Availability Based Tariff
ABT has been under
discussion since 1994 when M/s ECC, an ADB consultant, first
supported it. GOI constituted a National Task Force in February 1995. It
had ten meetings till end 1998 where all the related issues were
discussed. A draft notification was prepared for issue by government. With
effect from May 15,1999 the jurisdiction was vested in the CERC. Papers
were sent to the Commission in June 1999 by the MOP. The proceedings were
held in the Commission from July 26 to 28, 1999. The ABT order dated
January 4, 2000 of the Commission departs significantly from the draft
notification as also from the prevailing tariff design.
India plans to have an integrated National Grid. This will assist
in meeting demand with the least cost supply. Five Regional grids already
exist. Some linkages between Regions are also in place.
The five Regional grids work at vastly varying operational
parameters today. Frequency level is one such operational parameter. The
target frequency prescribed by the Indian Electricity Rules is 50 Hz
grid operations require the normalisation of frequency across all five
Regions. The alternative is to insulate each Regional Grid by Back to Back
HVDC links. This is an expensive option. Normalisation of frequency
requires proactive load management by beneficiaries and despatch
discipline by generators.
There is currently no formal system of financial incentives to
promote grid discipline.
The ABT provides this mechanism.
Chronic surpluses in the East and shortages in the South, have
resulted in sustained functioning of these grids at frequencies which are
far beyond even the normal band, liberally defined by the IEGC as
frequency variation within 49.5 to 50.3 Hz
Continued functioning at non-standard frequency results in
long-term damages to both generation and end use equipment This is a
“hidden cost” which is borne by the customer in the long term.
The ABT will induce corrections in the prevailing frequency to
bring it within the permissible band.
(1) The ABT will
address this problem by inducing grid discipline.
The two-part tariff of the ABT by making the payment of fixed cost
a fixed liability of the states converts it into a sunk cost thereby
leveling the playing field between central generators and state level
Currently beneficiaries are not liable for payment of the fixed
cost associated with the share of capacity allocated to them. If a
beneficiary decides not to draw any energy he can escape payment of the
fixed charge, which then gets paid by the person drawing energy. This is
unfair since it increases the cost of energy even for those beneficiaries
who may be drawing energy within their entitlements.
(1) The two-part
tariff of the ABT assures that each beneficiary will be liable for payment
of the fixed cost associated with its share of allocated generation
Currently generators have a perverse financial incentive to go on
generating even when there may be no demand. This results in high
frequency in the grid as is endemic in the East
(1) The ABT will
discourage such behaviour by pricing generation outside the schedule in
relation to the prevailing frequency.
What Is ABT?
· 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.
· It is a system
of rewards and penalties seeking to enforce day ahead pre-committed
schedules, though variations are permitted if notified One and one half
hours in advance.
· The order
emphasises prompt payment of dues. Non-payment of prescribed charges will
be liable for appropriate action under sections 44 and 45 of the ERC Act.
It has three
A 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.
- An energy 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.
- A 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. Hence it reflects the marginal value of energy
at the time of supply.
How is ABT different from normal
proceedings to determine generation tariff?
The ABT proceeding has not attempted to consider most of the cost
drivers like ROE, Operational Costs, depreciation rate,
composition of the Rate Base, capital structure etc. Proceedings to
redefine these norms are being held separately. Hence the ABT proceedings
have been concerned more with tariff design rather than definition of
tariff norms or determination of tariff levels.
It's incidence is a function not only of the behaviour of a
generator but also of the behaviour of a beneficiary. Disciplined
beneficiaries and generators stand to gain. Undisciplined beneficiaries
and generators stand to lose.
Broad features of
It implements the long held view that electricity tariffs should be
two-part comprising of a fixed charge and a separate energy charge.
It increases the target availability level at which generators will
be able to recover their fixed costs and ROE from 62.79% deemed PLF at
present to 80% (85% after one year) for all thermal stations, 85%
for Hydro in the first year and 77% (82% after one year) for NLC.
Misdeclaration of availability entails severe penalties.
It rationalises the relationship between availability level and
recovery of fixed cost.
The draft notification
provided for recovery of (annual fixed costs minus ROE) at 30%
availability and recovery of ROE on pro-rata basis between 30% and 70%
availability. This order provides for payment of capacity charges between
0% and target availability (as indicated in item 2 above) on pro-rata
The draft notification had provided for payment of capacity charges
for prolonged outages. This order disallows such payments.
It delinks the earning of incentive from availability and links it
instead to the actual achievement of generation. Hence incentives will be
earned by generators only where there is a genuine demand for additional
energy generation unlike the prevailing situation, or the proposed draft
received from the GOI, under which it is earned purely because the
generator is available.
Draft notification linked incentives to equity. This order
preserves the status quo of one paise per kwh per each 1% increase in PLF
above target availability.
It increases the minimum performance criterion for the earning of
an incentive from
It introduces severe financial penalties for grid indiscipline
along with significant rewards for behaviour, which enforces grid
discipline for both generators as well as beneficiaries.
The order permits market pricing for the trading of surplus energy
by beneficiaries and generators.
The order urges the GOI to allocate the unallocated capacity a
month in advance so that beneficiaries know their exact share in capacity
in advance and can take steps to trade surplus power.
It will be implemented
in stages from April 1,2000 starting from the South. The new norm for
incentive will however be applicable from this date for all central
stations. In the case of NPC, GOI to decide applicability of
OF EXISTING TARIFF SYSTEM AND AVAILABILITY BASED TARIFF
1. For lignite based power stations of Neyveli Lignite Corporation, the
target availability/PLF shall be 77% for the year 2000-2001 and 82% for
the year 2001-2002.
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