Module-4:Syllabus:

Electricity via Other

Commodities:
 Module-4:Syllabus:
Electricity via Other Commodities:
• Distinguishing features of electricity as a commodity,
Four pillars of market design:
1. Imbalance,
2. Scheduling and Dispatch,
3. Congestion Management,
4. Ancillary Services.
• Framework of Indian power sector
• Introduction to the Availability Based Tariff (ABT).
 Introduction
• ‘Electricity' as a Commodity, the laws of economics or
commercial trade arrangements may not hold good.
• This is because, electricity as a commodity bears different
characteristics from other commodities, or rather,
electricity is physically different from other commodities.
• This fact complicates the procedure of electricity trading.
• In other words, the trade is not as simple as an interaction
between two entities: buyer and seller.
 Introduction
• The interdependencies of actions taken by various
participants (primarily generators and loads),
mandate somebody to take over the control of real
time activities.
• This somebody is the system operator, who makes
sure that the whole system runs reliably and thus
kept in synchronism.
• Thus, it is worthwhile to understand the
distinguishing features of electricity as a commodity,
which are presented in this module
Distinguishing Features of Electricity as
a Commodity
• There are three basic distinguishing features of electricity.
• These are associated with electricity due to its physical
nature.
• These three basic features effectively lead to one
distinguishing feature of this commodity, the one that
has commercial implications.
1. Real time supply and balance
2. Power Flows Obey Laws of Physics
3. Generator Product Compatibility and Interactions.
1.Real Time Demand Supply Balance
• Electricity can’t be stored in bulk.
• Other commodities can be manufactured and kept in a
warehouse until the demand for the same is sensed.
• A manufacturer of other commodities gets sufficient
flexibility in planning the manufacturing activity and
coordinating the dispatch.
• The same is not true for electricity.
• The demand for electricity needs to be satisfied on real
time basis
 Real Time Demand Supply Balance
• The parties involved in electricity trade perhaps would like to do it through forward
contracts.
• These can be contracts for physical delivery or financial in nature.
• In many power markets, bulk trade of electricity (> 80%) is done through forward
contracts.
• Forward contracts can be done years ahead.
• When a certain amount of electricity is bought in the forward contract, it is the
estimate of the buyer, how much it is likely to consume during actual delivery time.
• However, in real time, the actual consumption may not match the predicted
consumption that had been forecasted at the time of doing forward trade.
• This difference is called as imbalance.
• Knowledge about this imbalance is exposed only during real time operation or slightly
before that.
• In this case, the system operator or some other market mechanism stands ready to
 Real Time Demand Supply Balance
• Due to storage limitation, the supply-demand matching decision needs to be
done on a competitive basis by letting supply and demand interact with each
other.
• The operator buys and sells these imbalances through some commercial
mechanism.
• Due to this feature of electricity, an issue related to the speed of operation
pitches in.
• The system operator, while making a provision for imbalances, has to take into
consideration various network interdependencies.
• The system operator(LDC) always has to communicate with the active
participants to tell them which generators should increase their output and
which ones should decrease it.
• This activity is called scheduling in advance and dispatch in
real time.
 Real Time Demand Supply Balance
• Since the system operator has to work with seconds to
spare, a delivery system to make up for imbalances has
to be in place.
• In real time, the only time available with system operator
is what is allowed by the energy stored in rotating
masses of huge interconnected grid.
• Thus, this exceptional feature of electricity leads to two
issues related to power market design: Imbalances and
Scheduling and Dispatch.
• The question is how these difficult tasks get reflected in
the rules of marketplaces.
 Power Flows Obey Laws of
Physics
•The electric power can not be told as to
where and how it should travel, once the
injection and take-off points are decided.
•The electric power flow over transmission
lines obey laws of physics.
•Effectively, electric power can not be stopped
from flowing on a transmission line that is
already hitting its power carrying capacity
 Power Flows Obey Laws of
Physics
• The system operator has to ensure that none of the
lines get overloaded.
• To do this, only freedom left with it is the selection of
pattern of nodal injections (either Generation or
Load).
• Thus, any arbitrary set of forward contracts can not be
scheduled by the system operator as this may lead to
exceeding of limits of physical parameters of some of
the power system elements.
 Congestion
Management
Allowing only the practically feasible set
of transactions during scheduling and
further making corrections while
dispatching so as to keep line loadings
within limits is usually termed as
congestion management.
 Congestion Management
• The concept of network congestion is shown by a simple lossless system in
Figure 3.6.
• In this, generator A is a cheaper generator than generator B and hence, it gets
a contract of satisfying the demand of load at bus 3 by generating 18 MW.
• The dispatch would be as shown in Figure 3.6(A).
• The power flow over all lines would be dictated by the reactance of parallel
paths.
• In this case, let us assume that reactance of all three lines are same.
• Thus, two parallel paths are provided so as to transfer power of generator A
to load at bus 3, with ratio of reactance 2:1. Obviously, the power will flow in
opposite ratio on these paths.
• The flows are shown in Figure 3.6(A).
Congestion Management
 Congestion Management
• However, if the physical properties of the line connecting
nodes 1 and 2 state that, it can carry only 3 MW, then the
dispatch shown in Figure 3.6(A) left hand side is not
practically feasible.
• To correct it, generator B is asked to generate 4.5 MW and
generator A is asked to step down by 4.5 MW, leading to
dispatch shown in Figure 3.6(B).
• This rearrangement of nodal injections is one of the means of
congestion management, which is peculiar to electricity.
Generator Product Compatibility and Interactions
• To ensure reliable delivery of electricity, only generation by generators at
injection points and take-off by loads at take-off points is not sufficient.
• The system operator must make arrangements for provision of allied services
necessary to do this. These allied services are usually referred to as the ancillary
services.
• Provision of reactive power, operating reserves are some of the commonly required ancillary
services. Mostly, ancillary services are provided by generators. In this case, one is likely to
witness the interdependencies involved in providing these services.
• In other words, the production of ancillary services is also dependent on production of energy.
Then, the same generator is said to be providing two different
products: Energy and Ancillary Services.
 Generator Product Compatibility and
Interactions
• This complication is shown in Figure 3.7, where, a generator's capacity is
divided into various products.
• The defining question is how much of capacity should be allocated
to each product?
• In centralized markets (explained later), the system operator does a joint
optimization, taking into account various technical and commercial
parameters of a generator to allocate it's full capacity to each of the products.
Generator Product Compatibility and
Interactions
 Unusual Price Variation
• The combined effect of various peculiarities of electricity is that it has large
temporal variation in its price.
• It is not prudent to run all generators throughout the day.
• Rather, the most economical generators can be run throughout the day.
Effectively, the price of electricity will be low during low demand period.
• However, during peak demand situation, the costly generators are brought
on-line and the price of electricity goes high.
• Thus, marginal cost of producing energy will vary throughout the day.
• Such rapid cyclic variations in the price of a commodity are unusual, and arise
due to peculiarities associated with electricity, basically, the characteristic of
matching supply and demand on real time basis.
• It should be noted that this peculiarity of electricity has arrived because of
one of the basic physical properties associated with it.
Four pillars
of market
design:
 Effects of Peculiarity:
Four Pillars of Market Design
• We have seen the characteristic features of electricity when compared with
other commodities.
• How do these affect the trading activities of this commodity?
• For example, what if network congestion does not allow a set of
transactions to be feasible?
• Should the generator sell its generation capability in a single market that
makes provision for energy as well as reserves,
• or should there be different markets for the same?
• Some questions like these provide food for thought when
designing criteria of markets are to be determined
 Four pillars of market
design:
1. Imbalance.
2. Scheduling and Dispatch,
3. Congestion Management,
4. Ancillary Services.
 Transmission Congestion
Management
• Congestion management in a multi-buyer/ multi-seller system is one of the
most involved tasks if it has to have a market based solution with economic
efficiency.
• In a vertically integrated utility structure, activities such as generation,
transmission and distribution are within direct control of a central agency or a
single utility.
• Generation is dispatched in order to achieve the system least cost operation.
• Along with this, the optimal dispatch solution using security constrained
economic dispatch eliminates the possible occurrence of congestion.
• This effectively means that generations are dispatched such
that the power flow limits on the transmission lines are not
exceeded.
 Transmission Congestion
Management
• One should not expect things to be as simple in a deregulated power environment.
• In a deregulated environment, every buyer wants to buy power from the cheapest
generator available, irrespective of relative geographical location of buyer and seller.
• As a consequence of the this, the transmission corridors evacuating the power of
cheaper generators would get overloaded if all such transactions are approved.
• Congestion is then said to have occurred when system operator finds that all the
transactions can not be allowed on account of overload on the transmission
network.
• Congestion management is a mechanism to prioritize the transactions and commit
to such a schedule which would not overload the network.
• Despite these measures, congestion can still occur in real time following a forced
outage of transmission line.
• The system operator then handles this situation by means of real time congestion
management
 How Transfer capability is limited?
• Thermal Limits: Thermal limits establish the maximum amount of electrical current that a
transmission line or electrical facility can conduct over a specified time period before it
sustains permanent damage by overheating.
• Voltage Limits: System voltages and changes in voltages must be maintained within the
range of acceptable minimum and maximum limits. The lower voltage limits determine
the maximum amount of electric power that can be transferred.
• Stability Limits: The transmission network must be capable of surviving disturbances
through the transient and dynamic time periods (from milliseconds to several minutes,
respectively).
• Immediately following a system disturbance, generators begin to oscillate relative to each
other, causing fluctuations in system frequency, line loadings, and system voltages.
• For the system to be stable, the oscillations must diminish as the electric system attains a
new stable operating point.
• The line loadings prior to the disturbance should be at such a level that its tripping does
not cause system wide dynamic instability.
 Effects of Congestion
• The network congestion essentially leads to out-of-merit dispatch. The main
results of these can be stated as follows:
• Market Inefficiency: Market efficiency, in the short term, refers to a market
• outcome that maximizes the sum of the producer surplus and consumer
• surplus, which is generally known as social welfare. With respect to
• generation, market efficiency will result when the most cost-effective
• generation resources are used to serve the load. The difference in social
• welfare between a perfect market and a real market is a measure of the
• efficiency of the real market. The effect of transmission congestion is to create
• market inefficiency.
 Effects of Congestion
Market Power: If the generator can successfully increase its profits by
• strategic bidding or by any means other than lowering its costs, it is said to
• have market power. Imagine a two area system with cheaper generation in
• area 1 and relatively costlier generation in area 2. Buyers in both the areas
• would prefer the generation in area 1 and eventually the tie-lines between the
• two areas would start operating at full capacity such that no further power
• transfer from area 1 to 2 is possible. The sellers in area 2 are then said to
• possess market power. By exercising market power, these sellers can charge
• higher price to buyers if the loads are inelastic. Thus, congestion may lead to
• market power which ultimately results in market inefficiency.
 Desired Features of Congestion Management
Schemes
• Tackling the congestion problem takes different forms in
different countries. It really depends on what type of
deregulation model is being employed in a particular region.
• Certain network topologies, demographic factors and
political ideologies influence the implementation of
congestion management schemes in conjunction with
overall market design.
Desired Features of Congestion Management Schemes
• Any congestion management scheme should try to accommodate the following
features:
Economic Efficiency: Congestion management should minimize its
• intervention into a competitive market. In other words, it should achieve
• system security, forgoing as little social welfare as possible. The scheme
• should lead to both, short term and long term efficiency. The short term
• efficiency is associated with generator dispatch, while long term efficiency
• pertains to investments in new transmission and generation facilities
Desired Features of Congestion Management
Schemes
Non discriminative: Each market participant should be treated equally. For
• this, the network operator should be independent of market parties and he
• should not derive any kind of benefit from occurrence of congestion.
• Otherwise it provides perverse signals for network expansion.
Be transparent: The implementation should be well defined and transparent
• for all participants.
Be robust: Congestion management scheme should be robust with respect to
• strategic manipulation by the market entities. This again refers back to
• principle of economic efficiency
 ANCILLARY SERVICES
• Most of the issues and corresponding debates in deregulated power industry
pertain to the socio-economical aspects of the system and the welfare of the
society at large.
• However, the power system infrastructure and the physical laws that govern
its utilization continue to be the same, be it vertically integrated utility or the
restructured industry.
• Similarly, the activities of the system operator pertaining to operation and
control of the system existed during vertically integrated era and continue to
exist in the restructured era.
• These activities basically stem from the responsibility of the system operator to
keep the system in synchronism and operate it reliably.
• In the restructured environment, these activities are typically known as
ancillary services
 ANCILLARY SERVICES
• Provision of ancillary services under the
deregulated environment is not as straight
forward as it is described in the vertically
integrated structure.
• Though many reasons can be figured out, the
main reason is that the entities providing ancillary
services may not be under direct control of the
system operator.
 ANCILLARY SERVICES
• This issue is highlighted with following two examples.
• The generators in the competitive market are scheduled as per the bids provided by them to the
market.
• A power system that has generation just enough to support the overall load and losses is still a
vulnerable system.
• The system should have provision for additional generation during contingencies like generator
outages.
• Total capacity of some generating units can be partly dispatched for energy and partly kept ready for
reserve.
• For a particular privately owned generating unit with fast ramp rate, the system operator is likely
to schedule most of its capacity as a reserve.
• The generator, however, may not agree to this unless and until some compensation is provided to
it for maintaining its capacity as a reserve.
• Thus, the development of compensation mechanism for this generator, as well as
the cost allocation to customers in an optimal fashion, poses a challenging
problem in the restructured environment.
 ANCILLARY SERVICES
• Imagine another situation where, a particular generator is operating on the
boundary of its capability curve.
• An action demanded by the system operator to increase the reactive power
injection for this generator requires decrease in real power injection.
• This action, though essential from the system security perspective, is against
the market decision and again, the generator may not agree to do so without
proper compensation.
• Both these situations do not create much problem in
the vertically integrated structure because, under that
regime, the generating units are directly under the
control of system operator, who also is a part of the
vertically integrated utility
 Types of Ancillary Services
• A large number of activities on the interconnected grid
can be termed as ancillary services.
• During the process of defining the ancillary services,
some proposals tried to define 60 different ancillary
services!
• In order to remove this large discrepancy, the North
American Electric Reliability Council (NREC) along with
Electric Power Research Institute (EPRI) has identified
12 functions as ancillary services.
 Types of Ancillary Services
These are:
1. Regulation: The use of generation or load to maintain minute-to-minute
generation load balance within the control area.
2. Load Following: This service refers to load-generation balance towards end of a
scheduling period.
3. Energy Imbalance: The use of generation to meet the hour-to-hour and daily
variations in load.
4. Operating Reserve (Spinning): The provision of unloaded generating capacity
that is synchronized to the grid and can immediately respond to correct for
generation-load imbalances, caused by generation and /or transmission outages
and that is fully available for several minutes.
 Types of Ancillary Services
• 5. Operating Reserve (Supplemental): The provision of generating capacity and
curtailable load to correct for generation-load imbalances, caused by generation and /or
transmission outages, and that is fully available for several minutes. However, unlike
spinning reserves, supplemental reserve is not required to respond immediately.
• 6. Backup Supply: This service consists of supply guarantee contracted by generators
with other generators or with electrical systems, to ensure they are able to supply their
consumers in case of scheduled or unscheduled unavailability.
• 7. System Control: This activity can be compared with the functions of the brain in the
human body. System control is all about control area operator functions that schedule
generation and transactions and control generation in real time to maintain generation
load balance.
• 8. Dynamic Scheduling: It includes real-time metering, tele-metering along with
computer software and hardware to virtually transfer some or all of generator’s output
or a customer’s load from one control area to another.
 Types of Ancillary Services
• 9. Reactive Power and Voltage Control Support: The injection or absorption of reactive
power from generators or capacitors to maintain system voltages within required ranges.
• 10. Real Power Transmission Losses: This service is necessary to compensate for the
difference existing between energy supplied to the network by the generator and the
energy taken from the network by the consumer.
• 11. Network Stability Services from Generation Sources: Maintenance and use of special
equipment (e.g., PSS, dynamic braking resistances) to maintain secure transmission system.
• 12. System Black Start Capability: The ability of generating unit to proceed from a
shutdown condition to an operating condition without assistance from the grid and then to
energize the grid to help other units start after a blackout occurs.
• It should be noted that identification and definition of a particular ancillary service is
system dependent. There is no global definition of a particular ancillary service that is
applicable in all systems. There can be many other possible definitions or combinations
Framework of
Indian power
sector
 Framework of Indian power
sector
• India is a country with large geographical span with equally complex power
network.
• Today’s power sector is a result of years of generation and transmission
planning as well as the distribution development.
• A large number of government bodies is associated with the Indian power
sector.
• Further, there are operational responsibilities which are entrusted with
system operators at various levels.
• All these entities taken together form a framework for the power sector
which is huge and complex in nature.
• This section elaborates on various aspects of the framework of Indian
power sector.
 Framework of Indian power sector
Historical Developments
• The power development in the country started with small isolated power systems.
• In the evolution of grid, these small power systems were interconnected to form state
grids.
• In the seventies, the inter-connection of state grids with each other began in order to
exchange surplus power available occasionally.
• In the eighties, the Government of India (GOI) stepped into power development on a
regional basis by dividing the country into five regions.
• The GOI utilities had set up large pit-head power stations and allocations from these
power stations were given to all the states within the region.
• These stations are typically known as Inter-State Generation System (ISGS).
• The Central utilities also developed the transmission network for evacuating the
power from the Central stations to the state grids as well as inter-state / inter-regional
network.
• This transmission network is known as Inter-State Transmission System (ISTS).
 Framework of Indian power sector
Historical Developments
• The development of ISGS and ISTS led to continuous parallel operation of the state
grids with each other, thus forming a synchronous regional grid.
• Subsequently, the opportunity available for exchanging seasonal surpluses as well as
infirm power available during certain hours of the day due to diversity of peak
demands induced the need for development of regional interconnections.
• Since different which were widely varying, the favored regional interconnection regional
grids were operating at different frequencies mode is through HVDC back to back links.
• Such links enable the connection of two grids operating at different frequencies and
the isolation of disturbances from one region to the other.
• The distribution system, right from its inception was owned and operated by respective
State Electricity Boards (SEBs).
• However, the private sector has also existed in India in select cities like Mumbai, Kolkata
and Ahmedabad which were run by private companies, continued to run by those
private companies.
 Framework of Indian power sector
Historical Developments
• Today, various private utilities like
1. Tata Power Company Ltd. (TPC).
2. Reliance Energy Ltd. (REL).
3. Brihan-Mumbai Electric Supply and Transport (BEST).
4. Calcutta Electric Supply Company Ltd. (CESC) and
5. Noida Power Company Ltd (NPCL)
Account for 5-10% of the total distribution market.
• Torrent Power has recently acquired 10 year distribution franchisee license in in
Maharashtra .
• The end consumer, in sense, has remained indifferent to the activities / changes
occurring at higher grid level like grid-inter-connections, regional exchange of
power etc., largely due to vertically integrated structure and regulated tariff.
 Framework of Indian power sector
The Institutional Framework
• In India, the governments at two levels, central government, i.e., GOI and various state governments have
been vested with powers to make laws and regulations on various issues.
• The Ministry of Power (MoP) under the GOI formulates the National Power Policy for the entire
country.
• The Central Electricity Authority (CEA) frames a National Electricity Plan (NEP) every five years
and revises the same from time to time in accordance with the NEP.
• The NEP suggests locations for capacity additions in Generation, Transmission, And Load Center
requirements.
The plan deals with
1. Grid Standards,
2. Security Of Supply,
3. Quality Of Power, And
4. Environmental Considerations.
• It also coordinates the activities of various planning agencies
for the optimal utilization of resources.
Table 1: GOI owned / managed institutes /
organizations
Framework of Indian power
sector
Framework of Indian power
sector
Framework of Indian power sector
Framework of Indian power sector
• National and Transnational Grids, The plan of regional interconnection led to the
formation of a national grid.
• As a first step in this direction, the 400-kV Raipur-Rourkela double circuit line
connecting ER and WR was commissioned.
• In 2003, ER-NER grids were synchronously connected with the WR grid forming a
central grid.
• Further, in 2007, WR and NR were interconnected synchronously and at the same
time, ER and NR were connected through a synchronous tie-line.
• Hence, at present, two synchronous grids, NR-WR-ER-NER(New grid) and SR
operate in the country. SR(south grid) is connected with various other grids with
various asynchronous links.
• This National Grid helps in tapping the least-cost energy resources, which
are unevenly distributed over the various regions.
• In addition to this, the national grid facilitates the use of regional peak diversity.
 Framework of Indian power sector
• Currently, India and Nepal exchange power over a number of 33-kV and 132-kV lines
connected to NR and ER in a radial manner.
• Plans are to develop hydro potential in Nepal in coordination with India and to export
surplus power to India.
• Presently, the Chukka Power Project and Khirinchu Power Project in Bhutan are
connected with ER for the evacuation of power.
• The 1,020-MW Tala Power Project in Bhutan connects NR and the central grid with Bhutan.
• Discussions are also under way for the formation of the South Asian
Association for Regional Cooperation (SAARC) grid covering the power
systems of India, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka, and
Maldives.
• Plans are also under discussion for the transfer of gas by pipelines from
Bangladesh to India and from Iran/Central Asian countries to India through Pakistan
and Afghanistan.
Availability Based
Tariff
ABT
 Introduction to the Availability Based Tariff (ABT).

• Apart from the regulatory, institutional and ownership changes, some

changes in the operations took place in the Indian power sector which
can not be overlooked.
• Introduction of frequency linked unscheduled interchange pricing
under Availability Based Tariff is one such example.
• The Indian power system is characterized by low frequency operation
due to continuous power deficit situation for majority of time.
• The financial constraints typical of a developing country with large
population and unequal distribution of resources also led to
inadequacies of transmission and distribution network with critical
line loadings and low voltage profile.
Introduction to the Availability Based Tariff (ABT).
The consumer demands far exceed the available generating capacity.
The scarcity of power and the commercial mechanism before ABT (based on take-off
of power by States rather than schedules from Central pool) led to low frequency
operation.
The tariff mechanism did not provide any incentive to reduce generation
under high frequency or to maximize generation under low frequency.
In other words, the tariff mechanism encouraged grid indiscipline.
• The new commercial mechanism (Availability Based Tariff) was
introduced in the country from 1st July, 2002.
• The commercial mechanism is specifically defined to suit the
deficit power systems.
• The mechanism streamlined the operation of regional grids.
 Why was ABT necessary?
• Prior to the introduction of Availability Tariff, the regional grids had
been operating in a very undisciplined and haphazard manner.
• There were large deviations in frequency from the rated frequency of
50.0 Hz.
• 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 peak-load hours.
• In fact, it was profitable to go on generating at a high level even
when the consumer demand had come down.
• This led to gross grid indiscipline and some mechanism was necessary
to provide price signals to various constituents depending on the grid
condition
 Why was ABT necessary?
• The Availability Tariff that operates on regional basis is meant
to address these issues.
• 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.
• Thirdly, the shares of beneficiaries in the Central generating
stations acquire a meaning, which was previously missing.
 Why was ABT necessary?
• The beneficiaries now 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 have to pay at a higher rate during peak
load hours, which discourages them from over-drawing further.
• This payment then goes to beneficiaries who received less energy
than was scheduled, and acts as an incentive/compensation for
them.
• Thus, ABT provides a mechanism wherein the loads and generators
take suitable actions considering the state of the grid and thereby
contribute to stabilize the frequency in a tighter band.
The Mechanism of ABT
 The Capacity Charge
• 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 Capacity Charge
• 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 company gets a
higher payment.
• In case the average availability achieved is lower, the payment is
also lower. Hence the name ‘Availability Tariff’.
• This is the first component of Availability Tariff, and is termed
‘capacity charge’.
• The fixed charges are linked to availability rather than plant load
factor (PLF)
 The Energy Charge
• The second component of Availability Tariff is the
‘energy charge’, which comprises of the variable
cost (i.e., fuel cost) of the power plant for
generating energy as per the given schedule for
the day.
• It may specifically be noted that energy charge (at
the specified plant-specific rate) is not based on
actual generation and plant output, but on
scheduled generation.
 The Unscheduled Interchange
(UI)
• In the real time, the actual Charge
dispatch is likely to be different from the
schedule.
• Incase there are deviations from the schedule (e.g., if a power plant
delivers 600 MW while it was scheduled to supply only 500 MW), the
energy charge payment would still be for the scheduled generation (500
MW), and the excess generation (100 MW) would get paid for at a rate
dependent on the system conditions prevailing at the time.
• If the grid has surplus power at the time and frequency is above 50.0
cycles, the rate would be lower.
• If the excess generation takes place at the time of generation shortage
in the system (in which condition the frequency would be below 50.0
cycles), the payment for extra generation would be at a higher rate.
 The Unscheduled Interchange
(UI)
• The Unscheduled Interchange Charge
(UI) price curve is shown in Fig. 5. The UI price
curve has seen four changes so far.
• Initially, in 2001, when frequency linked UI was proposed for the first time, the
ceiling rate for UI curve was 420 paise / kWh.
• The UI price curve was a single slopped straight line at that time. The ceiling
price was set considering the price of the costliest fuel at that time – high
speed diesel (HSD).
• The ceiling rate of UI was modified thrice since then depending upon the
prevailing price of HSD, from 420 paise / kWh to 570 paise / kWh and then to
745 paise / kWh and finally at 1000 paise / kWh. In addition, UI curve became a
dual slope curve with less penalty (incentive) around the nominal frequency;
while heavy penalty (incentive) at lower frequencies
 The Unscheduled Interchange
(UI) Charge
• The UI price curve has two slopes.
• The price of UI at 50.2 Hz is zero and increased unto 49.70 (387.50
paisa per unit) linearly with a slope of 15.5 paisa per 0.02 Hz.
• The price of UI thereafter linearly increased at the rate of 47 paisa
per 0.02 Hz till 49.5 Hz. At 49.5 Hz and below, the price of UI power
is 873 paisa per unit.
• The UI mechanism of ABT serves the purpose of balancing market in
real time.
• Any generator or utility is allowed to inject power into the pool or
draw from the pool at UI prices as long as the frequency is
maintained within the stipulated band of 49.5-50.2 Hz