Molly Ayala
India's power system includes generation, transmission, and distribution, managed by various entities. The total cost of electricity is determined by a variety of factors, including the cost of land, labour, interest on capital cost, depreciation, and more. Consumers pay tariffs based on their maximum demand, actual energy consumed, and a constant sum of money. There are two tariff systems in India: one that consumers pay to DISCOMS and another that DISCOMS pay to generating stations. The consumer tariff is split into fixed costs, semi-fixed costs based on demand, and running costs based on energy consumed.
| Characteristics | Values |
|---|---|
| Consumer tariff structure | Fixed costs, semi-fixed costs based on demand, and running costs based on energy consumed |
| Tariff systems | Availability Based Tariff (ABT), Unscheduled Interchange (UI) Charges |
| Power system structure | Generation, transmission, and distribution |
| Power generation management | PSUs, PGCIL, SLDCs, DISCOMS, SEBs, and privately-owned generating stations |
| Power transmission management | PGCIL (Power Grid Corporation of India Limited) |
| Power distribution management | DISCOMS, SEBs (State Electricity Boards) |
| Tariff determination | Based on the total cost of electricity, which includes the cost of land, labor, interest on capital cost, depreciation, energy consumed, and demand |
| Smart metering | Smart meters enable automatic demand response and manage loads by considering the minimum electricity cost scheduling problem of smart home appliances |
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What You'll Learn
Consumer tariff structure
India's power system includes generation, transmission, and distribution, which are managed by various entities like PSUs, PGCIL, SLDCs, DISCOMS, and SEBs.
The consumer tariff structure in India is a three-part tariff system, which includes:
- Fixed costs
- Semi-fixed costs based on demand
- Running costs based on energy consumed
The total amount paid by the consumer depends on its maximum demand, actual energy consumed, and a constant sum of money. The semi-fixed cost is calculated by multiplying the maximum KW demand by a constant. This takes into account the size of the power plant, as the maximum demand determines the size of the plant. The running cost is calculated by multiplying the actual energy consumed in KW-h by another constant, which takes into account the cost of fuel consumed in producing power.
Consumers with a power factor below 0.8 are subject to a penalty levied depending on the deviation.
There are two tariff systems in India: one that consumers pay to DISCOMS, and another that DISCOMS pay to generating stations.
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Power system structure
The power system structure in India has seen significant changes and developments over the years, with a focus on meeting the growing demand for electricity and improving transmission efficiency.
The transmission network has expanded greatly since 1950, when it was only 3,708 circuit km. Today, it covers over 280,000 circuit km, with a national grid connecting regional grids, operating at a single frequency since 2013. The Power Grid Corporation of India manages the national transmission system, and high-voltage transmission above 132kV is preferred to reduce transmission losses.
To improve transmission capabilities and reduce losses, India has been converting transmission lines and substations to higher voltages. This approach has economic and practical advantages, including better utilisation of the existing transmission system and the ability to reuse original foundations, structures, or equipment.
The country's power generation sources consist mainly of thermal power (86,003 MW) and hydro (36,953 MW). There is also a focus on developing non-conventional energy sources like solar and wind power. HVDC transmission systems, using direct current, are employed for long-distance electricity transmission, including underwater cables. This technology has benefits over AC transmission for long-distance transmission, including asynchronous interconnection between grids and monopolar operation.
The structure of the power system also includes different wire and cable types for power transmission, such as PVC and MICC wires, each with its advantages. Additionally, there is a push for deregulation in the electricity market, which could lead to improved efficiency, consumer choice, and potentially lower prices.
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Availability Based Tariff (ABT)
The Indian electricity sector has been undergoing significant changes since the Electricity Act of 2003, which introduced competition and unbundled vertically integrated utilities (SEBs) into separate entities responsible for electricity generation, transmission, and distribution. This deregulation has encouraged private sector participation in electricity generation, transmission, and distribution, transforming the sector from a perennial deficit to a surplus in electricity availability.
The Availability-Based Tariff (ABT) is a frequency-based pricing mechanism adopted in the Indian Power Sector since 2000 to maintain grid discipline and stability. ABT introduces incentives and disincentives to encourage generating stations to reduce production during off-load hours and increase supply during low-frequency grid conditions. It also penalizes beneficiaries who draw more power than scheduled during low-frequency grid conditions.
ABT is a three-part pricing scheme:
- Fixed Charge: This is a capacity charge that is directly proportional to the plant capacity shared by the beneficiaries. The reimbursed fixed charges paid to the generating station depend on the plant's availability. If the plant's availability exceeds the set norm for a year, the generating station receives a higher payment, and vice versa.
- Variable Charge: This is the cost incurred by the generating station to produce MW on a day-to-day basis.
- Unscheduled Power Interchange (UI) Incentive/Penalty: This component encourages generating stations to back down production during off-peak hours and supply more during low-frequency grid conditions. It also penalizes beneficiaries who draw more power than scheduled during low-frequency conditions.
The ABT mechanism falls under electricity market mechanisms that aim to regulate power and achieve short-term and long-term network stability. It introduces incentives and disincentives to promote responsibility and accountability in power generation and consumption.
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Unscheduled Interchange (UI) charges
In India, electricity tariffs are determined by the Availability Based Tariff (ABT) system, which was introduced in 2002 to address issues with the previous two-part tariff system, such as grid instability and a lack of incentives. The ABT system includes the concept of Unscheduled Interchange (UI) charges, which are applied when there are deviations from schedules.
UI charges are based on the difference between actual and scheduled generation/drawal, and they are calculated for each 15-minute time block, taking into account the average frequency of that time block. The specific UI charges depend on whether there is an overdrawal/underinjection or overinjection/underdrawal, as well as the frequency level (high or low). For example, there is a penalty for overdrawal/underinjection under low frequency, while overinjection/underdrawal under high frequency results in a nil or low reward.
The ABT system establishes a three-part tariff structure that includes incentives for availability and penalties for deviations from schedules. Regional and national load dispatch centers are responsible for administering scheduling, metering, and accounting for deviations and UI charges. The UI rates have been gradually increased over time.
The introduction of UI charges under the ABT system provides a mechanism to manage the interchange of power and maintain grid stability. By incentivizing beneficiaries to adhere to their schedules and penalizing deviations, the UI charges help ensure a more reliable and efficient power sector in India.
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DISCOMS tariff
The Delhi High Court has ruled that the costs incurred by power distribution companies (discoms) can be considered when setting electricity tariffs. This includes salaries, allowances, and pensions for employees. This ruling was made in response to a challenge by one Sudhanshu M Kumar, who disputed a DERC tariff order for the 2017-18 financial year, which intended to collect Rs 694 crore towards the pension fund from consumers. Kumar alleged that a significant portion of this amount had already been recovered through the discoms' Annual Revenue Requirement (ARR).
The bench dismissed Kumar's plea, stating that the Delhi Electricity Regulatory Commission (DERC) has the authority to pass tariff orders and that the cost incurred by discoms is a relevant factor in determining tariffs. The bench also clarified that the DERC was not overstepping its jurisdiction by considering labour-related matters, such as employee salaries and pensions.
The inclusion of discom employees' salaries, allowances, and pensions in power tariffs ensures that the costs incurred by power distribution companies are recovered. This allows discoms to cover their expenses and maintain their operations, including employee remuneration. By considering these costs in tariff settings, a more accurate and comprehensive pricing structure can be established, reflecting the true cost of electricity distribution.
It is important to note that the specific components and calculations used to determine electricity tariffs can vary across different states and union territories in India, each with its own regulatory body overseeing the electricity sector. These regulatory bodies are responsible for setting tariffs based on various factors, including the costs incurred by discoms, to ensure that electricity prices are fair and reasonable for both consumers and power distribution companies.
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Frequently asked questions
An electricity tariff is the cost that consumers pay to have electricity supplied to their homes.
The electricity tariff in India is determined by the total cost of electricity, which takes into account the cost of land, labour, interest on capital cost, depreciation, etc. The tariff system in India also considers the maximum demand and actual energy consumed, along with a constant sum of money.
India has two tariff systems: one that consumers pay to DISCOMS (distribution companies) and another that DISCOMS pay to generating stations. There is also an Availability Based Tariff (ABT) system regulated by CERC, which is based on the availability of power and system frequency.
