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.
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
(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
(j) Conversion of MW into Million Units (MUs):-
1 MW = 1MW x 365days x 24hr x PLF xAvail Factor x 1000
The tariff calculated at for each year (fixed cost + variable cost)
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
The tariff calculated for all years. This is a simple tariff representing the tariffs throughout the
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
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.
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
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