Tariff structure for Conventional and Non Conventional electricity generation sources, For tariff regulation of 2009-14 & 2014-19 and Renewable tariff order for 2015

1. TARIFF STRUCTURE
& CERCTARIFF
REGULATION
Sushant Sinha
Sushovan Bej

2. Types of tariff regulation
Tariff
Regulation
Conventional
energy sources
Generation
Transmission
Renewable
energy sources

3. CONVENTIONAL
ENERGY SOURCE

4. Tariff determination and
computational of capital cost and
capital structure
Tariff may be determined for the whole facility or a part of it
• Generation – Whole generating station or stage or unit or block
• Transmission – Whole of the transmission system or transmission line or sub-station
Tariff to be determined within six month from the date of application
Commission shall carry out truing up exercise along with the tariff petition filed for the
next tariff period
Capital cost shall comprise of
• Loan – 70% of total fund,
• Equity – 30% of total fund, funds excess of 30% equity will be treated as normative loan & funds less than of
30% equity will be treated as actual equity
• For hydro project cost shall include R&R cost and 10% contribution towards RGGVY

5. Continued…
Initial Spares shall be capitalized as a percentage of the original project cost as
specified in regulation
Additional capitalization allowed for following after date of commercial
operation and up to the cut-off date may be admitted by the commission
• Undischarged Liabilities
• Works deferred for execution
• Liabilities to meet award of arbitration
• Change in law
• Procurement of initial capital spares
Renovation and Modernization cost can be accounted on approval by the
commission
Sale of infirm power shall be accounted as UI and after accounting for the fuel
expenses shall be applied for reduction in capital cost

6. Computation ofTariff
Components ofTariff
For thermal and hydro
generating station
(Capacity charge + Energy
Charge)
For transmission, charges
shall comprise of
transmission charge for the
recovery of annual fixed
components

7. Annual Fixed components
• Pre tax basis at the base rate of 15.5% and additional 0.5% shall be
allowed if project completed within the timeline specified
Return on Equity
Interest of loan capital
• Salvage value of asset shall be considered as 10%
• Depreciation shall be allowed up to maximum of 90% on SLM
Depreciation
Interest on working capital
• As specified commission in the tariff orderOperation and Maintenance Expenses
Expense on secondary fuel oil
consumption for coal-based and lignite
fired generating station

8. Interest on working capital
For Coal/Lignite generating stations
• Cost of coal/lignite and limestone for 1.5 month for pit head and 2 month for non pit head
• Cost of secondary fuel oil for 2 months
• Maintenance spares @ 20%
• Receivables equivalent for 2 months
• O&M expenses for one month
For open cycle Gas turbine/Combined Cycle thermal generating stations
• Fuel cost for one month
• Liquid fuel stock for 0.5 month
• Maintenance spares @30%
• Receivables equivalent for 2 months
• O&M expenses for one month

9. Continued…
For Hydro generating
stations
• Maintenance spares @15%
• Receivables equivalent for 2 months
• O&M expenses for one month

10. Useful Life
• Coal/Lignite based thermal generating station – 25 years
• Gas/Liquid fuel based thermal generating station – 25 years
• AC and DC sub-station – 25 years
• Gas Insulated Substation (GIS) – 25 years
• Hydro generating station including pumped Storage hydro
generating stations – 35 years
• Transmission line (including HVAC & HVDC) – 35 years
• Communication system – 15 years (Tariff Regulation 2014-19)

11. Changes in tariff regulation 2014-
19
Definition of Plant Load Factor and its calculation formula
Definition of Date of Commercial Operation
Definition ofTrial Run andTrial Operation
For existingTransmission project tariff of such project shall be applicable from the
date of grant of transmission license
Where only a part of the generating capacity of a generating station is tied up,
• Tariff of generating station shall be determined with reference to the capital cost of the entire project
• Tariff so determined shall be applicable corresponding to the capacity contracted for the supply of
beneficiaries

12. Continued…
Changes in the “Application for Determination ofTariff”
Changes in “Truing Up”
• Controlled Parameters
• Station Heat Rate
• SecondaryOil Consumption
• Auxiliary EnergyConsumption
• Re-financing Loan
• Uncontrolled Parameters
• Force Majeure
• Change in Law
• Primary FuelCost
• Sharing of financial gains along with sharing formula in ratio of 60:4o

13. Continued…
Cost of capital
• For thermal generating station on the account of PAT (PerformAchieve andTrade) to be considered on case to
case basis
• Defining various exclusions from the capital cost
Definition of “Interest During Construction” and “Incidental Expenditure During
Construction”
Special Allowance for Coal-based/Lignite fired thermal generating stations on
renovation and modernization
Introduction of “Compensation Allowance” for the new assets of capital expenditure
In Debt : Equity ratio any grant obtained for the execution of the project shall not be
considered as a part of capital structure

14. Continued…
Energy Charge shall be derived on the basis of
• Landed fuel cost + Cost of secondary oil consumption
Return on Equity
• Base rate of 15.50% for thermal generating stations and transmission system
and run of river hydro stations and 16.50% for storage type hydro stations
• Additional RoE of 0.5% may be allowed if any element of the transmission
project is completed within specified timeline
• 1% reduction in RoE if facility is found to be under commercial operation
without commissioning of any RGMO/FGMO, data telemetry,
communication system
• Additional RoE shall not be admissible for transmission line having length of
less than 50kms

15. Change in Initial spares
Particulars 2009-14 2014-19
Coal/Lignite Fired thermal generating stations 2.5% 4.0%
Gas Turbine/Combined Cycle Thermal generating
stations 4.0% 4.0%
Hydro generating station including pumped
storage hydro generating stations 1.5% 4.0%
Transmission Line 0.75% 1.0%
Transmission Sub Station 2.50%
Transmission Sub Station (Green Field) - 4.0%
Transmission Sub Station (Brown Field) - 6.0%
Series Compensation devices and HVDC station 3.50% 4.0%
Gas Insulated Sub Station - 5.0%
Communication System - 3.5%
Transmission System

16. Changes in Interest on working
capital components
For Coal/Lignite generating stations
• Cost of coal/lignite and limestone for 15 days
for pit head and 1 month for non pit head
• Cost of secondary fuel oil for 2 months
• Maintenance spares @ 20%
• Receivables equivalent for 2 months
• O&M expenses for one month

17. RENEWABLE ENERGY
SOURCE

18. Categories and Useful Life
Particulars Useful Life Tariff Period
Wind Power Project 25 13
Small Hydro Project 35 35(< 5MW); 13(< 5-25MW)
Biomass Power Projects with
Rankine Cycle technology
20 13
Non-fossil fuel-based co-
generation Plants
20 13
Solar PhotoVoltaic (PV) 25 25
SolarThermal Power Projects 25 25
Biomass Gasifier based Power
Projects
20 13
Biogas based Power Project 20 13

19. Tariff Structure
Return on Equity
Interest on loan capital
Depreciation
Interest on working capital
Operation and Maintenance expenses

20. Tariff Design
Levellized Tariff
• It is to be calculated by carrying out levellization for ‘useful life’ considering the discount factor for time value
of money
Discount Factor
• The discount factor considered for this purpose is equal to the PostTax weighted average cost of the capital on
the basis of normative debt: equity ratio (70:30). 10.81% for the current control period
Capital Cost
Debt Equity Ratio
Return on Equity
• 20% per annum for first 10 years
• 24% per annum from 11th year onwards
Interest on Loan
• Average SBI base rate prevalent during the 1st six months of previous year plus 300 basis points

21. Continued…
Depreciation
• 5.83% for 1st 12 years (for loan period)
• Remaining depreciation shall be spread over the remaining useful life of the project from 13th year onwards
Interest on working capital
• Average SBI base rate prevalent during the 1st six months of previous year plus 350 basis points
Capacity Utilization factor
Plant Load Factor
Auxiliary Power Consumption
Station Heat Rate
Fuel
Subsidy or Incentive by Central/State govt.

22. Interest on working capital
components
Wind/SHP/SPV/SolarThermal
• Operation and maintenance expenses for 1 month
• Receivable equivalent to 2 months of energy charge for sale of electricity
• Maintenance spares @15%
Biomass(Rankine CycleTechnology), Biomass Gasifier, Biogas
Power and Non-fossil fuel Co-generation
• Fuel costs for 4 months equivalent to normative PLF
• Operation & Maintenance expense for one month
• Receivables equivalent to 2 (Two) months of fixed and variable charges for sale of
electricity calculated on the target PLF
• Maintenance spare @ 15% of operation and maintenance expenses