The Hindu Business Line : A tariff to ensure transparency in the power sector

Availability-based tariff scores over other systems. Here, the user, by committing to guarantee operation of the plant at specified levels throughout the life-time of the plant, is able to reap the economies of scale.

MR V. BALAKRISHNAN, President and Chief Executive Officer of the Electrical Project Division of GEA Energy System (India) Ltd

Power may be what charges up many a gadget, but what often leads to charged-up discussion within the power industry is tariff. "Availability based tariff or ABT brings in transparency, which today is very evident by its absence in power sector," says Mr V. Balakrishnan, President and Chief Executive Officer of the Electrical Project Division of GEA Energy System (India) Ltd (www.bgrcorp.com) . "ABT encourages efficiency, and brings down costs to the consumer. It significantly improves the quality of service by bringing in a centralised mechanism of scheduling both generation and consumption across various time blocks by all grid participants, with penalties on individual participants who are responsible for the excesses, that is, over-drawl," he adds.

Among the `ongoing projects' that GEA Energy System is associated with are Dholpur Power Plant in Rajasthan; Vijayawada Thermal Power Station and Kakatiya Thermal Power Project in Andhra Pradesh; Valathur Combined Cycle Power Plant and a power plant in Cuddalore in Tamil Nadu.

Here, Mr Balakrishnan, answers a few questions from Business Line on tariffs and related issues.

What are the different tariff methods that are in practice, in India?

When we talk about tariff methods it is necessary to consider the type of generating station we are talking about. Power is generated with different type of fuels varying from fossil fuels such as coal, oil and gas, to water (hydroelectric projects), nuclear power, and green power generated through renewable sources of energy.

With Indian power demand primarily being met by thermal (coal and gas based) and hydroelectric power plants, ABT (availability-based tariff) mechanism is in practice for these stations. The Tamil Nadu Electricity Regulatory Commission recently notified the intention to implement intra-State ABT, to address many of the issues faced by the power industry. Establishing tariff on ABT basis is distinct for thermal power plants, as compared to hydro projects; for the latter, variable costs are negligible.

In addition, competitive bidding basis is also adopted for establishing tariff, as is done in the case of ultra mega power projects, of late. In this case, for an identified project with a specified capacity and type of plant, where input fuel and its linkages are identified, prospective bidders are invited to bid their competitive price and the lowest bidder is awarded the project for implementation.

In a recent move by the Centre, independent generating stations, called merchant power plants, are being encouraged. For these plants there is no agreed tariff with any buyer and consequently no guaranteed drawal of power from these stations. Their price will be market determined.

For encouraging exploitation of the renewable sources of energy such as wind and solar power, an element of central and state sponsored subsidy is available, which is factored in while arriving at the tariff for these stations. Power generated by windmills and solar panels is not continuous as in the case of a coal fired power station; hence the power generated by these stations is called `infirm power', and their tariff-setting mechanisms are strictly not comparable to conventional stations.

You mentioned about Tamil Nadu thinking of ABT. Are there similar initiatives in other States?

ABT is currently in practice for all generating stations that are under operation with central power utilities supplying their power to more than one State, as for example NTPC.

Power generated at each such plant gets allocated to identified beneficiary States in that part of the country. NTPC Ramagundam has as beneficiary States Andhra Pradesh, Tamil Nadu, Karnataka and so on. This practice is now being brought to the next level where the State level stations will also practise the same tariff setting principles.

How does ABT work? Does it score over other systems?

Availability-based tariff, as the name signifies, guarantees payments based on availability of the generating station. Power has a very unique characteristic: It cannot be stored. But at the same time it should be available to all at the instant they decide! You can only partly control the limit to which one can draw from the system and that too after he has drawn and caused the damage, not before.

It is, therefore, essential that generating stations are available to meet the demand as and when it arises. Efficient grid operators maintain `spin reserves' to ensure stability. To keep the generating stations available, the operators incur certain amount of fuel costs in addition to the basic fixed costs. A system that efficiently compensates the generator for these costs is ABT.

It has two distinct elements, the fixed and the variable. Fixed costs relate to the capital costs incurred in establishment of the station, including soft costs such as interest during construction. Variable cost includes fuel charges, operation and maintenance charges, auxiliary consumption etc. While fixed costs are to be approved by the regulator based on established mechanisms and benchmarked prices, variable charges are negotiated and arrived at with in the caps specified again by the regulator. For instance, heat rate, which decides the fuel consumption of any given power plant for producing one unit of energy (and the main cost component of the variable cost), is capped by the regulator and is indicative of the minimum acceptable levels of efficiency of the proposed plant.

ABT scores over other systems, as here, the user, by committing to guarantee operation of the plant at specified levels throughout the life-time of the plant, is able to reap the economies of scale (quantity discount!). Coal fired plants have to be operated above certain levels to achieve efficiency. Operation of the plant below certain threshold levels will increase the heat rate substantially and hence costs.

Another distinct advantage of the system is the transparency it brings in to administering the tariff over long periods. For instance, variable costs, which are dependant on market conditions, are adjusted to reflect the prevailing prices and not artificially pegged. In the power sector where `long term' signifies 25 years and above, tariff-setting mechanisms that are robust in the long run are preferred.

Does a changeover to ABT entail cost?

Yes. We need to introduce special type of energy meters which can capture data of defined parameters and deliver these data to `data centres', where real-time data are compiled, and also operations of individual generating stations and connected load centres are continuously monitored. Establishment of dedicated communication linkages is essential.

At the other end, ABT drives efficient operation of the plant. A station that does not perform efficiently as compared to other power plants operating in the interconnected grid can be shut off. It brings in more efficient power plants getting dispatched (a term used to signify the loading of the plant) compared to the less efficient plants.

The road ahead... How does it look?

Accelerated growth of the power sector is essential to maintaining the growth rate of the entire economy. And accelerated growth in power can be achieved only by efficient operations at market-determined prices. With the Centre announcing the launch of `Power Exchange' where in the near future one can trade in power on day-ahead basis, we are clearly on our way to putting behind the old times of under recovery of usance charges, and tolerance of inefficiency.

Is IT (information technology) key to ABT?

Yes, very much. Technology has made it possible to continuously monitor on real-time basis the operation of plants with varied parameters. Millions of data points (each parameter in a special meter for instance is a point), which are generated by dedicated meters and other devices, form data streams. These are captured in a common database, which is the basis for analysis and implementation of the schemes. Technology helps in seamlessly capturing these data and displaying the same in user-friendly formats for decision-making.

Technology also drives the applications that can be built on these data streams. For instance, in the case of windmills, with an established database and certain key real-time inputs (increase in wind velocity from a strategically-located monitoring station) along with specialised applications, we will be able to arrive at the likely generation of a bank of windmills in the next few minutes. This becomes extremely useful in States such as Tamil Nadu and Maharashtra, where wind farms add up to 1,200 MW to 1,300 MW to the grid during the seasons. If such advance information is available, operators can prepare to quickly back down (that is, reduce generation) from costly fossil fuel stations (such as, gas stations and inefficient coal fired power plants), and substitute with green power.

Do you see hurdles that ABT may have to overcome?

Hurdles don't seem to be many, because the participants appreciate the benefits that flow out of ABT. The main hurdle, however, will be the case of finding funds for the implementation of the creation of additional infrastructure required, and agreeing on the means to recover the same from the stakeholders and beneficiaries.

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