercise for a 500 MW Thermal Power Plant
Given Data:

        Particulars                                                                  Parameter                             
1      Capacity of Plant                                                     500 MW
2      Capital Cost                                                           4 Cr/MW
3      Debt Equity Ratio                                                   70:30*        
4      Return on Equity                                                    15.5%*
5      Interest on Loan                                                      10%
6    Working Capital (10% of Total Capital)                    200 Cr
7     Interest on working Capital                                     10%
8      Depreciation Rate                                                  5.28%*
9      Operation and Maintenance cost                           13 Lakh/MW*
10    Plant Load Factor (PLF)                                         80%*
11    Plant Availability Factor                                          85%*
12    Specific Oil Consumption                                      10 ml/MW*
13    Price of Oil                                                       Rs. 10,000/Kl
14    Gross Calorific value of Oil                                    10,000 Kcal/Lit
15    Station Heat Rate                                                  2,425 Kcal/Lit*
16    Cost of Coal                                                    Rs. 1000 / Tonnes
17    Auxiliary Power Consumption                                6.50%*
18    Plant Life (For thermal plant based on Coal)         25 Years
19      Gross Calorific value of coal                               4000 Kcal/Kg.

Fixed Cost Component calculations

(1) Return on equity

Capital cost/MW= Rs. 4 Cr
Capital cost for 500 MW = 500 x 4= Rs. 2,000 Cr.
Normative Debt/Equity Ratio= 70:30
Equity = 30/100 X 2000 = Rs. 600 Cr.
Debt =70/100 X 2000 = Rs. 1, 400 Cr.
RoE = 15.5% of Equity
15.5/100 x 600 = Rs. 93 Cr.
(2) Interest on Loan

10% of Debt=10 /100 x 1400 =Rs. 140 Cr.

(3) Interest on Working capital

10% of Working capital (Rs. 200 Cr.)
10/100 x 200 = Rs. 20 Cr.

(4) Depreciation

5.28% of Capital cost= 5.28/100 x 2000= Rs. 105.6 Cr.
(5) O & M Cost

Normative O&M Cost: Rs. 13 Lakhs/MW
For 500MW = 0.13 x 500= Rs. 65 Cr.
Hence, Total fixed cost = (1)+(2)+(3)+(4)+(5)
Rs. (93 + 140 + 20 + 105.6 + 65) = Rs. 423.6 Cr. = Rs. 423.6 x 107
500 MW = 500 x 365 x 24 x 80 x 85 x 1000
= 2978.4 Million Units (MUs)
= 2978.4 x 106

Therefore, Fixed cost per unit
=423.6 x 107 / 2978.4 x 106
=Rs. 1.42 / kWh

Variable Cost Component calculations

Calculation of variable cost per unit:-
(1) Specific Oil consumption = 1 ml/kWh=1 x 10-3 l/kWh
(2) Cost of Specific Oil consumption = Specific Oil consumption x Cost of Oil/litre
= Rs 1 x 10-3 x lit x 10000 = Rs. 0.01 / kWh
kWh x lit

(3) Heat contribution of oil:

= Gross calorific value of Oil x Specific Oil consumption
= 10,000 x KCal/litre x 1 x 10-3 litre/kWh = 10 Kcal/kWh
(4) Station Heat Rate

= Heat contribution of Oil + Heat contribution of Coal
Therefore, Heat contribution of Coal = Station Heat Rate – Heat contribution of Oil
= 2425-10 = 2415 Kcal/kWh
(5) Specific Coal consumption

= Heat contribution of coal
Gross calorific value of coal
= 2415/4000 = 0.60 Kg/KWh

(6) Cost of Specific Coal consumption

Specification Coal consumption x Cost of Coal
= 0.60 Kg. x 1000 Rs.
kWh x Tonnes
0.60 Kg. x 1000 Rs. = 0.60 Rs/KWh
kWh x 1000 Kg.

Hence, Total Variable Cost per Unit:
= Cost of Specific Oil consumption + Cost of Specific Coal consumption
= Rs. (0.01 + 0.60) / kWh = Rs. 0.61 /kWh
a) The variable cost calculated above is the variable cost of generation.
b) 6.5% of the Power generated is consumed in Auxiliary. So, in calculating Power available
Ex-bus we have to subtract 6.5% of Available Power.
c) Variable cost per unit at bus bar = Variable cost per unit
1 - % Auxilliary consumption
= 0.61 = Rs 0.65/kWh

1- 0.065
Nominal Tariff calculation:

Nominal Tariff = (Total Fixed Cost / Unit) + (Total variable cost (Ex-bus)/Unit)
= Rs (1.42 + 0.65)/Unit = Rs. 2.07/Unit



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