Tariff determination

Suppose to take a thermal power plant 1000mw plant (500mw*2 units) 2 units of same load because
of the advantage of spare. No. of spare is reduced.

Total project cost- 1000*4cr/mw= 4000 crs. -----70%debt and 30% equity included of IDC i.e. interest
during construction.

*there’s demand of converting 70:30 ratio to 80:20 in order to have sound economy.

Debt= 2800 crs.

Equity= 1200 crs. In what each and every share has equal value that is why it is called equity.

*if equity is more than 30%, it is considered as loan given by the owner to the company.

Calculation of ARR: (Annual revenue requirement)

1. ROE (profit) -@15.5% Max as per cerc guidelines- mentioned in section 62-tariff
determination.

*1 percent more ROE for pump storage hydro power plant as per CERC guidelines and max.

=15.5% of 1200 cr equity= 186 crs. ------------------eq1

2. Interest on debt- 10% (1% i.e. 100 bps (basis points) above the bank rate as per cerc
guidelines also known as PLR= Prime lending Rate given by SBI which is of 2 types i.e. short
term -<1 year, long term->1 year. We take long term period. PLR/base rate is change in last
year rate which is governed by RBI.)

= 10% of 2800 crs.

= 280 crs ------------------------------------eq2

3. Interest on Working capital- normally we take 10% (decided by RBI) of project cost.
=10% p.a. of 4000crs.
=400 crs
=400 crs. *10%debt= 40 crs --------------eq3

*price of solar has declined because of soft loans and less interest rates like from 10% it dipped to
2%, equity partnership by foreign sources, scale of operation, better technology.

*interest and loan can be swapped with the permission of regulatory commissions what comes into
risk management.

4. o&m costs- @10 LPA/MW normally

=1000*10lpa

=100 crs. ------------------eq4

5. Depreciation- 5.28% pa by cerc for 10 years and for next 10-15 years 2.48% and salvage
value=10%- two tier accelerated straight line method
 =5.28*10 + 10
=52.8+10= 62.8%

Rest= 100-62.8 = 37.2%

For next 15 years after first 10 years= 37.2/15

=2.48% pa after 10 years, for next 15 years

So, 5.28% of 4000crs= 211.2 cr

Total fixed cost :- 186+280+40+100+211.2= 817.2 crs

Total hours of plant= 1000mw*1000kw*365*24/10^6 = 8760 hours

MU per year= {8760*0.85 (CUF) for first year*1.0 (availability factor)}

=7446 MU

Tariff= total fixed cost/ MU per year

=817.2 * 10^7/7446*10^6

= 1.097rs