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 cycles per second (Hz). Low frequency situations result when the total generation available in the grid is less than the total consumer load. These can be curtailed by enhancing generation and/or curtailing consumer load. High frequency is a result of insufficient backing down of generation when the total consumer load has fallen during off-peak hours. 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. In other words, the earlier tariff mechanisms encouraged grid indiscipline.
The Availability Tariff directly addresses 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. 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.
How does it benefit everyone
The mechanism has dramatically streamlined the operation of regional grids in India. Firstly, through the system and procedure in place, constituents’ schedules get determined as per their shares in Central stations, and they clearly know the implications of deviating from these schedules. Any constituent which helps others by under-drawal from the regional grid in a deficit situation, gets compensated at a good price for the quantum of energy under-drawn. Secondly, the grid parameters, i.e., frequency and voltage, have improved, and equipment damage correspondingly reduced. During peak load hours, the frequency can be improved only by reducing drawls, and necessary incentives are provided in the mechanism for the same. High frequency situation on the other hand, is being checked by encouraging reduction in generation during off-peak hours. Thirdly, because of clear separation between fixed and variable charges, generation according to merit-order is encouraged and pithead stations do not have to back down normally. The overall generation cost accordingly comes down. Fourthly, a mechanism is established for harnessing captive and co-generation and for bilateral trading between the constituents. Lastly, Availability Tariff, by rewarding plant availability, enables more consumer load to be catered at any point of time.
How do the beneficiaries share the payments
The Central generating stations in different regions of the country have various States of the Region as their specified beneficiaries or bulk consumers. The latter have shares in these plants calculated according to Gadgil formula, and duly notified by the Ministry of Power. The beneficiaries have to pay the capacity charge for these plants in proportion to their share in the respective plants. This payment is dependent on the declared output capability of the plant for the day and the beneficiary's percentage share in that plant, and not on power / energy intended to be drawn or actually drawn by the beneficiary from the Central station.
The energy charge to be paid by a beneficiary to a Central station for a particular day would be the fuel cost for the energy scheduled to be supplied from the power plant to the beneficiary during the day. In addition, if a beneficiary draws more power from the regional grid than what is totally scheduled to be supplied to him from the various Central generating stations at a particular time, he has to pay for the excess drawal at a rate dependent on the system conditions, the rate being lower if the frequency is high, and being higher if the frequency is low.
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