Ibraheem et. al.

/ International Journal of Engineering Science and Technology

Vol. 2(5), 2010, 1029-1036

Investigation and Analysis of Indian Power

Grid after Regulatory Reforms & Dynamic
Pricing
Ibraheem

Professor, EE Department, Jamia Millia Islamia, Jamia Nagar, New Delhi-110025 INDIA

N K Sharma

Professor EE Department, RK Goel Institute of Technology Ghaziabad, UP-245304, INDIA

Prabhakar Tiwari*

Associate Professor, EN Deptartment, Krishna Institute of Engineering & Technology Ghaziabad, UP- 201206,

INDIA

Abstract

Indian power system is now a national grid with 156GW of grid capacity and approximately 19.5GW of captive
generation. It has passed the horrible operation phase of last decade of the twentieth century. Though the growth
rate of capacity is still trying to chase the growth rate of the load since very long but the operation and control of
the system has became smooth. The obvious credit goes to restructuring and concurrent regulations encouraging
discipline in the operation and control of the system. In the process of transformation structural as well as policy
both the types of amendments played their role. A new kind of environment is created in the system through the
new tariff structure referred as Availability Based Tariff and competition is created opening the way for further
growth of the system to initiate activities suitable to well developed power markets. This paper investigates into
operation of the grid in the light of performance indices of the power systems after regulatory reforms and
restructuring at the central as well as state level.

Keywords- Availability Based Tariff, Dynamic Tariff, Competitive Power Market, Open Access, Power
Trading, Regulatory reforms, Unscheduled Interchange.

I. INTRODUCTION
The beginning stone of electrical energy in India was put in Sidrapong, Darjeeling in 1897 with 130kW unit
of hydro generator [1]. In 1910 the first electricity act came in to effect and known as The Electricity Act, 1910
[2]. This was basically licensing act. The power supply was mainly in the hands of private sector and that too
restricted to the urban areas. In 1947 at the time of independence total Installed capacity was 1361.8 MW, out of
which 508.1 MW was hydro power and rest of the capacity was thermal [3]. First restructuring of the Indian
power system took place when The Electricity Act, 1910 replaced by Electricity (supply) Act, 1948. With the
formation of State Electricity boards (SEB) in the various parts of the country, a significant step was taken in
bringing out systematic growth of power supply industry all over the country. It was originally grown as
vertically integrated and formulated as cost based system. The generation, transmission and distribution systems
were bundled together. This was probably the best way to serve the consumers with minimum cost operation
objective. SEBs had every power to plan and decide the end user tariff. It was well utilized till late sixties, but
violation of financial principles and unrealistic subsidies on the advice of state governments made their own
system financially sick and further growth was hindered badly. To check this imbalance , central government, by
making amendment in the Electricity Act, started generation with establishment of two utility companies National
Thermal Power Corporation and National Hydro Power Corporation in 1975 [1], but failed to check the
deterioration in the sector. Condition of the SEBs continued deteriorating till late eighties and worsened to such
an extent that major restructuring became inevitable together with regulatory reforms. On contrary the

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restructuring and deregulation kept on adopted by major countries in the world. It proved to be the optimum
solution in the prevailing conditions worldwide. There are several reasons behind success of this theory.
Electrical power system is a distributed system having a chain of service providers and customers. Generation,
Transmission and distribution of the electrical energy involve a huge amount of money. Thus, tariff and rules for
recovery of appropriate amount of return for provided service plays a very important role in the life, health and
growth of the organization. The criteria for deciding the tariff of end users is quite different from the tariff of the
power plants for supplying power to utilities. Electricity is included in the concurrent list under the Indian
constitution. Thus, the end user tariff is decided by social factors also in addition to technical and economic
principles whereas the power plant tariff and Transmission tariff i.e. bulk power tariff is purely a matter of
techno-economics [6].

II. REGULATORY AMENDMENTS

The government formulated policy in 1991 to encourage greater participation by privately owned enterprises
in generation. But, the promoters failed to get their financial closures as the SEBs who were supposed to make
payment of purchase of power were financially sick and running in heavy losses. Thus, the further growth of the
sector hindered badly whereas demand continued to increase with growth of population and other sectors. The
Ministry of Power (MOP) came in to operation as an independent department in 1992 and started its own way of
solutions to the deteriorating situation of the sector. Major regulatory changes implemented are Electricity Laws
(Amendment) Act 1998, change in bulk power tariff form energy tariff to power tariff which is known as
Availability Based Tariff (ABT) implemented in all the five regional grid from 2002 to 2003 in phased manner
and in last a full fledge electricity act known as Electricity Act 2003 replacing Electricity (Supply) Act 1948.

A. Electricity Laws (Amendment) Act 1998

The government created Central Electricity Regulatory Commission (CERC) vested with jurisdiction inter-
alia by incorporating Electricity Laws (Amendment) Act 1998, to regulate the tariff of bulk electric power i.e.
generation and inter-state transmission of power with effect from 15th May, 1999. It has been followed by setting
up of 24 other State Electricity Regulatory Commissions (SERCs) in the states with power to decide intra-state
transmission and distribution/retail tariff. This step was very crucial outcome of the long exercise for further
development as it was going to show the way to reforms in this sector with less politicization of the power sector
at policy level.

B. Availability Based Tariff (ABT)

The prior problem of the Indian power system was not only shortage of power; there was very big difficulty in
grid operation caused by indiscipline in the prevailing system. Very low frequency down to 48Hz during peak
hours due to over drawl by SEBs and very high frequency up to 50.50 to 51Hz due to under drawl by SEBs and
not backing down generation by power plants during off-peak hours was matter of several hours every day. Also
there was rapid and wide change in frequency for many hours a day [17]. This was causing frequent grid
disturbances including tripping of generators, transmission lines and interruption of supply to large blocks of
consumers etc. The tariff structure was playing important role behind this indiscipline. The previous tariff was
energy tariff rather than power tariff. It was allowing loads to overdraw without any additional payment during
peak hours by under drawing during off-peak hours. Also power plants used to get same rate of return on
generation 24hrs irrespective of the system operating condition.
The Central Electricity Regulatory Commission (CERC) with the objective of facilitating grid discipline
introduced the new concept of pricing known as Availability Based Tariff (ABT) vide its order dated January 4,
2000 at inter-state level [19]. But its implementation took more than three years beginning with Western Region
(01.07.2002) to North Eastern Region (01.11.2003) implemented in phased manner. ABT very successfully
checked the above tendency of different players [4], [9]. It rationalized the tariff structure of the bulk power
supply. This order split the monolithic pricing system into three parts.
I. Fixed charges or capacity charges.
II. Variable charges or Energy charges.
III. Unscheduled Interchange (UI) charges.
Part-I rationalized the rate of return to power plant against fixed cost element. This return linked to
availability of the plant i.e. day to day delivering capacity with minimum pre-specified Plant Load Factor (PLF)
and average availability throughout the year.
Part-II necessitates all the power plants and load to declare their respective generation and demand in
advance. It states that the payment against variable charges should be made according to declared power
generating capability rather than actual generation of energy units. Also all the loads should be charge under this
part according to their allocated power.

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The last and most important part-III states that any deviation from scheduled or declared generation/allocated
demand must be entitled to incentive or penalty depending on the condition of the system at that particular instant
of time when deviation has occurred. The index used for assessment of system condition is frequency [8]. If the
deviation assists the smooth operation of the system it must be encouraged in terms of extra payment and if it acts
against the system smoothness it must be discouraged as follows:
 All the plants and bulk loads/SEBs must declare their schedule of generation and demand a day ahead.
 If a plant generates more/less than schedule causing grid frequency to deviate upward/downward from
the nominal value (50Hz) during peak load he must be rewarded/penalized and vice-versa.
 If a load (SEB or bulk consumers) draw more/less than schedule causing grid frequency to deviate
downward/ upward during peak hours he must be penalized/rewarded and vice-versa.

The relationship between the above UI rate and grid frequency, for the inter-state system, is specified by
CERC. The present relationship, applicable from 1.04.2009, is shown in Fig.1 [10]. When the frequency is 50.3
Hz or higher, the UI rate is zero, which means that the generating station would not get any payment for the
extra energy supplied. It would burn fuel for producing this extra energy, but would not get reimbursed for it at
all. Conversely, if the actual energy supplied were less than scheduled energy, the generating station would still
be paid for the scheduled energy (at its energy charge rate) without having to pay back anything for the energy
shortfall. It would thus be able to save on fuel cost (for the energy not generated) and retain the energy charge as
net saving.
On the other hand, when frequency goes down, the UI rate (for both over supply and under-supply) ramps up,
reaching a ceiling level of Rs. 7.35 per kWh at a frequency of 49.22 Hz. At a frequency of 49.5 Hz, the UI rate is
Rs. 4.80 per kWh presently. Under this condition, any extra energy sent into the grid would get the generating
station a UI payment at the rate of Rs. 4.80 per kWh adjusted with system losses. For any shortfall, the generating
station shall have to pay back at the same rate. It would thus have a strong commercial incentive to maximize its
generation during periods of such low frequency.
This deviation from the scheduled is not only subject to his affordability for any participant (Load or
Generator) but to avoid foul play the ceilings has been defined. In any time block of 15 min. average deviation
allowed is 5% while for 24hrs only 3% of the share will be considered as normal that too in the normal range of
frequency i.e. when frequency is either above 49.2Hz or when it is less than 51.3Hz. When frequency is beyond
this band, any excursion against system normalcy is considered a foul play. Several SEBs has been issued notice
and had been fined with a huge amount
for such foul play [13].
Though this concept was applied
initially to central power plants and all
the bulk loads/SEBs only, the effect was
magical. Frequency returned to normal
operating band and grid failure has
become the things of past (Fig.6). It also
opened the way for exercise of
economic load dispatch and unit
commitment problem. The above
frequency band and the ceiling rates
kept on changing since its application
though order of the central commission.
With increasing trends of grid discipline
the allowed normal frequency band of operation was Figure1. Variation of UI rate with frequency
further reduced in Jan 2009 from 1.5 Hz to 1.1 Hz.
Now again commission reduced it up to 0.8 Hz by
increasing the lower limit form 49.2 Hz to 49.5 Hz including several other regulations with effect from
01.04.2010[21]. These regulations are introduced with the objective, as explained in the explanatory
memorandum to increase accountability of stack holders tighten frequency band, better operation, to avoid any
possibility of gamming the power market and to regulate UI and reactive energy charges.

C. Electricity Act 2003

To address the various issues and launch major reforms in the power sector, Electricity Act 2003 came in
effect from Jun 10, 2003 [18], [5]. After two amendments the new act has came in force from Jun 15, 2007.
Various new agencies and loads came in to effect due to this restructuring in centre as well as in state. The Indian
Electricity Grid Code (IEGC) was written by central commission to lays down the rules, guidelines and standards

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to be followed by the various agencies and participants in the system to plan, develop, maintain and operate the
power system, in the most efficient, reliable, economic and secure manner, while facilitating healthy competition
in the generation and supply of electricity. The SERCs have shown a trend towards rationalization of tariff,
greater transparency and involvement of stakeholders while fixing the consumer tariff with the ultimate aim of
reduction and phasing out of subsidies in a time bound manner [20]. The new grid code also made a provision
free governor action for all the plants and notified for payment of reactive power as per provisions made in the
Act. Electricity Act 2003 has every potential to develop a self sustainable competitive power market.

III. MAJOR STEPS AFTER REGULATORY REFORMS

New possibilities were created after open access policy and regulatory reforms in the Indian power system. It
opened way to think big to restore the system to normalcy and bring it at par to the developed power markets.
Few of the steps to elaborate further are accelerated generation capacity addition program, Ultra Mega Power
Plants, formation of national grid, power trading and establishment of power exchanges.

A. Enhaunced Target of Installed Capacity Addition

The installed capacity of Indian power system as on 31.01.2010 reached to 1,56,784 MW excluding 19,500
MW CPP connected to Grid [15]. During the 11th plan capacity addition of 78,700 MW was projected by power
ministry. At the end of 12th plan the total installed capacity is expected to reach to 2, 10, 000 MW as shown in
Fig.2. 12 UMPPs each with capacity of 4000MW is planned to achieve overall economy. Though it is difficult to
say that how they are going to achieve the target as till now performance had been very poor except in the
seventh five year plan when target was achieved 100%. The second highest target achievement was in first five
year plan with 85%of planned capacity edition. From the very first year of the current eleventh plan hardly 60%
of the target could be achieved so far [7].

B. Ultra Mega Power Plants

Ultra Mega Power projects (UMPP) are a series of ambitious power projects planned by the Government of
India. The ultra mega power projects, each with a capacity of 4000 megawatts or above, are being developed with
an aim to bridge this gap. The UMPPs are seen as an expansion of the Mega Power Projects (MPP) projects that
Government of India undertook in the nineties but met with limited success. The Ministry of Power in association
with Central Electricity Authority and Power Finance Corporation Ltd. has launched an initiative for development
of coal-based UMPP's in India. These projects will be awarded to developers on the basis of competitive bidding.
Ministry of Power had envisaged setting up nine such projects which would help meet the electricity generation
target of 100,000 MW in the 12th Plan period (2012-17).

C. Formation of National Grid

The various parameters
including efficiency, security and
efficient utilization of resources
favor formation of the national
grids in India [22]. It was very
early when the plan of national
grid was incepted through
integration of regional grids in
early 1964. But actual
implementation began in 1991
and the major milestone was
achieved after synchronization of
Northern grid with the North
East – East -West grid on 26th
August 2006 known as NEW
grid. Southern region is
Figure2. Growth of installed generation capacity
connected with rest of the system
through asynchronous links as
shown in Fig.3.

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D. Establishment of Power Exchanges and Power Trading

Open access in inter-state transmission was introduced in May 2004 and this has been successfully
implemented. This facilitated the development of the bilateral market in the country and the results are very
encouraging [23]. CERC issued the guidelines for establishment of power exchange in February 2007 and in
principle approval was granted to the first power exchange in august 2007 for collective transactions. Indian
Energy Exchange (IEX), the country’s first power exchange, commenced operations from the 27th June 2008.
The second power exchange, Power Exchange of India (PXIL), commenced operations on 22nd October 2008.
Each of the five regions is divided in to two biding areas as shown in fig.4. Thus the national grid is divided in
to ten biding areas for collective transactions through power exchange. The main features of Indian power
exchange are: voluntary participation, day ahead, energy only, physical delivery only, double sided bidding,
hourly bids, uniform pricing, multiple exchanges envisaged, congestion management by power exchange using
market splitting.

IV. CURRENT SCENARIO

Figure3. Indian Power Grid Figure4. Biding area for collective transactions

Figure5. Energy shortage in Indian Power System

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Condition of the power system can better be judged by its operational indices. Energy and Power indices
provide the information of capacity and management of the load profile or load duration curve. Energy shortage
can be reduced by adding more capacity where as peak shortage management requires load side management also
in addition to capacity. In a well managed power system load side should be managed in such a way that it
should give a flat load duration curve. In an ideally managed power system with completely flat load duration
curve peak shortage becomes equal to average energy shortage and both the curves become same. Except this
ideal condition peak shortage is always more than energy shortage. Other operational indices of importance in the
analysis are plant load factor, grid disturbances and recently gaining momentum activity power trading in Indian
power system.

A. Energy Shortage
Though the power generation
capacity has grown up many times
since independence, the power
situation in India is still reeling and
there is a huge shortage of power.
During the 10th plan capacity
addition target was 41,110 MW but
net capacity addition during the plan
was 21,180 MW only. Fig.5 shows
the energy shortage in India during
last few years. It is established from
the graph in Fig.4 that energy
shortage has shown the increasing
trend during recent years [16]. Figure6. Peak Shortage in Indian Power System
Further acceleration is needed at this
level beat the growth rate of loads.

B. Peak Shortage
Peak shortage is an indicator of
discipline and design of a power
system. In a well designed power
system the peak shortage/surplus
should not differ very much from
the energy shortage/surplus. It is
established from the Fig.6 that
power shortage during the peak
hours has decreased during last year
but efforts are still needed for better
management to flatten the demand
curve [16].
Figure7. Trends of Plant Load Factor in Indian Power System

C. Plant Load Factor

Plant Load Factor (PLF) is
another important index of
performance of any power system.
Indian power system is dominated
by conventional thermal generation
with major share of 64% [15].
Though general trend has been an
improvement in the PLF (Fig.7), but
still a lot has to be done specially by
the state utilities which has more
than 50% share of total installed
capacity but generating very less
energy having PLF less than 70%,
while several central sector plant
have PLF more than 90%[16]. Figure8. Grid Disturbances: Pre- & Post-ABT

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D. Grid Disturbances
The magic effect of the new tariff is clear from Fig.8 which shows that normalcy has been achieved in the
operation and control of the grid and this is enough to say that ABT is boon for Indian power system. But,
several dynamic aspects also need to be addressed in a regime of dynamic pricing concept. The Central
commission continuously takes the notice of different factors that may affect and should be considered to
incorporate the variations to achieve the optimum condition for different stack holders as well as the system
[11], [12], [14].

E. Power Trading Trends

Power trading has been
recognized as one of the important
activities in the Indian power
system. It is attracting more players
due to being an open market
oriented activity where one can
enjoy the every liberty of short term
market at the cost of spot prices
which is highly volatile and on
average being more than long term
price. The trading margin
regulations [24], [25] has been
increased to 7 paise/Kwh in case of
high purchase rate of power while
for the low purchase rate (3 Rs./Kwh
or less) the margin cap has been kept Figure9. Power trading as percentage of all India generation
at 4 paise/Kwh only. The lowest
average all time price has been through UI where the highest has been through power exchange [26]. It was
calculated from the April to Dec report [27] of market monitoring committee and found that there is a proof that
land slid growth in the volume of power trading after beginning of power exchange. Though the percentage of
units traded through both the exchange remains less than 1.0 percent while the total traded volume in 2009-2010
up to December is reached to amazing 8.45 percent of the total all India generation registering a growth of more
than 200 percent. Trend of the traded volume is shown in Fig.9.

V. CONCLUSION
There had been several changes in the Indian power system in last decade. To name few important one is
open access, transfer of various powers form ministry to regulatory commissions resulting in less
politicization of the system, implementation of the dynamic tariff, establishment of Power exchanges and
power trading through various mechanisms. Implementation of dynamic pricing ABT has made one of the
best contributions among above mentioned changes. It will not be axiomatic to say that ABT has brought
alone the more amount of discipline in operation that could have not been created by composite effect of all
the regulations. Restructuring has given better outcome so far and moving steadily at right path taking lesions
from its past experience. There are certainly few corners to emphasize upon including acceleration of
generation capacity building, reduction in aggregate transmission & commercial losses, better peak system
management, more effective plan to develop captive power.

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