MODULE 4

ELECTRICITY VIS-À-VIS OTHER COMMODITIES

INTRODUCTION:
 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.
 The interdependencies of actions taken by various participants (primarily generators and loads),
mandate somebody to take over the control of real time activities.

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.
Real Time Demand Supply Balance:
 Electricity can’t be stored in bulk.
 The demand for electricity needs to be satisfied on real time basis.
 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 make up the
imbalances.
 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 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.
 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.
 This exceptional feature of electricity leads to two issues related to power market design:
Imbalances and Scheduling and Dispatch.
Power flows Obey Laws of Physics:
 The electric power flow over transmission lines obey laws of physics.
 Effectively, electric power cannot be stopped from flowing on a transmission line that is already
hitting its power carrying capacity.
 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 cannot be scheduled by the system operator as this
may lead to exceeding of limits of physical parameters of some of the power system elements.
 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.
 The concept of network congestion is shown by a simple lossless system in Figure

 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 (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 (A).
 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 (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 (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.
 This complicates the matter because the single generator can be simultaneously needed to produce
multiple outputs, or to produce ancillary service rather than energy

 This complication is shown in Figure 3.7, where, a generator's capacity is divided into various
products.
 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.
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:

 Characteristics of electricity as pillars of market design
1. Imbalance
2. Scheduling and Dispatch
3. Congestion Management
4. Ancillary Services.

 The design of market revolves around the four pillars described above.
 It also depends on how and where these issues are accommodated in the whole process of market
mechanism.
 Some of the pillars lead to creation of separate markets.
  Eventually, this gives rise to the issue of market architecture, which is nothing but arrangement and
classification of these markets.
 Finally, these markets can be integrated into one efficient market or there can be cascaded markets.

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. Whenever the physical or operational
constraints in a transmission network become active, the system is said to be in a state of congestion.
 The possible limits that may be hit in case of congestion are: line thermal limits, transformer
emergency ratings, bus voltage limits, transient or oscillatory stability, etc
 These limits constrain the amount of electric power that can be transmitted between two locations
through a transmission network.
 Flows should not be allowed to increase to levels where a contingency would cause the network to
collapse because of voltage instability, etc
 Thus, congestion management involves precautionary as well as remedial action on system operator’s
part, as follows:
 Allow only that set of transactions which, taken together, keeps the transmission system
within limits.
 Even if this care is taken, in real time, the transmission corridors may get overloaded due to
unscheduled flows. The system operator has to take some remedial action.

HOW TRANSFER CAPABILITY IS LIMITED:

 Congestion, as used in deregulation parlance, generally refers to a transmission line hitting its limit.
 The ability of interconnected transmission networks to reliably transfer electric power may be limited
by the physical and electrical characteristics of the systems including any or more of the following:
1. 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.
2. 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.
 3. 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.
 The limiting condition on some portions of the transmission network can shift among thermal,
voltage, and stability limits as the network operating conditions change over time.
 For example, for a short line, the line loading limit is dominated by its thermal limit.
 On the other hand, for a long line, stability limit is the main concern.
 Such differing criteria further lead to complexities while determining transfer capability limits.

Importance of Congestion Management In The Deregulated Environment:

 If the network power carrying capacity is infinite and if there are ample resources to keep the system
variables within limits, the most efficient generation dispatch will correspond to the least cost
operation.
 Kirchoff’s laws combined with the magnitude and location of the generations and loads, the line
impedances and the network topology determine the flows in each line.
 In real life, however, the power carrying capacity of a line is limited by various limits as explained
earlier.
 These power system security constraints may therefore necessitate a change in the generator
schedules away from the most efficient dispatch.
 In the traditional vertically integrated utility environment, the generation patterns are fairly stable.
 From a short term perspective, the system operator may have to deviate from the efficient dispatch in
order to keep line flows within limits.
 However, the financial implications of such re-dispatch does not surface because the monopolist can
easily socialize these costs amongst the various participants, which in turn, are under his direct
control.
 From planning perspective also, a definite approach can be adopted for network augmentation.
 However, in deregulated structures, with generating companies competing in an open transmission
access environment, the generation / flow patterns can change drastically over small time periods
with the market forces.
 In such situations, it becomes necessary to have a congestion management scheme in place to ensure
that the system stays secure.

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.
• 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:

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
• 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
 Though a variety of forms of congestion management schemes are practiced throughout the power
markets of the world, the nodal pricing or the optimal power flow based congestion management
scheme is said to satisfy most of the desired features of the same, especially the feature of economic
efficiency.
 Each practiced method has strengths and flaws and also interrelationships to some extent.
 Each maintains power system security but differs in its impact on the economics of the energy market.

Classification of Congestion Management Mechanisms

 The congestion management schemes are strongly coupled with the overall market design.
 Efficient allocation of scarce transmission capacity to the desired participants of the market is one of
the main objectives of congestion management schemes.
 Thus, distinction among them can be made based on market based congestion management methods
and other methods.
 Market-based solutions to congestion are deemed fairer as they contribute better to economic
efficiency than other methods.
 Methods other than market based make use of some criteria to allocate the transmission capacity.
 These methods are supposed to introduce some kind of arbitrariness as they do not contribute towards
efficient pricing of congested link.
 Classification of congestion management schemes on these lines is
Non – Market Methods Market Based Methods

1 Type of Contract 1 Explicit Auctioning of network capacity

2 First come first serve 2 Nodal pricing (OPF based congestion management)

3 Pro – rata methods 3 Zonal pricing

4 Curtailment 4 Price area congestion management

5 Re - dispatch

6 Counter trace

 As the transactions keep on committing, the system operator continuously updates the available
transfer capability between various regions / areas / nodes in the system.
 This becomes essential because as the day-ahead (or the spot) market approaches, the operator should
have knowledge about the network capacity left for settling the market.
  The transmission network capacity allocation in a coordinated market may take an explicit or implicit
form.
 In other words, there can be a separate market for transmission capacity reservation or it may be
integrated with the coordinated market.
 Even after capacity allocation, the real time flows may lead to violation of transmission capacities.
 In order to relieve congestion during real time, congestion alleviation methods are employed.

 Out of several congestion management techniques listed above, following are exclusively termed as
congestion alleviation methods:
1. Re-dispatch
2. Counter Trade
3. Curtailment
 It should be noted that the capacity allocation methods usually allocate the transmission capacity in
ex-ante manner before physical delivery of energy.
 On the other hand, congestion alleviation methods are termed as remedial actions.
 The procedure of capacity allocation starts with the calculation of Available Transfer Capability
(ATC).

Ancillary Services:
 Ancillary services refer to functions that help grid operators maintain a reliable electricity system.
 Ancillary services maintain the proper flow and direction of electricity, address imbalances between
supply and demand, and help the system recover after a power system event.
 In systems with significant variable renewable energy (RE) penetration, additional ancillary services
may be required to manage increased variability and uncertainty.

Types of Ancillary Services

 A large number of activities on the interconnected grid can be termed as ancillary services.
 The North American Electric Reliability Council (NREC) along with Electric Power Research
Institute (EPRI) has identified 12 functions as 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.
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.
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.

HOW TO OBTAIN ANCILLARY SERVICES:

 The reason for existence of ancillary services is the security and reliability of the network.
 Smooth and secured running of the system is of paramount importance, whether it be vertically
integrated utility or the restructured power system.
 Since one of the major aspects of deregulation is competition, ancillary services can also be seen as
an activity that can be subjected to competition.
 However, whether the system security and reliability can go hand-in-hand with the competition, or
rather, should be subjected to competition or not is the moot question.
 Looking at the task achieved by each type of ancillary services, one can easily make out that there
are some services where competition can be introduced, while for others, providing such services is
mandatory for the participant.
 Thus, there are two ways of obtaining the ancillary services:
 In the first case, provision of ancillary services is made mandatory for the participant who
wishes to take part in the energy market.
 The other way could be to obtain the services on commercial basis. Here, the services can be
obtained based on long term contracts or daily competitive market.
 It should be noted that introducing competition in the ancillary service market cannot be directly
compared with the competition in the energy market.
 The system security is the most important goal, and system operator should take all possible steps to
achieve it.
 However, lack of competition should not result in over payment by the system operator towards the
ancillary services.
 Moreover, those services which are inter-linked with the energy market, should not give chance of
market exploitation for few entities which are in a position to do so. Thus, competition in some cases
is necessary and fruitful.
 Mandatory provision of ancillary services
Before a participant is connected to the grid, it has to make sure that it is in a position to provide
the ancillary services mandated by the system operator. The system operator lays down the rules
to be followed by the participants. The rules for the connection to the grid can be:

 The generator should be equipped with droop characteristics of 5%. This helps in frequency
regulation.
  The generator should be able to operate in a power factor range of 0.85 lead to 0.9 lag. It
should be equipped with Automatic Voltage Regulator (AVR).

REFORMS IN INDIAN POWER SECTOR:

 The generation and transmission planning in India is done centrally by the government bodies.
 Until now, the institutional and regulatory framework did not allow the private players to acquire
major share in the power business.
 However, since 1990s, the scenario started changing and then the government policies were shaped
in order to encourage entry of private players, at least in the generating sector, through the manner of
establishing independent power plants.
 Further, there were initiatives to privatize the distribution sector in some of the states.
 However, not all these measures proved fruitful.
 Various hurdles came in the way of introducing private players in the system and at the end of the
day, the system continued to be owned largely by the government enterprises.
 The Electricity Act 2003 (EA2003) brought in some radical changes that altered the way of operation
of the overall system.
 The Act introduced the open access to transmission for qualified entities and thus a market like
interaction started developing between them.
 This in turn, gave rise to conventional open access concerns like congestion management,
transmission pricing, loss allocation, etc.
 Solving these transmission related problems in amicable manner is such a complex issue that till date
discussions and deliberations are being carried out to streamline these processes.
 The Act gave boost for the generation sector which was earlier burdened with requisition of various
licenses.
 The Act relieved generation sector from the ambit of licenses and thus encouraged various private
players to add generation.
 The Act also made revolutionary provisions for the distribution sector by allowing distribution
networks of two or more companies in the same area of operation, thereby making distribution sector
more prone to competition.
 The Act also made revolutionary provisions for the distribution sector by allowing distribution
networks of two or more companies in the same area of operation, thereby making distribution sector
more prone to competition.
 First aim this topic is to portray an overall picture of the Indian power sector.
 The other aim is to report the reforms that have taken place of late, with analysis of these reforms on
various sectors.
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.
 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).
 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 regional grids were operating at different frequencies which were widely varying, the
favored regional interconnection 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.
 Today, various private utilities like Tata Power Company Ltd. (TPC), Reliance Energy Ltd. (REL),
Brihan-Mumbai Electric Supply and Transport (BEST), Calcutta Electric Supply Company Ltd.
(CESC) and 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 one of the lossy circles
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.
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.
 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.

NEED OF AVAILABILITY BASED TARIFF (ABT):

 Indian Power System is characterized by low frequency system due to continuous power deficit for
most of the time.
 There is always supply and demand mismatch.
 The power demand is always more than the power supply.
 Due to this the frequency of Grid remains on lower side.
 Before the introduction of Availability Based Tariff, Generating Stations used to deliver the same
amount of MW in spite of need for lower MW demand during the period of lower power demand.
 This causes the Grid frequency to be at higher side.
 Similarly during the period of higher power demand, Generating Stations used to supply same MW.
 Subsequently, the Grid frequency reduces.
 This type of Grid operation did not have any provision to maintain a discipline.
  During peak load hours, the demand is more than the supply and it is expected that Generating
Stations should supply more power to meet the demand or load curtailment equal to deficit by State
Load Dispatch Centers (SLDCs).
 This will reduce the gap between supply and demand and hence frequency of Grid will be maintained
near about 50 Hz.
 During off-peak hours, Generating Stations should back down their generation to maintain the
demand.
 But the existing tariff scheme does not encourage Generating Stations to back down their generation
during off-load hours.
 As per the existing tariff scheme Generating Stations get paid for the power supplied.
 This necessitates a new pricing scheme which encourages Generating Stations to back down their
generation during off load hours by providing incentive.
 Similarly, this scheme should also provide incentive to Stations to supply more power during low
frequency Grid condition and penalize beneficiary for drawing power more than the schedule power
during low frequency Grid condition.
 This is why Availability Based Tariff (ABT) was introduced.
 Thus the new pricing scheme helps to maintain the Grid discipline and stability.

AVAILABILITY BASED TARIFF (ABT):

 Availability Based Tariff is a three part pricing scheme i.e. Fixed charge, Variable charge and
Unscheduled Power Interchange (UI) Incentive / Penalty.

 Fixed Cost:
 It is basically imposed on beneficiaries in proportion to their entitled power from the Generating
Station.
 This means fixed cost is directly proportional to the plant capacity shared by the beneficiaries.
 This is the reason Fixed Charge is often called Capacity Charge.
 But this does not mean that Generating Station can claim any amount of fixed cost irrespective
of its availability.
 The reimbursed Fixed Charges payable to Generating Station is dependent on the availability
of plant.
  If the plant availability for a year is more than the set norm, the generating station gets paid
higher.
 Variable charge:
 It is the cost incurred by Generating Station to produce MW day to day. Variable charge is also
called Energy Charge.
 It comprises of Fuel charge (like coal for thermal power plant, Nuclear Fuel Bundle for Nuclear
Power Plant, Gas for Gas Power Plant etc.), Operating expenses etc.
 Unscheduled Interchange Charge (UI Charge):
 Unscheduled Interchange means deviation from the scheduled generation of plant or deviation
from scheduled drawl of power by beneficiary.

WORKING OF THE MECHANISM:

• The process starts with the Central generating stations in the region declaring their expected output
capability for the next day to the Regional Load Dispatch Center (RLDC).
• The RLDC breaks up and tabulates these output capability declarations as per the beneficiaries' plant-
wise shares and conveys their entitlements to State Load Dispatch Centers (SLDCs).
• The latter then carry out an exercise to see how best they can meet the load of their consumers over
the day, from their own generating stations, along with their entitlement in the Central stations.
• The SLDCs then convey to the RLDC their schedule of power drawal from the Central stations
(limited to their entitlement for the day).
• The RLDC aggregates these requisitions and determines the dispatch schedules for the Central
generating stations and the drawal schedules for the beneficiaries duly incorporating any bilateral
agreements and adjusting for transmission losses.
• These schedules are then issued by the RLDC to all concerned and become the operational as well as
commercial datum.
• These values are put on respective RLDCs‘ websites.
• The schedules are also used for determination of the amounts payable as energy charges, as described
earlier.
• As long as the actual generation/drawal is equal to the given schedule, payment on account of the
third component of Availability Tariff is zero.
• Table 2 and 3 summarize the responses of constituent states (loads) and generators to variation in
frequency.
EFFECTS OF ABT:
• One of the major achievements of ABT was the grid discipline.
• In the pre-ABT era, the grid discipline was linked to the conscience of the stake holders wherein the
day-ahead schedules had no sanctity.
• In other words, the commercial signal (which is understood by everybody) was absent and hence, the
stake holders were least bothered about the grid condition.
• However, in the ABT era, the actions taken by various entities had a direct impact on the grid
condition.
• Constituent States' Response Deviations priced at zero INR.
• Tendency to draw more than schedule Deviations priced at maximum rate, i.e., 10 INR / kWh.
Tendency to overdraw only if absolutely essential.
• Tendency to under-draw to accrue gain.
• Trade-off between state's own generation marginal price and UI price Constituent States' Response
Deviations paid at zero INR.
• Tendency of not to generate excess Deviations paid at maximum rate, i.e., 10 INR / kWh.
• Tendency to generate excess power to accrue gain.
 • Trade-off between own marginal price and UI price Further, this action of the stake holder had
economical impact on itself, either in positive or negative direction
• Thus, a rational entity is expected to take those steps which would help the grid.
• As an effect of this, the frequency profile in all the regional grids improved.
• ABT era, the frequency used to touch as low as 48 Hz! However, after implementation of the
commercial mechanism, the frequency of various grids was arrested in a tighter band.
• Further, the day-ahead scheduling got due importance as the deviation from the same was termed as
unscheduled interchange (UI) and was settled directly with the frequency linked price.

INTRA-STATE ABT:
• The ABT mechanism and the frequency linked UI pricing described above pertains to commercial
mechanism operating on regional basis such that one state cumulatively acts as one load and has
schedule for the entire state.
• After the unbundling of SEBs, state‘s distribution system is divided into distribution zones.
• Each distribution zone will have schedule for power to be received from the state owned generators.
• Thus, the intra-state system would look much like the regional system.
• In other words, the intra-state generators and distribution zones would have schedules, metering and
energy accounting done by the state load dispatch center.
• The Forum of Indian Regulators (FOIR) has recommended states to adopt the similar system of
availability tariff for the intrastate system. This is termed as intra-state ABT.
• Some of the state electricity regulatory commissions have come out with the draft reports on the
modalities associated with intra-state ABT.
• Some states will adopt the system of regional ABT with frequency linked UI pricing in to-to, while
some states respecting the state specific constraints have adopted (or likely to adopt) mechanism
with variations from that of ABT on regional basis.
• For example, state of Gujarat has adopted intrastate ABT with concepts similar to that of inter-state
ABT.
• It has formed four distribution zones for this purpose.
• The mechanism will be applicable for state-owned generators, distribution zones and all other IPPs
and CPPs in private sector.
• State of Maharashtra, on the other hand, has proposed the UI pricing to be done system marginal
price (SMP) rather than the frequency linked pricing.