Availability Based Tariff

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-- Bhanu Bhushan -Email: bhanubhu@del3.vsnl.net.in

(27 June 2005)

(The views expressed herein are personal and not those of the Central Electricity Regulatory Commission)

Operation of regional grids in India, as you would be aware, has undergone a sea-change since 2002, primarily due to introduction of Availability Tariff, which started on 1st July, 2002 fro Western Region. On the third anniversary of this momentous development, Power Grid Corporation of India is happy to distribute a 36-page primer on Availability Tariff, written by Bhanu Bhushan, presently a Member of Central Electricity Regulatory Commission. Implementation of Availability Tariff for Central generating stations in India was recommended by M/s ECC of USA in 1994, under a study sponsored by the World Bank and ADB. The unique feature of this tariff, to tackle the peculiar problems of grid operation in India, is the frequency-linked pricing of the Unscheduled Interchange (UI) based on a novel concept proposed in 1984 and developed over the years by Bhanu Bhushan. He also specified the special energy meters (a pre-requisite for implementation of this mechanism) in 1991, and guided their indigenous development. I can vouch for the fact that we have this wonderful mechanism on ground because of his foresight, perseverance and untiring efforts. Shri Bhushan is, therefore, eminently qualified to explain the underlying principles of Availability Tariff. It has been my privilege to have had Bhanu Bhushan as a colleague in NTPC and PGCIL for 27 years, and to have seen him, as Director (Operation), PGCIL, guide the RLDCs in successful implementation of Availability Tariff region-by-region. This primer is yet another contribution for which Indian Power sector shall remain grateful to him for a long time. I recommend wide circulation of the primer at your end, for perusal by all concerned.

( R.P.Singh ) CMD Power Grid Corporation of India Gurgaon 01.07.2005

May be freely copied, printed and distributed, provided the matter is not altered.

CONTENTS A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . - What is Availability Tariff - How do the beneficiaries share the payments - How does the mechanism work - Why was Availability Tariff necessary - How does it benefit everyone The Daily Scheduling Process . . . . . . . . . . . . Deviations from Schedule . . . . . . . . . . . . . . . . A Simple Trading Opportunity . . . . . . . . . . . . . U.I. Rate vs. System Marginal Cost . . . . . . . . Trading of States’ Surplus Generation . . . . . . . Expectations from Central Stations . . . . . . . . . Guidance for State Load Dispatch Centres . . . Optimum Utilization of Intra - State Resources Open Access, Wheeling and Energy Banking . 3

B. C. D. E. F. G. H. I. J.

8 10 13 16 20 22 27 31 34


What is Availability Tariff


The term Availability Tariff, particularly in the Indian context, stands for a rational tariff structure for power supply from generating stations, on a contracted basis. The power plants have fixed and variable costs. The fixed cost elements are interest on loan, return on equity, depreciation, O&M expenses, insurance, taxes and interest on working capital. The variable cost comprises of the fuel cost, i.e., coal and oil in case of thermal plants and nuclear fuel in case of nuclear plants. In the Availability Tariff mechanism, the fixed and variable cost components are treated separately. The payment of fixed cost to the generating company is linked to availability of the plant, that is, its capability to deliver MWs on a day-by-day basis. 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. In case the average actually achieved over the year is higher than the specified norm for plant availability, the generating...
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