ECONOMICS OF THERMAL POWER

Submitted by: Chandramauli Bhatt Harshal Manjari Manthan Gattani Shreyas Patel Vaishakh Nair

2/1/2012

AGENDA

Introduction to Thermal Power Techno-Economic Analysis of Supercritical Technology Thermal Power in India Electricity Regulations & Policies Power Market & Economics of the Indian thermal Power Sector Power Trading & Merchant Power Pricing & Tariff Structuring Demand Side Management The ABT Mechanism Conclusion References

3 6 9 12 17 20 23 27 33 34

INTRODUCTION TO THERMAL POWER

INTRODUCTION TO THERMAL POWER

THERMAL POWER PLANT

COAL BASED POWER PLANT

The word Thermal originated from Therme , a Greek word for heat energy. Thermal Power Plants convert heat energy into electricity. In Thermal Power Plants, heat energy is used to spin a turbine which drives an electrical generator. Thermal Power Plants are classified based on the different fuel used to generate heat energy: Coal based Power Plant Gas Based Power Plant Nuclear Power Plant Geothermal Power Plant Thermal power plant constitutes nearly 68% of India s Installed capacity. Coal and gas being dominant players, focus of this report is limited to economics of coal and gas based power plants. There are various parameters which affect economic performance of the Thermal Power Plant: Heat Rate (Energy Efficiency) Thermal Efficiency Load Factor Economic Efficiency Operational Efficiency

Coal Burning in Boiler

Steam Production

Steam Injection in Turbine

Rotate Generator

Efficiency of Subcritical plant: 35% Efficiency of Supercritical plant: 40% Capital Investment : 5 Crore / MW for Subcritical and 4 Crore / MW for supercritical Construction Period : 3-4 Years

GAS BASED POWER PLANT (COMBINED CYCLE POWER PLANT)

Gas Burning

Flue Gas Injection in Gas Turbine

Rotate Generator

Flue Gas to HRSG

Steam Production

Steam Injection in Turbine

Rotate Generator

Efficiency of CCPP: 55-60 % Capital Investment : 2.5 3 Crore / MW Land Requirement : Roughly half of Coal Based Power Plant Pollution : Approximately half of Coal Based Power Plant Construction Period : 2 Years
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PARAMETERS TO MEASURE ECONOMIC PERFORMANCE

PARAMETERS AFFECTING ECONOMICS OF THERMAL POWER PLANT

Heat Rate (Kcal/MWh) : A measure of amount of heat energy required to generate 1 MWh of electricity. The lower the heat rate, better is the economics of the power plant. Capacity Utilization Factor : It is a ratio between average load and rated load of the power plant for a period of time. Higher capacity utilization factor is better because of the following reasons, A power plant may be less efficient at low load factors. A high load factor means fixed costs are spread over more kWh of output. A high load factor means greater total output. Economic efficiency : It is a ratio between production costs, including fuel, labor, materials and services, and energy output from the power plant for a period of time. It indicates the amount of economic resources required to generate 1 unit of electricity. Load Factor : Load factor for a power plant is the ratio between average load and peak load. Operational efficiency : It is a ratio of the total electricity produced by the plant during a period of time compared to the total potential electricity that could have been produced if the plant operated at 100 percent in the period. Availability factor : It signifies the amount of time that power plant is able to produce electricity over a certain period, divided by the amount of the time in the period.

TECHNO-ECONOMIC ANALYSIS OF SUPERCRITICAL TECHNOLOGY

TECHNO-ECONOMIC ANALYSIS OF SUPERCRITICAL

TECHNOLOGY

Higher Efficiency- With Supercritical technology

Supercritical technology impact

The below figure illustrates the increased net efficiency with adoption of Supercritical technology with increasing operating pressure and temperature compared to sub-critical technology
Net Efficiency

Supercritical technology would bring a key set of changes in which the power plants would be operated and maintained.The following are the highlights of the changes that would be imparted Technology is mature and established Availability- major global companies involved Project Implication- same as sub-critical technology O&M- flexible and increased process control used Reduced Environmental Impact due to efficient process Most preferred parameters 246 kg/cm2-538c/566 c Materials proven with developments in material science and metallurgy Indigenous supplier of Supercritical Technology are under development stage Boiler Once through instead of drum type and use of superior material in certain pressure parts Piping- Reduced diameter. Superior material Turbine increase in thickness of various parts to suit various parameters BFP(Boiler Feed Pump )- Increased motor rating, higher thickness of certain parts Boiler control- Change in philosophy Water Chemistry- No Blow down. 100% flow. Different chemistry control Quantity of superior material increases

Condenser Pr.: 0.045 bar Fuel: Bituminous Coal

43.80%

46% 45.30%

43.20% 41.10%

~ 538 C

250 bar, 538C 560C

250 bar, ~ 566C

270 bar, 580C 600C

285 bar, 600C 620C

Start-up Flexibility change of supply role characteristics

Once through boilers used in the supercritical plants are better equipped to cater to the frequent load changes in the system as against the sub-critical thermal power plants that could be used only for base load supply. Once through boilers used in supercritical plants can adjust to frequent load variations which could go up to as much as 10% per minute as against about 3% per minute for drum type boilers used in sub-critical plants. The transition from the re-circulation mode to the pure once through operation, if required, is fully automatic for supercritical boilers. Thus this transition in the role played by the thermal power plants in the Indian electricity supply would be transformed. For countries like India and China, unit ratings from 500MW up to 900MW are possible due to their large electrical grids. In countries with smaller grids, unit sizes of 300MW are more appropriate and the specific installation cost will be higher than that of larger plants.

TECHNO-ECONOMIC ANALYSIS OF SUPERCRITICAL

TECHNOLOGY

Shorter Start up Times

Fuel Flexibility and Water Chemistry

The shorter start-up times taken by the Supercritical plants make it more versatile in meeting the immediate demands of electricity and thus increasing the participation of thermal power plants in UI trades and energy exchanges

Type of start Hot start up Warm start up Cold start up

Supercritical 2 hours 8 hours 36 hours

Sub-critical 2 hours 12 hours 52 hours

Supercritical boilers are able to operate efficiently with all types of furnaces like front, opposed, corner, four wall, arch firing with slag type or dry ash removal. Water chemistry had presented problems in early stages of supercritical development. These problems basically related to the use of the de oxygenated all volatile(AVT) cycle chemistry. The solution to these problems was combination of a condensate polishing unit with oxygenated treatment which is, now, a well proven procedure. Further, once through boilers do not have a blow down which has a positive effect on water balance of the plant with less condensate needing to be fed into the water steam cycle and less waste water to be disposed off. 100% polishing unit is incorporated with high quality water used .

Capital cost and specific costs

Variable costs- Fixed and Variable

Units Total Unit Cost Total Unit Specific Cost

Basesubcritical

Lowsuper Critical 34368

Highsuper critical 46690.7

Total Unit Cost Total Unit Specific Cost

Units

Basesubcritical

Lowsuper Critical

Highsuper critical

Rs. Million Rs. In million/ MW

22141

Rs. Million

608.4

690.3

844.2

44

52

58

Rs. In million/M W

116

136

150.87

The life cycle costs of supercritical coal fired power plants are lower than those of subcritical plants. Current designs of supercritical plants have installation costs that are only 2% higher than those of subcritical plants.

Fuel costs are considerably lower due to the increased efficiency and operating costs are at the same level as subcritical plants. Specific installation cost i.e. the cost per megawatt (MW) decreases with increased plant size.
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THERMAL POWER IN INDIA

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THERMAL POWER PAST, PRESENT & FUTURE

Overview

Thermal Power Past Trends

Over the years (since 1950) the installed capacity of Power Plants (Utilities) has increased to 1,80,158 MW (31.7.2011) from meagre 1713 MW in 1950. The per capita consumption of electricity in the country also increased from 15 kWh in 1950 to about 704 kWh in 20072008 and expected to reach 1000 kWh by 2012.

The all India Thermal PLF which was as low as 27% at the beginning of First Plan progressively increased to 47% by the year 1963-64 and than declined to around 42% by early seventies.

Importance of Thermal Power

Due to the growth in population and industrial growth the demand for power is increasing in the country by leaps and bounds. But the power production through hydro-electric projects and through nuclear power projects is not keeping pace with the demand. Thermal power offers a ray of hope in this scenario. Thermal power, today, contributes to around 65.04% of total electricity in India (Source: Power Ministry) The following graph clearly depicts the share of thermal energy in the Indian Power sector

During 1976-77, the PLF touched 55.4% but this could not be sustained during subsequent years

During the 6th Plan, Department of Power and Central Electricity Authority undertook a comprehensive programme to renovate and modernize old units located in different States. The performance of 200/210 MW units also begins to stabilize

Nuclear, 2.65%

RES, 11.17%

Hydro, 21.12% Thermal Coal, 54.55%

The plant load factor of thermal power stations in the country, which was only 44.2% in 1980-81, increased to 56.5% by the end of the 7th Plan

Thermal Oil, 0.66% Thermal Gas, 9.81%

The all India Average PLF of the Thermal Power Plants has further increased to 64.4% by the end of eighth plan

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THERMAL POWER PAST, PRESENT & FUTURE

Region-Wise Distribution of Power Generation (Source: CERC)

Deficit Scenario in India (Source: CEA)

All India Generating Installed Capacity

100% 80% 60% 40% 20% 0% NR Renewable Bridging the Deficit WR Hydro SR Nuclear ER Thermal NER

State/Region Northern Region

Jammu & Kashmir Delhi, Haryana, HP, Rajasthan, Uttarakhand Uttar Pradesh

Deficit (%) (June, 2011) 3.6

21.5 0.1 -2 8.2

Western Region
Maharashtra, MP Gujarat

7.9
12 - 15 0.1 2

The above chart and the adjoining table clearly depict the current power scenario in India. Major policy initiatives like the Mega Power Policy (for plants with a minimum capacity of 1000 MW) and Ultra Mega Power Policy (for plants with a minimum capacity of 4000 MW), the Government of India envisages to achieve its aim of Power for All by 2012 . These policies give a greater impetus to Super-Critical thermal power projects. The policies also encourage the establishment of local supercritical equipments manufacturing facilities. Many Indian companies like L&T, BHEL, Thermax, Bharat Forge, JSW, etc. have forayed in this sector in partnership with foreign firms like Mitsubishi, Alstom, Toshiba, Babcock & Wilcox.

Chattisgarh

Southern Region
TN, Karnataka AP, Kerala

4.5
6-9 1.5 - 2

Eastern Region
Bihar, Andaman Nicobar Rest

4
25 - 26 0.3 - 1.6

North-Eastern Region
Meghalaya

11.3
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ELECTRICITY REGULATIONS & POLICIES

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REGULATORY STRUCTURE

The Hierarchy

Ministry of Power

CERC

CEA

SERCs State GENCOs, TRANSCOs & DISCOs

PGCIL CTU

Appellate Tribunals

WRLDC

ERLDC

SRLDC

NRLDC

NERLDC

SLDC

SLDC

SLDC

SLDC

SLDC

STUs

STUs

STUs

STUs

STUs

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Regulatory Framework

Functions of Respective Bodies

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REGULATORY STRUCTURE

CEA Main technical advisor of the government and regulatory commissions Specifies the technical standards and safety requirements for construction, operation and maintenance of electrical standards and electrical lines Regulates tariff of generating companies owned or controlled by the Central government To regulate inter-state transmission of energy including tariff of the transmission utilities To grant licenses for inter-state transmission and trading Determines tariffs for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail sale within the state To issue licenses for intra-state transmission, distribution and trading; to promote co-generation generation of electricity from renewal sources of energy
Functions of Respective Bodies

CERC

SERC

CTU

Undertakes the transmission of energy through interstate transmission system Planning and coordination of inter-state transmission systems Undertakes transmission of energy through intra-state transmission system; Planning and coordination of intra-state transmission system.

STU

National load despatch centre An apex body to ensure integrated power system in each region It is responsible for the despatch of electricity within the regions, monitoring grid operations Regional load despatch centres Set up to ensure integrated power system in each region It is responsible for the despatch of electricity within the regions, monitoring grid operations State load despatch centres Formed to ensure integrated power system in intra state Has the responsibility for the despatch of electricity within the state, monitoring intra-grid operations etc Appellate tribunals Appellate tribunals were set up under the Electricity Act, 2003 to hear appeals against orders of the Electricity Regulatory Commissions Appellate tribunals consist of a chairperson and three members, at least one of them must be a judicial member and one a technical member A member shall hold office for a period of 3 years from the date of entering office. Functions/powers The discovery and production of documents; To receive evidence on affidavits To set up commissions for the examination of witnesses or documents To review its decisions

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TIMELINE OF REGULATIONS

Timeline Of Regulations

1910
The Electricity Act

2006
National Tariff Policy

2007
The Electricity (Amendment) Act

1948
The Electricity (Supply) Act

2005
National Electricity Plan

1998
Electricity Regulatory Commission Act

2003
The Electricity Act, 2003

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POLICY OBJECTIVES

Objectives of Policies

Indian Electricity Act, 1910 It primarily covered the technical and operating standards of the Indian power sector. The Act also provided state governments the authority to grant licenses for supplying power in a specified geographical area. The Electricity (Supply) Act, 1948 The Act defined transmission, inter-state transmission, intra-state transmission and transmission license; Introduced the concept of central transmission utility (and state transmission utilities Provided for the granting of transmission license for the construction, maintenance and operation of transmission lines Specified the licensing role of the (CERC) and (SERCs) with respect to CTU, STUs and transmission licensees Electricity Regulatory Commission Act, 1998 Separate regulatory bodies at the Central and state levels Creation of Central and state transmission utilities The Electricity Laws (Amendment) Act, 1998 to take transmission as a separate activity for inviting greater public and private participation. The Electricity Act, 2003 No license required for generation Competition to be encouraged through international competitive bidding Captive power generation and sales to third party encouraged Direct access to retail consumers due to open access in T&D

The Electricity Act, 2003 Open access in the T&D sector, thus providing choice to consumers Unbundling and corporatization of the T&D business by SEBs Higher investments to improve existing infrastructure Opportunities for competition in the distribution segment. Focus on efficiency improvement Cross-subsidies to come down and be eliminated Power trading to be encouraged Availability based tariff (ABT) system introduced to avoid grid failures National Electricity Policy, 2005 Power to all - access to electricity for all households in next 5 years Availability of power - demand to be fully met by 2012 Per capita availability of electricity to be increased to over 1,000 units by 2012 Minimum lifeline consumption of 1 unit per household per day by 2012 Financial turnaround and commercial viability of electricity sector Protection of consumer s interest. The Electricity (Amendment) Act, 2007 Definition of theft expanded to cover use of tampered meters and use for unauthorized purpose. Removal of the provision for elimination of crosssubsidies

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POWER MARKET & ECONOMICS OF THE INDIAN THERMAL POWER SECTOR

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INDIAN POWER MARKET

Overview

Evolution of Power Market

Prior to 2003 the market was characterized by vertical integration with the state electricity boards forming a monopoly and excessive price regulation. Each state s electricity board was responsible for generation, transmission and distribution within its own jurisdiction. But the SEBs turned loss making and inefficient. In the wake of the growing power needs and the continuous surplus-shortage situations faced in various parts of the country, the government introduced Electricity Act 2003 for restructuring of the power sector and to introduce competition and increase efficiency. It delicensed generation, recognized trading as a separate licensed activity and introduced open access in T&D.

Shares of Indian Power Market

Long Term PPAs 93%

Indian Power Market

India being a predominantly agrarian economy, some states experience seasonal surpluses of power while some face deficit. Thus inter-state transmission of electricity became the need of the hour. RLDCs were formed to facilitate such transfer of electricity. The Central Government set up Central Generating Stations to assist the state governments in overcoming shortages, and also promoted private participation. However, the contracts were mostly long term for duration of twenty five years or more. To meet short-term demand the states resorted to trading of power through bilateral trading agreements on the basis of mutually negotiated prices. States resorted to energy banking where in a surplus state would supply energy to a deficit state and in deficit situation, it would claim back that amount of energy .But at times, when both states faced deficit and there was no excess electricity to return to the state that banked electricity, lead to complications.

Unscheduled Interchange 3% Power Exchange 1% Bilateral Trades 3%

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POWER PURCHASE AGREEMENTS

Power Purchase Agreement

PPA & its Contents

A Power Purchase Agreement (PPA) is a legal contract between an electricity generator (provider) and a power purchaser (host). The power purchaser purchases energy, and sometimes also capacity and/or ancillary services, from the electricity generator. The seller under the PPA is typically an independent power producer, or "IPP." Energy sales by regulated utilities are typically highly regulated, so that no PPA is required or appropriate. A Power Purchase Agreement (PPA) is at the heart of any power generation project that is to be undertaken by an Independent Power Producer (IPP). During the past decade privately owned IPPs selling electricity to the power industry has become common place. The PPA is often regarded as the central document in the development of independent electricity generating assets (power plants), and is a key to obtaining project financing for the project.
Emergence of PPA s

In 1992, the government amended India's Electricity Act of 1910 and opened the electricity sector to privatization and foreign investment. An incentive package was enacted in 1993 to provide a five year tax holiday for new projects in the power sector and a guaranteed 16% return on foreign investment. Additionally, the protracted project approval system was substantially revised. The IPP's were allowed attractive terms to set up power station but they had to work with vertically integrated SEB's and IPP's entered into power purchasing agreement with SEB's. Although, a policy on private sector participation was announced in 1991, the pace of private investment had been slow as most Independent Power Producers (IPPs) were unable to achieve closure for their projects, despite progressing well on the other clearances

When the State Electricity board agrees to purchase energy form an Independent Power Producer they enter into a Power purchase agreement. Duration (Long/Medium) Load Requirements (Base/Seasonal/Diurnal) Names of Procurers, Distributors and Sellers Definition & Interpretation of Terms Term of Agreement Conditions to be satisfied by the seller & procurer/s Power Supply commencement Capacity, Availability & Dispatch Metering & Energy Accounting Billing & Payment Force Majeure Change in Law Events of Default & Termination Liability & Indemnification Assignments & Charges Governing Law & Dispute Resolution Miscellaneous Provisions Schedules to the Articles
Economic Principles behind PPA

Competition for the market: level playing field Shifting risk profile through involvement of bilateral or multilateral lending agencies To Provide a clear return on equity for huge capital Investment there by increasing chances of investment Allocation of Risks Incentivizing efficiency

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POWER TRADING & MERCHANT POWER

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POWER TRADING & MERCHANT POWER

Merchant Power

In India, while there is a huge section of consumers, who are power deprived, there are a lot of Captive Power Plants (CPPs) that are under-utilized and a lot of merchant capacity also expected to be added in the near future, there is a need to encourage the peaking power plants and bring the surplus captive generation in the grid. The Electricity Act, 2003, mandated development of power markets by appropriate commissions through enabling regulations. This paved the way for the new trends to emerge like Open Access and the one in February, 2007, when the Central Electricity Regulatory Commission (CERC) issued guidelines for grant of permission for setting up operation of power exchanges within an overall regulatory framework The emerging trends will help in proper flow of power from surplus regions to deficit regions and thus try to bring about a balance in the power sector. In India, two power exchanges viz., Indian Energy Exchange (IEX) and Power Exchange of India Ltd. (PXIL) are functioning with guidance from Central Electricity Regulatory Commission (CERC).
2 RLDC/SLDC 4 5 Day Ahead PX 3 6 7 Clearing House Power Trading System

1. 2. 3.
6 Bidder 1 1 6 Bidder 2 1 1 6

4.
Bidder 3

5. 6. 7. 8.
8 8

Pledged A/C 9 Settlement Bank 1 8

Pledged A/C 9 Settlement Bank 1

Pledged A/C 9 Settlement Bank 1

9.

Bidders send their bids to PX NLDC informs transmission capacity to PX Clearing house confirms adequate collaterals of clearing agents PX obtains NLDC concurrence before releasing day-ahead schedules RLDC issues day-ahead generation & dispatch schedules for PX participants PX issues day-ahead trade schedules PX issues rolling collateral requirement After settlement period, Clearing House issues Invoice/Credit Notes Settlement banks debit/credit appropriate accounts

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DEVELOPMENT OF POWER TRADING

Decreasing Power Prices

Trends in Power Trading (Source: CERC)

Volume Traded (BU)

Since its launch in 2000-01, the power trading market in India has proved a reliable source for distribution companies (discoms) to meet their power shortfalls. Power trading has also helped attract private investment in generation as investors have the option to sell their power in the free market in case the discoms default on payment. With the development of power exchanges in 2008, the power market witnessed significant developments during 2010-11 Power starved states like Tamil Nadu, Punjab, Haryana & Rajasthan used the free market power trading to mitigate their power shortages. The weighted average price of electricity transacted through trading licensees and power exchanges declined, respectively, from Rs. 7.29/kWh and Rs. 7.49/kWh in 2008-09 to Rs. 4.79/kWh and Rs. 3.47/kWh in 2010-11

81.56 65.9

Total Electricity Generation (BU)

809.44

764.03

2009-10

2010-11

2009-10

2010-11 Prices of Power Sold by Traders (Rs./Unit) Rs. 5.26 Rs. 4.79

% Share of Electricity Traded 10%

Rs. 7.29

9%

2009-10

2010-11

2008-09

2009-10

2010-11

Benefits to Industries

Rs. 7.49

Prices of Power Sold through Power Exchanges (Rs./Unit)

Volume of Electricity Sold by Traders (BU) 26.72 27.2

Several steel, textiles and cement mills are buying power from exchanges, particularly in Punjab and Tamil Nadu, where state governments have adopted favourable policies of open access , or the choice to buy electricity from sources other than state distribution utilities. The average per unit cost of electricity in the open market has come down to Rs. 3 from Rs. 10 a few years ago as there is surplus power in the system because of low offtake by state utilities. As a result, factories that were either shut down or were operating for 2-3 days a week are running round the clock now.

Rs. 4.96 Rs. 3.47

21.92

2008-09

2009-10

2010-11

2008-09 15.52

2009-10

2010-11

Electricity Sold through Exchanges (BU) 7.19 2.77

2008-09

2009-10

2010-11

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PRICING & TARIFF STRUCTURING

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PRICING & TARIFF STRUCTURING CAPACITY CHARGES

A two-part tariff is mandated by CERC for the pricing of power from Thermal Power Stations Capacity Charges & Energy Charges
Capacity Charges

Components of AFC Return on Equity (RoE) Interest on Loan Capital Depreciation

Regulation/Instruction 15.5% As per Actual 5.28%

These are the charges to recover the annual fixed costs of the thermal power plants. Components of the Capacity Charges are as follows:
Tariff Structuring (Source: Tariff Policy, CERC)

Interest on Working Capital Based on Normative Parameters Return on Equity A Pre-Tax RoE of 15.5% is specified. An additional RoE of Operation & Maintenance Costs Based on Normative Parameters 0.5% for projects commissioned after April 2009 within specific timelines 33 months for Greenfield projects upto 330 MW and 44 months for Greenfield projects of Cost of Secondary Oil Based on Normative Parameters 500/600 MW. This additional RoE acts as an incentive for a project developer to achieve time-bound milestones. Special Allowance in lieu of Based on Plant Life CERC has specified a debt-equity ratio of 70:30 for RoE Renovation & Modernization calculation. If the equity deployed is more than 30% of the capital cost, equity in excess of 30% should be treated as normative loan. Interest on Loan Capital A debt-equity ratio of 70:30 as the funding mix for the capital cost of a project is specified. A weighted average interest of loan capital is applied for the computation on this component. Depreciation Same depreciation rate are applicable both for tariff purposes and accounting purposes. As against a depreciation rate of 3.6% for thermal power plants, it has been increased to 5.28% for most of the components. Special Allowance in liew of Renovation & Modernization CERC has given an option to a coal based thermal power plants to avail of a special allowance as a part of AFC for meeting R&M expenses beyond the useful life of the power project. The allowance is available to the coal/lignite based thermal power project @ Rs 5 lakh/MW/Year from 2009-10 and is escalated @ 5.72% p.a.

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PRICING & TARIFF STRUCTURING CAPACITY CHARGES

Tariff Structuring (Source: Tariff Pilicy, CERC)

Interest on Working Capital The adjoining table indicates the components of WC Interest rates are recovered at Short Term Prime Lending Rate (PLR) by State Bank of India.

Components Coal Stock Secondary Oil Fuel Stock Maintenance Spares

Regulation/Instruction 1.5 months for Pit head 2 months for Non-Pit Head 2 months 20% of O&M Costs Coal Based 30% of O&M Costs Gas Based 2 months 1 month

Operation & Maintenance Expenses

Year 200910 201011 201112 201213 201314

200/210/250 MW 18.20 19.24 20.34 21.51 22.74

300/330/350 MW 16.00 16.92 17.88 18.91 19.99

500 MW + 13.00 13.75 14.53 15.36 16.24

600 MW +

Sales Receivables
11.70 12.37
Reduction Factors

O&M Expenses

13.08 13.82 14.62

For thermal power stations with multiple units, the concept of reduction factor is applied to units commissioned after April 2009. The normative O&M expenses for the new units will be determined by multiplying these factors with the normative O&M expenses. Reduction Factor Additional 5th & 6th unit Additional 4th & 5th Unit Additional 3rd & 4th Unit 0.9 Additional 7th & more unit Additional 6th Unit & more Additional 5th & above unit Reduction Factor 0.85

New Project Allowance

In addition to the Normative O&M costs, a separate compensation allowance for meeting the expenses on new capital assets, which will be based on year of completion of the project, is also allowed Years of Operation 0-10 11-15 16-20 21-25 Rs. Lakh/MW Nil 0.15 0.35 0.65

Unit Specificati on 200/210/2 50 MW 300/330/3 50 MW 500 MW & Above

0.9

0.85

0.9

0.85

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PRICING & TARIFF STRUCTURING ENERGY CHARGES

Energy Charges

Operational Parameters

These are the variable charges for the recovery of primary fuel costs of thermal power stations. The operational parameters that govern the energy charges are shown in the adjoined table

Norms of Operations Plant Availability GSHR (Gross Station Heat Rate) For existing stations 200/210/250 MW 500 MW + New TPS with COD after April 09

Regulation/Instruction 85%

2500 kCal/kWh 2425 kCal/kWh

Incentives linked to Plant Availability

Coal Based Gas Based Liquid Fuel Based Secondary Fuel Consumption Coal Based Auxiliary Consumption 200 MW series 500 MW series (Steam driven BFP) 500 MW series (Power driven BFP)

1.065 X DHR 1.050 X DHR 1.071 X DHR

The CERC has linked the payment of incentive to the plant availability factor (PAF). This is a positive for plants that are compelled to operate at lower PLFs compared to their Availability for extraneous reasons. The incentives are recoverable as a part of the AFC and computed on monthly basis. The AFC inclusive of the incentive payable will be calculated as follows:

1.0 ml/KWh

9.0% / 8.5% 6.5% / 6.0% 9.0% / 8.5%

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DEMAND SIDE MANAGEMENT

THE ABT MECHANISM

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DEMAND SIDE MANAGEMENT THE ABT MECHANISM

Availability Based Mechanism

Role of Beneficiaries

The power plants have fixed and variable costs viz. capacity and fixed charges respectively. Fixed cost are linked to availability of the plant. The total amount payable to the generating company over a year towards the fixed cost depends on the average availability (MW delivering capability) of the plant over the year. Energy charge is not based on actual generation and plant output, but on scheduled generation. In case there are deviations from the schedule, the energy charge payment would still be for the scheduled generation, and the excess generation would get paid for at a rate dependent on the system conditions prevailing at the time negative in case the power plant is delivering less than scheduled.

Based on the Gadgil formula, beneficiaries (States in a region) are allotted shares of the outputs of Central generating stations. Capacity charges are paid on pro-rata basis of the shares. The energy charge would be the fuel cost for the energy scheduled to be supplied from the power plant during the day. In addition, if a beneficiary draws more power from the regional grid than what is totally scheduled, it has to pay for the excess drawal at a rate dependent on the system conditions, the rate being lower if the frequency is high, and being higher if the frequency is low.

ABT Mechanism

The process starts with the Central generating stations in the region declaring their expected output capability for the next day to the Regional Load Dispatch Centre (RLDC). The RLDC breaks up and tabulates these output capability declarations as per the beneficiaries' plant-wise shares and conveys their entitlements to State Load Dispatch Centres (SLDCs). The latter then carry out an exercise to see how best they can meet the load of their consumers over the day, from their own generating stations, along with their entitlement in the Central stations. They also take into account the irrigation release requirements and load curtailment etc. that they propose in their respective areas The SLDCs then convey to the RLDC their schedule of power drawal from the Central stations The RLDC aggregates these requisitions and determines the dispatch schedules for the Central generating stations and the drawal schedules for the beneficiaries duly incorporating any bilateral agreements and adjusting for transmission losses. These schedules are then issued by the RLDC to all concerned and become the operational as well as commercial datum. However, in case of contingencies, Central stations can prospectively revise the output capability declaration, beneficiaries can prospectively revise requisitions, and the schedules are correspondingly revised by RLDC. The diagrammatic representation on the next page will help clarify the mechanism

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ABT SCHEMATIC

Central Generating Station Expected O/P for Next Day

RLDC Plant-wise Entitlements Own Generation Schedule SLDC Load Curtailment Schedule
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Schedule of Power Drawal

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DEMAND SIDE MANAGEMENT THE ABT MECHANISM

Pre-ABT Era

How ABT Addresses the issue

Prior to the introduction of Availability Tariff, fluctuations in grid frequency were quite significant, ranging between 48 and 52 Hz. Low frequency situations result when the total generation available in the grid is less than the total consumer load, which can be addressed by enhancing production or curtailing load Low frequency situations result when the total generation available in the grid is less than the total consumer load. The earlier tariff mechanisms did not provide any incentive for either backing down generation during off-peak hours or for reducing consumer load / enhancing generation during peakload hours.

Firstly, by giving incentives for enhancing output capability of power plants, it enables more consumer load to be met during peak load hours. Secondly, backing down during off-peak hours no longer results in financial loss to generating stations and the earlier incentive for not backing down is neutralized. The beneficiaries have well-defined entitlements, and are able to draw power up to the specified limits at normal rates of the respective power plants. In case of over-drawal, they pay a higher rate during peak load hours, which discourages them from overdrawing further. This payment then goes to beneficiaries who received less energy than scheduled, and acts as an incentive/compensation for them

Period

UI Rate at 49 Hz (Rs/unit)

Allowed Grid Freq (Hz)

Variation Allowed (Hz)

Congestion Rate (Rs./Unit)

Evolution of ABT Schemes

Jul-02 Jan-04 Sep-04 Apr-07 Jan-08 Mar-09 May-10

4.2 6 5.7 7.5 10 10.3 17.5

50.5 50.5 50.5 50.5 50.5 50.3 50.2

49 49 49 49 49 49.2 49.5

1.5 1.5 1.5 1.5 1.5 1.1 0.7

0 0 0 0 0 0 7.04

With ABT in place in early 2000, CERC as well as Indian Electricity Grid Code regulations stipulated a frequency range between 49 Hz and 50.5 Hz Although an improvement over the existing condition, these were still higher than the internationally accepted norm of grid frequency at 50 Hz with variation of +/-0.2 Hz Subsequently, the ABT mechanism was implemented in a phased manner across the five regions (North, West, NorthEast, East & South) of India by the end of 2003. The adjoining table depicts the UI (Unscheduled Interchange) tariff rates during different time-periods

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UNSCHEDULED INTERNCHANGE (UI) MECHANISM

UI Mechanism

The energy actually supplied by the generating station may differ from the scheduled. If actual energy supplied is higher than scheduled, the generating station would receive a payment for the excess energy at a rate dependent on frequency at that time If the energy actually supplied is less than what is scheduled, the generating station shall have to pay back for the energy shortfall, at the same frequency-linked rate. Such a mechanism gives trading opportunities to both, generating companies as well as beneficiaries.

Trading Opportunities for the Generator

Trading Opportunities for the Beneficiary

Suppose a GENCO has surplus capacity during the off-peak hours. The surplus capacity can be utilized in the following ways: 1. Back down the station during off-peak hours, i.e., generate as per schedule given by RLDC. In this case, the station gets capacity charge for the day for the declared capacity and energy charges as per the quantum scheduled. Find another buyer for the surplus capacity during off-peak hours. Capacity charges are already recovered from the scheduled generation sale. Thus, as long as the surplus sale rate is higher than the fuel cost per kWh, the deal would be financially beneficial. Accept RLDC s schedule, but generate up to the full capacity. The surplus addition into the grid would be compensated with the prevailing UI rates from the UI pool account. Such generation is beneficial as long as UI rates are higher than fuel cost of generation.

Suppose a beneficiary does not fully requisition its entitlement during the off-peak hours. In such situation, the beneficiary has following options: 1. 2. Requisition power as per its own requirement and draw power as per schedule. Requisition full entitlement and sell the surplus power during off-peak hours through a bilateral sale. This would be beneficial as long as the selling rate is more than the energy charge rate of purchasing the power. Requisition full entitlement, but draw power only as per actual requirement. If the drawal is less than scheduled, it has to pay for the scheduled quantum at the normal energy rate, but gets compensated by prevalent UI rates. This is beneficial when the UI rates are higher than energy charges.

2.

3.

3.

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UNSCHEDULED INTERCHANGE (UI) RATES

UI Rates

Graphical Representation

UI Framework Frequency Band (Hz) UI Charges (Rs./Unit)

Norms

50.2 49.5

UI Rate vs Frequency
1000 900 800 700 600 500 400 300 200 100 0 50 50.2 49.5 49.6 49.7 49.8 49.9 50.1 UI Rate (Paise/kWh)
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0 8.73

50.2 49.7 Hz: 15.5 paise/unit 0.02 Hz step 49.7 49.5 Hz: 47 paise/unit UI Cap Rate (Rs./Unit) Situation

4.03

Grid Frequency

Charges 40% of UI rate @ 49.5 Hz 100% of UI rate @ 49.5 Hz 20% of UI rate @ 49.5 Hz 40% of UI rate @ 49.5 Hz

Overdrawal Additional UI Charge

49.5 49.2 Hz

Overdrawal Underinjection Underinjection

Below 49.2 Hz

49.5 49.2 Hz

Frequency (Hz)

Below 49.2 Hz

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CONCLUSION

Cost-Competitiveness

Tradability

One of the most important reason why thermal power plants are popular is because of its cost competitiveness. Renewable sources like solar and wind are nowhere in the vicinity of power generated by thermal power plants as far as per unit generation cost is concerned. Moreover, in absence of the feed-in tariffs provided by the governments to renewable projects, solar and wind power plants would not be able to compete with coal or gas based power plants. Hence, investors find thermal power to be economically efficient, as compared to other resources of generation

The ability of gas-based power plants to start-up and shutdown easily makes it possible for power traders to exploit such operational characteristics. Low start-up and shut-down cost and time enables the power generators to connect their plants to the grid and supply electricity as and when needed. This give an opportunity to earn a quick profit, whenever the grid frequency falls below a specified limit. Moreover, due to long-term fuel supply agreements with coalmining and gas companies, thermal power plants can participate in day and term-ahead markets. Such opportunities may not be available to renewable sources due to the unpredictability of nature.

Environmental Impact

Energy Security

Thermal power plants are responsible for major carbondioxide emissions in the atmosphere. However, with the development of super-critical technology, the carbon-dioxide emissions have reduced substantially. Moreover, clean-coal technologies , Flue-Gas Desulphurization (FGD), Selective Catalytic Reduction (SCR) technologies are also used to reduce the carbon footprint.

Thermal power plants have comparatively higher generation capacity per coverage area. Moreover, the gestation period is also low as compared to large-scale nuclear power plants. With projects like Mega and Ultra Mega power plants, thermal power project are a pioneer in attaining the aim of energy security of India, hence, they play an important role in the Government mission of Power for All by 2012.

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REFERENCES

References

1. KPMG. Power Sector in India. s.l. : KPMG, 2010 2. Key Inputs for 12th Plan Financing of of Power Sector. CERC. Delhi : CERC, 2010. Key Inputs for 12th Plan Financing of of Power Sector 3. . Open Access in inter-state Transmission Regulations. s.l. : CERC, 2009 4. Electric Power Exchanges - A Review. Bichpuriya, Yogesh K. and Soman, S. A. Mumbai : s.n., 2010. 16th National Power Systems Conference 5. CERC. Terms & Conditions of Tariff Regulations . s.l. : CERC, 2005 6. . Terms & Conditions for Tariff Regulations - Amendments. s.l. : CERC, 2011 7. Indian Energy Exchange. Business Rules of Indian Power Exchange Limited. New Delhi : IEX India, 2010 8. . Bye-Laws of IEX. s.l. : IEX India, 2010 9. Deo, Mr. Jayant. Huge untapped potential for Power Trading in India. s.l. : Energetica India, March 2009 10. CERC. Key Inputs for Accelerated Development of Indian Power Sector for 11th Plan & Beyond. New Delhi : CERC, 2007 11. IEA. Key World Energy Statistics. s.l. : International Energy Agency, 2010 12. CEA. Monthly Review of Power Sector Performance - January 2011. New Delhi : Central Electricity Authority, 2011. 13. TERI. Technology Status of Thermal Power Plants in India & Opportunities in Renovation & Modernization. New Delhi : Tata Energy Resource Institute, 2010 14. Vineeta Kaushik. Merchant Power Plants in India. New Delhi : Infraline, 2009 15. CERC. Procedures for Calculating the Expected Revenue from Tariffs & Charges. New Delhi : CERC, 2010. 16. Anjan Ghosh; Sabyasachi Majumdar; Anil Gupta. New CERC Regulations to Encourage Investmet, Efficiency in Power Sector. Mumbai : ICRA, 2009. 17. Bhanu Bhushan. ABC of ABT - A Primer on Availability Tariff. New Delhi : CERC, 2005. 18. S. K. Sonee, S. R. Narasimhan; V. Pandey. Significance of Unscheduled Interchange Mechanism in Indian Electricity Supply Industry. Varanasi : Dept. of Electrical Engineering, IT-BHU, 2006. 19. PPA Between GSECL & GUVNL. Ukai : s.n., 2011.

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ECONOMICS OF THERMAL POWER

Report Prepared by

Chandramauli Bhatt (20101049) MBA Energy & Infrastructure Ph. +91-9099068452 Harshal Manjari (20101015) MBA Energy & Infrastructure Ph. +91-9662026058 Manthan Gattani (20101026) MBA Energy & Infrastructure Ph. +91-9925759329 Shreyas Patel (20101049) MBA Energy & Infrastructure Ph. +91-9909964633 Vaishakh Nair (20101055) MBA Energy & Infrastructure Ph. +91-9924824484

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