Components of Electricity Tarfiff Role of Consumers in Tariff Determination

8/13/2019 Components of Electricity Tarfiff Role of Consumers in Tariff Determination

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TARIFF OF ELECTRICITY &PRINCIPLE OF ITS

CALCULATION

Mr. Prititosh Ray

Empanelled National Level Monitor

Ministry of New and Renewable Energy

Government of India

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Electrical energy is most useful form of energy because it can be mostconveniently transformed into other forms of energy like heat light,

mechanical energy that we require in our day to day life.

But electricity is not readily available and is required to be produced

(generated) in a factory called power station.

Like any other manufacturing process, the production (generation) of

electricity also need some cost to be incurred - Plants and Equipment, Inputs

(water, fuel etc.), Ash smoke disposal systems, Personnel

Cost of Transmission and Distribution to the large number of consumers of

various categories (viz. domestic, commercial, industrial, agricultural etc.)

All these costs when added together constitutes the total cost of electricity

which in the consumers have to share according to the quantum of electricity

consumed taking into account the nature and time of use of electricity by each

category of consumers.

INTRODUCTION


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The question is how this cost of electricity is to determined in a transparent manner.

Some standard principles have been evolved through ages of un & sell of electricity

become more and more complicated.

Methods of calculation of cost of generation of electricity in a Thermal Power station in

terms of these basic principles.

Cost of Electricity has two componentsFixed Cost and Variable Cost

The basic difference between power and energy

Power

It is the capacity to Generate or consume electricity. The term Powerspecifies the capacity

of generation or consumption in terms of Kilowatt (KW) or Megawatt (MW). One Megawatt as

we know in one thousand Kilowatt.

Energy

It is the Power Generated or Consumed by utilizing the capacity for a duration of time. It one

kilowatt Power has been generated or distributed continuously for one hour, it is said that an

energy of One Kilowatt hour has been generated or used. Similarly if Five kilowatt of Power is

generated or consumed for Two hours, an energy of 10 ( = 5 X 2) kilowatt hour has been

generated or consumed and so on. 4

INTRODUCTION (contd.)


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Fixed Cost

Cost of setting up a Power Plant, Inverter, Plant & Equipment, Personnel

Employed, Raw Material Inventory

Costs that are fixed

As per recent norms fixed cost cannot be recovered fully from theconsumers if the capacity is not available for generation above a certain

percentage of declared capacity.

Variable cost

Cost of generating the quantum of electrical energy and covers the fuelcosts for generating this quantum of electricity.

The Fuel in a coal fired Thermal Power Station is coal (Primary fuel) and

Oil (Secondary fuel).

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COMPONENTS OF COSTFixed and Variable Cost


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Return on equity capital

Taxes and Duties

Depreciation

Interest on loan component of capital

Interest on working Capital

Operation & maintenance expenses

Employment Cost

Insurance Premium Payable

Costs arising out of Foreign Exchange Rate Variation (FERV)

Bad Debts 6

COMPONENTS Of FIXED COST


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1. Return on Equity:

Debt-Equity ratio in electricity generation is 70:30.

Equity employed in more than 30% the amount of liquidity shall be limited to 30%

and balance amount treated as loan.

If however the equity employed is less than 30%, the actual equity and loan shall

be considered for determination of return on equity.

Equity Capital shall be the sum total of paid up equity capital, preference share

capital, fully convertible debentures, foreign currency convertible bonds and sharepremium amount.

Generally Return on equity @14% is decided to be recovered from the consumers

in electricity sector.

2. Tax and Duties:-

Tax on income stream of the company, Banking cash transaction charge, any

other direct tax and Fringe benefit tax shall be computed as expenses

Shall be recovered as pass through from consumers and beneficiaries

Govt. duties shall be recovered at specified rate from the consumers but shall be

processed on to the Govt.

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COMPONENTS Of FIXED COST ..(contd.)


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3. Depreciation:

The depreciation of various assets shall be calculated in terms of useful life

period of each equipment as specified

The residual value of assets shall be considered as 10% and depreciation shall

be allow up to a maximum of 90% of the original cost of the asset.

Depreciation shall be chargeable from the first year of operation of the asset.

In case of operation of the asset from the middle of the year depreciation shall be

changed on pro-rate basic. Free hold land is not depreciable and its cost shall not

include while calculating the depreciation cost.

4. Interest on Loan:

The generating company shall be allowed to recover the interest expenses on all

borrowings towards capital works as per terms of such borrowings including the

repayment schedule

Interest on normative loan shall be allowed at weighted average rate of interest

on above actual borrowings

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5. Interest on Working Capital:

Working Capital primarily for purchase of fuel has to be maintained at all times so

that the generation does not suffer due to shortage of working capital.

On a normative basis working capital requirement is assessed at the rate of 18% of

estimated amount of sales revenue reduced by the amount of Depreciation.

Sometimes It is about fuel cost on 3 monthsof average generation.

6. Operation & Maintenance Expenses:

O & M expenses include Repair and Maintenance expenses as also the

Administrative and general expenses

The Administrative & General Expenses includes the following items:

Rents, rates & taxes (other than taxes & relating to income, profits & dividendtaxes)

Legal charges and statutory fees (but excluding any penalty to be paid under

the law)

Auditorsexpenses

Consultancy charges for work which can not be done in house or is

uneconomical to do so.

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7. Employees cost:

Employee cost shall include the expenses on account of salaries & wages, staffwelfare expenses, travelling expenses, Bonus etc including Directors

remuneration, fees expenses and other facilities and salaries and wages of

Corporate office/ Registered office and shall be shown separately.

The cost of maintaining terminal benefit fund shall be included in employees

cost. However, recently a new guideline has been introduced for reasonable

MAN: MW ratio.

8. Insurance Premium Payable:

All insurance payments reasonably paid to cover

transportation risks,

erection risks,

Fire risks etc

and any such risk shall be recovered from the consumers.

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Cost supplied to the Power stations are graded as grade A, B, C, D, E, F and G

according to the heat value of the particular quality of the coal.

Heat values are expressed in terms of kilo calories/kg meaning thereby that one

kg of coal of certain grade where fully burnt will give rise to a certain amount of

heat measured in kilo calories. These heat values an expressed in Useful Heat

Value (UHV). GCV of particular grade of coal is higher than its useful heat value

or UHV.GCV & UHV of various grade of coal are listed below:

Grade UHV GCV

(in kilo calories/kg) (in kilo calories/kg)

A More than 6200 6454B Between 56006200 Between 60496454

C Between 49405600 Between 55976049

D Between 42004940 Between 50895597

E Between 33604200 Between 43245089

F Between 24003600 Between 38654324

G Between 13002400 Between 31133865

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VARIABLE COST OR FULL COST


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Station Heat Rate

Different Power station depending on design efficiency require different amountof heat to produce one Kwh of electrical energy.

This is known as Station Heat Rate and is expressed in terms of kilo

calories/kwh.

For example station Heat Rate (SHR) of Budge Budge Power Station of CESC

is about 2500 k.cal/kwh where as far New Cossipore Generating Station SHR

is of the order of 6000 k.cal/kwh.

This is because New Cossipore is an old Power Station and less efficient by

design and operation.

Similarly for Barkrashwar Thermal Power Station of WBPCDCL the SHR is

2500 k. cal/kwh and for Bandel Power Station of WBPCDCL the SHR is of the

order of 3000 k.cal kwh for older units.

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VARIABLE COST OR FULL COST .(contd.)


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Specific Oil Consumption

Although coal is the primary fuel for generation of energy in a Thermal PowerPlant, certain amount of oil is also required to be burnt for starting the process

of Boiler firing, initial low level of generation etc.

Each unit or plant has different amount of oil requirement for generating each

kwh of electrical energy. This is called Specific Oil Consumption of the Unit or

Plant and is expressed in mililitres per kwh or ml/kwh

The Specific Oil consumption in the Plant may vary from 1 ml/kwh to 4 ml/kwh

When a unit is first synchronized after erection and commissioning the oil

consumption may reach higher values during the stabilization period

This oil has its own Heat Value Called G.C.V of oil or Gross calorific value of oil

and is expressed in kilo calories/litre. This value is generally of the order of

9500 to 9600 kilo calores per litre. Average price of oil being 40000 Rs./KL to

50000 Rs/KL limit may change according to international market rate

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Typical Specific Oil Consumption Levels in some Thermal Power Stations

Sl No. Power Stat ionsSpeci f ic oi l consumpt ion

in m i l l i li ter /KWh (ml/kwh )

1 Budge Budge (CESC) 1.5

2 Bandel T.P.S. 3.5 (for old units)

3 Kolaghat T.P.S. 2.05

4 Bokreswar T.P.S. 1.3



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Auxiliary Consumption

Auxiliary consumption varies between 8.5% to 10.5% of gross energy generated in

the power station of different vintage, efficiency & technology used.

All though quantum of Auxiliary Consumption is required to the generated of

burning fuel in the Power Station, the amount of energy spent as auxiliary

consumption can not be actually delivered to the Purchaser.

However cost of generating the auxiliary consumption is also to be recovered from

the purchaser in addition to the cost of energy delivered to him.

N.B. It is to be remembered that cost of coal is to be considered as per

latest notification of Coal India. Cost of Oil has to be considered as perinternational market rate.

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FUEL COST

1. Electricity proposed to the generated in the

power station during the year in Million Units

(MV)

2. Auxiliary Consumption (say 10% of proposed

Energy generation in MU

3. Ex-Bus Generation to the delivered =(1-2)MU

4. Station Heat Rate of Power Station in Kilo

calories/ KWh

5. Total Heat Required for generation = 1 X 4 in

Million Kilo Calories.6. G.C.V of Oil in Kilo Calories/Liter

7. Specific oil consumption in ml/KWh

8. Total Oil Consumed = 1 X 7 in KL (Kilo liters)

9. Average Price of oil in Rs/KL

10. Cost of Oil =8 X 9 in Rs.

11. Heat generation from oil = 6 X 8 1000 in

million kilo calories.

12. Heat generation from coal = 5 -11 in million kilo

calories.13. Heat value of coal in Kilo Calories / Kg

14. Coal required =12 X 1000 13 in M.Tonnes.

15. Weighted average price of coal in Rs / MT.

16. Cost of Coal = 14 X 15 in Rs.

17. Total Cost of Fuel = 10 + 16 in Rs.

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Sample Calculation Chart for Determining

Sample Calculation Chart for determining: NET ARR &

AVARAGE COST OF GENERATION

1. Fuel Cost.2. Coal & Ash Handling charges.

3. Employees Cost including Cost of contracted manpower.

4. Administrative & General Expenses.

5. Rents, Lean Rentals etc.

6. Legal and professional Charges.

7. Audit Fees.

8. Repair Maintenance including consumables.

9. Insurances.

10. Depreciation.

11. Interest on loan capital.

12. Interest on working Capital.

13. F.E.R.V

14. Bad Debt.

15. Water charges.

16. Return on Equity.

17. Gross Aggregate Revenue Requirement = Sum(1 to 16)

Less: i) Miscellaneous Income from other sources.ii) Other deduction.

19. Net ARR to be recovered through tariff = 1718 in Rs.

20. Average Tariff for Purchase = 19 Ex-Bus Energy sal in

Rs./Kwh


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Thank You

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Components of Electricity Tarfiff Role of Consumers in Tariff Determination

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