Availability Based Tariff Mechanism

                      After the advent of Economic liberalization in India the Central Government during the year 1994 hired different international consultants to access the Indian Power Sector and formulate different measures to reform the power sector such as to bring better system operation and grid discipline, through commercial incentives and dis-incentives. The consultants in their report had recommended implementing“Availability Based Tariff (ABT)”in the sector. Accordingly the Central Government constituted National and Regional Task Forces to study and debate on various issues on Availability Based Tariff mechanism. However after much deliberation, the Central Government could not implement the said mechanism. After the enactment of Electricity Regulatory Commission Act- 1998, the calculation and regulation of tariff of the Central generating stations was vested to Central Electricity Regulatory Commission (CERC). The CERC, after taking into account the objective of the mechanism, started its initiation to implement it in Indian Power Sector. After much deliberation, the ABT was first implemented in Western Region Electricity Board in Dtd: 01/07/2002, then Northern Region on Dtd: 01/12/2002, Southern Region on Dtd: 01/01/2003, Eastern Region on Dtd: 01/04/2003 and finally in North- Eastern Region on Dtd: 01/11/2003.

The Requirement of ABT:-

                Prior to the implementation of ABT, the regional grid was marred by the following problems:

  • Persistent low frequency during Peak Hours of the day for many hours with frequency going down to 48.0 Hz to 48.5Hz.
  • Persistent high frequency during the Off- Peak Hours of the day for many hours with frequency going up to 50.5Hz to 50.0Hz.
  • There was no mechanism to quantify the grid disturbance caused by Over Generation/ Under Drawal or Under Generation/ Over Drawal during the Peak and Off-peak hours of the day respectively by generating and load centres.
  • There was no mechanism to incentivize or penalize the generating or load centres for Over Generation/ Under Drawal or Under Generation/ Over Drawal during the Peak and Off-peak hours of the day respectively to bring in grid stability.
  • It was profitable for the generating companies to generate more power during the Off Peak Hours when the consumer demand was low.
  • Rapid and wide changes in frequency of 1 Hz change in 5 to 10 minutes, for many hours every day.
  • This frequent grid disturbance were causing tripping of generating stations,interruption of supply to bulk consumers, and disintegration of the regional grids.”

Components of ABT:-

                Earlier tariff mechanism consisted of two components viz. fixed cost and variable cost. The fixed cost consisted of interest on loan, return on equity, depreciation, O&M expenses, insurance, taxes and interest on working capital. The variable cost consisted of fuel charge. The Generating companies were paid as per their generation and the beneficiaries were paying as per their drawal.

                The ABT mechanism consisted of three components, viz. fixed cost, energy charge and Unscheduled Interchange.

a.       Fixed Cost:-

              The Fixed cost is linked with the availability of the generating station, i.e. its capability to deliver in MW on every day basis for every time block. The total amount payable to the generating station over a year towards the fixed cost depends on the average availability (MW delivering capability) of the plant over the year. The plant gets higher payment if the actual generation exceeds the declared availability and vice versa. The fixed cost in ABT is termed as “Capacity Charge”.

b.      Energy Charge:-

                The energy charge covers the variable cost of the plant and is calculated upon the scheduled generation, rather than the actual generation.

c.       Unscheduled Interchange (UI) Charge:-

                 The Unscheduled Interchange, is the variable component of the ABT mechanism responsible to bring in grid discipline. The UI charge is payable/ receivable depending upon the grid frequency under the following circumstances:

  • If the generating station over generates/ under generates than its schedule, thereby increasing/ decreasing the grid frequency respectively.
  • If the beneficiary over draws/ under draws than its schedule, thereby decreasing/ increasing the grid frequency.

                  The rate of UI is dependent on the existing grid frequency and is fixed from time to time by the Central Commission for each time block. The UI price vector is in a step of 0.02Hz between the frequencies 50.20Hz to 49.50Hz. As per the present rates specified by CERC.


How ABT works:-

                Initially the ABT mechanism was applicable only for inter-state generating stations supplying power to contracted bulk consumers of different states. The share of power to be supplied to each state is being calculated using Gadgil Formula. Once the shares are defined, the generating stations are being paid for their capacity charge as per their declared availability. The energy charge is being paid as per their schedule and for any deviation from the schedule the generating station either have to pay or receive payment as per the prevailing grid conditions. The beneficiaries pay the charges for their scheduled drawal rather than their actual drawal and for any deviations, the beneficiaries either have to pay or get paid as per the prevailing grid condition.

The ABT mechanism functions as follows:

  • 24 hours of a day starting from 00:00 hours are divided into 96 time blocks of 15 minutes each.
  • The inter-state Generating Station declare their ex-bus available energy in MW for the next day to the Regional Load Despatch Centre (RLDC) by 09:00 a.m.
  • The RLDC would break up the declare capacity of the generating station into different shares for the states and would advise the respective SLDC about their entitlements by 10:00 a.m.
  • The SLDCs also receive the availability from their intra-state generating stations. Then the SLDCs carryout a detailed exercise as to how to cater the expected consumer demand for the next day, by taking into account the variable costs of various intra – State power stationswith energy charge rates of the Central stations, and also consider the irrigation release requirements vs. energy availability of the hydro-electric stations. After this exercise, the SLDCs would issue the dispatch schedules to RLDC.
  • The RLDC aggregates the requisitions received from different SLDCs and determine the dispatch schedule for the Central Generating Stations and drawal schedule for different beneficiaries by taking into account the bilateral agreements if any and the transmission losses.
  • These schedules are then issued by the RLDC by 5:00 p.m. to all concerned and become the operational as well as commercial datum and would be effective from the following day midnight. These values are put on respective RLDCs’ websites.
  • The Capacity charge is determined as per the declared availability and the energy charge would be paid as per the scheduled power.
  • Any deviation from the scheduled power either from the generating station end or beneficiary end is either incentivize or de-incentivize as per the grid frequency and prevailing UI rate.

Following illustration may summarize the effect of UI rate for grid discipline:

Effect of UI on Generation and load1

Advantages of ABT:

  • Stability of Grid Frequency between a range of 49Hz and 50Hz by limiting over/under generation and under/over drawal of power.
  • ABT facilitated a better balancing between generation and load.
  • Due to implementation of UI rate, the SLDCs started using resources like Hydro Power Stations during high cost of power.
  • ABT facilitated merit order scheduling by SLDCs, thereby increasing generation from cheaper power resources and hence gain commercial gain.
  • Facilitated trading of surplus energy of generating stations to beneficiaries during favorable grid frequencies.

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