Economics of Power Generation

and Tariff calculation

By Manish K Singh
Tariff Determination Methodology
Methodology of Tariff Determination of Thermal Power Plant

Who is authorized to specify the terms and conditions for determining the tariff?

 The EA-2003(Section 61) has empowered CERC to specify the terms and conditions for the determination of tariff in respect
of the generating companies (Excluding Non-conventional Energy Sources).

 The CERC is also empowered to determine the tariff that can be levied by transmission licensees for inter-State
transmission of electricity.
Regulatory Norms for Computation of Tariff

Components of Tariff: (1) The tariff for supply of electricity from a thermal generating station shall comprise two parts, namely,
 Capacity charge (for recovery of annual fixed cost consisting of the components as specified in Regulation 51 of these
regulations)
 Energy charge (for recovery of primary and secondary fuel cost and limestone cost where applicable).

Capacity Charges: The Capacity charges shall be derived on the basis of annual fixed cost. The annual fixed cost (AFC) of a
generating station or a transmission system including communication system shall consist of the following components:
 Depreciation
 Return on equity
 Interest on loan capital
 Interest on working capital;
 Operation and maintenance expenses
**Provided that special allowance in lieu of R&M, where opted in accordance with Regulation 27 of these regulations, shall
be recovered separately and shall not be considered for computation of working capital.
Regulatory Norms for Computation of Tariff

Variable Charges or Energy Charges: Energy charges shall be derived on the basis of the landed fuel cost (LFC) or variable cost of a
generating station (excluding hydro) and shall consist of the following cost:
 Landed Fuel Cost of primary fuel.
 Cost of secondary fuel oil consumption.

** Provided that any refund of taxes and dut ies along with any amount received on account of penalties from fuel supplier
shall have to be adjusted in fuel cost.
Regulatory Norms for Computation of Tariff
Components of Capacity Charges/Annual Fixed Charge (AFC)

Components of Annual Fixed Cost FY 2019-24

a Return on Equity 15.5%
b Interest on loan capital As per actual
c Depreciation 5.28%
d Interest on working capital Based on normative parameters
e O&M Costs Based on normative parameters
f Cost of secondary fuel Based on normative parameters
g Special Allowance in lieu of Based on plant life
R&M
Regulatory Norms for Computation of Tariff
Return on Equity
 Pre-Tax RoE of 15.5% for the tariff period FY 2009-14.

 Additional RoE of 0.5% for projects commissioned after April 2009 within specific timelines. (Incentive for time bound
implementation of project).

 Recovery of tax on income from Unscheduled Interchange in not applicable.

Regulatory Norms for Computation of Tariff
Interest on Loan Capital

 The CERC has specified a debt-equity ratio of 70:30 as the funding mix for the capital cost of a project.

 The interest rate as per actuals on these loan funds is recoverable as part of the tariff.

Depreciation

 As against the earlier deprecation rate of 3.6% for thermal power projects (based on a 25-year project life and 90% of the
capital cost), the CERC has increased the depreciation rate to 5.28% for most components of the project.
Regulatory Norms for Computation of Tariff
Interest on Working Capital
The working capital for a thermal power station has following components

Components of Annual Fixed Cost FY 2019-24

a Coal Stock 15 days Pit Head
20 days for Non-Pit head
b Advance Payment of coal 30 days
c Maintenance Spares 20% of O &M Costs
d Secondary Fuel Oil Stock 2 months
e O&M Costs Based on normative parameters
f Sales Receivables 2 months
g O&M Expenses 1 Month
Regulatory Norms for Computation of Tariff
Operations & Maintenance Costs(O & M Costs)
The CERC has specified O&M Costs for thermal power stations on the normative parameters (Rs. lakh/MW), depending on the
class of the machine installed by the power station. The normative O&M expenses allowed are:

Provided that where the date of commercial operation of any additional unit(s) of a generating station after first four units
occurs on or after 1.4.2019, the O&M expenses of such additional unit(s) shall be admissible at 90% of the operation and
maintenance expenses as specified above;
 Regulatory Norms for Computation of Tariff
Norms for Operation FY 2019-24
a Plant Availability Factor 83%
b Gross station Heat rate
500 MW and Above
c Secondary Fuel Oil Consumption
Coal Based 1 ml/KWh
d Auxiliary Power Consumption
500 MW and above 8.0 %
Case Study- Tariff determination of 660 MW Plant
 Tariff Determination of 660 MW plant
S.No. Particulars Normative Parameters

01 Plant capacity 660 MW

02 Capital Cost 6 Cr/MW

03 Debt-Equity Ratio 70:30

04 Return on Equity 15.5%

06 Interest on Loan 10%

07 Working capital(10% of capital cost) 396.00 Cr

08 Interest on working capital 10%

08 Rate of Depreciation 5.28%

09 O&M cost 14.62%

10 Plant Load Factor 85%

11 Plant Availability Factor 85%

12 Specific Oil Consumption 1ml/KWh

13 Price of Oil Rs. 35000/kl

14 Gross Calorific value of Oil 10000kcal/l

 Tariff Determination of 660 MW plant
S.No. Particulars Normative Parameters

15 Station Heat Rate 2425kcal/Kwh

16 Cost of Coal Rs. 2000/Tons

17 Auxiliary Power Consumption 6.5%

18 Plant Life 25 yrs.

19 Gross Calorific value of Coal 3800kcal/kg

Thank You