The Electricity Act 2003 And Transmission Pricing

1. P.K.KALRA Dr. Prem K. Kalra Indian Institute of Technology, Kanpur The Electricity Act 2003 And Transmission Pricing Instructional Objectives At the end of this lecture: a) you will be able to describe in lay terms the information contained in an electrical schematic diagram, b) you will be able to describe the difference between a discrete and a continuous system, c) you will be able to describe the difference between a digital or binary discrete system and an arbitrary discrete system.Instructional Objectives At the end of this lecture: a) you will be able to describe in lay terms the information contained in an electrical schematic diagram, b) you will be able to describe the difference between a discrete and a continuous system, c) you will be able to describe the difference between a digital or binary discrete system and an arbitrary discrete system.

2. P.K.KALRA Central Electricity Act 2003 Changes and Challenges

3. Important Changes in Generation No need of license for a generating company from CEA, state board or regulator if it complies with the technical standard relating to connectivity with the grid ,except for hydro power. Freedom for captive generation and dedicated transmission lines, operate and maintain sub stations. Permission of open access for a captive plant owner for his own use without any surcharge. No license for generating and distributing in rural area. Formulation of a National policy on rural distribution, local distribution and renewable/non-conventional resources.

4. Important Changes in Transmission Establishment of NLDC , RLDCs and SLDCs at different levels. Promotion to non discriminatory open access in transmission. Promotion for efficient , economical and integrated supply of electricity by: - dividing India into regions - optimal scheduling by NLDC among RLDCs - ensuring the integrated operation by RLDCs and SLDCs Empowering RLDCs and SLDCs to supervise & control to ensure stability ,efficiency & economy of grid operation in the region and state. Formation of national grid. Promotion to inter-state transmission of electricity.

5. Important Changes in Distribution Provision for time bound electricity supply agreement between the Disco and consumer. More than one distribution company can be allowed in a single area with their own distribution network. Permission of the wheeling of the electricity between two areas, with appropriate wheeling charge.

6. Existing Market Structure

7. Proposed Market Structure in The Act 2003

8. Effects of The Act 2003 on Generation System More efficiency due to optimal scheduling and dispatch of electricity. More private participation by - Captive generation. - Open access. - Delicensed generation. 3. More accountability for generation availability

9. Effects of Act 2003 on Transmission System Market condition for more competition New opportunities for power trading and inter-state transmission Complex market structure More efficiency in transmission New transmission pricing models More private investments in transmission Need of National Grid Need for more network capacity Technical up gradations

10. Effects of Act 2003 on Distribution System More power to distribution licensee. More options to distribution companies. High competition among distribution companies. More accountability of distribution company to consumers.

11. Points to implement the Open Access in Transmission System 1. Formation of CTU/STU, ISO 2. Promotion to generators 3. Appropriate Transmission Pricing Method 4. Available Transfer Capacity 5. Congestion Management 6. Surcharge Calculation 7. Ancillary Service Management 8. Online information flow

12. P.K.KALRA Responsibilities Of Different Utilities In The Electricity After The Act 2003

13. Responsibilities of CERC \ SERC Open access transmission � Order any other licensee owing or operating intervening transmission facilities to provide use of facilities to extent of surplus capacity. Open access distribution- Specify phases in which open access shall be introduced subject to conditions and wheeling charge. Authorize distribution licensee- Charge from a person for supply of electricity expenses reasonably incurred in providing electric line or plant for such supply. Specify code for Generating company to supply electricity to any licensee or to any consumer and submit technical details to the ERC. Specify an Electricity Supply Code and standards of performance of a licensee or a class of licensees.

14. Responsibilities of Government of India \ State Government Directions to operate and maintain any generating in extraordinary circumstances �arising out of threat to security of state, public order , natural calamity or any circumstances arising in public interest. Region wise demarcation of the country for efficient, economical and integrated transmission and supply of electricity Directions to RLDC or SLDC for smooth and stable transmission of supply of electricity. Prescribe additional requirements for 2nd distribution licensee.

15. Responsibilities of CTU \ STU To provide non discriminatory open access to its transmission system by any licensee or generating company or to any consumer. To determine the availability of transmission facility in open access

16. Responsibilities of CEA Transmission side Lay down Grid Standards. Distribution side Specify suitable measures relating to safety and electricity supply. Regulations for installation of meters.

17. P.K.KALRA Transmission Pricing

18. Objectives of Transmission pricing Promotes efficient day-to-day operation and maintenance of the grid - (signal to the transmission operator). Signals locational advantages for investment in generation and demand -(signal to generators and customers). Signals need for investment in the transmissions system - (signal to transmission investors). Facilitates economic interconnection of new generators - (another signal to generators).

19. Transmission Pricing must aim at Provide signals to encourage efficient utilization of existing assets. Provide signals to encourage efficient new investment on the supply and demand side of electricity market and other markets. Provide owners of network assets with means of generating an income stream which has a reasonable probability of delivering them a normal rate of return on their investment.

20. Objectives� Compensates owners of existing transmission assets - (signal to transmission owners). Be simple and transparent - (important to market participants and public policymakers). Be politically "implement able�- (especially important to regulators and public policymakers).

21. Components of Transmission pricing Use of network charges capital cost, O&M cost of transmission network etc. System operation charges cost of operation of RLDCs / SLDCs. Ancillary services charges reactive power support, voltage control, regulation of frequency, ensuring system stability, maintenance of spinning reserves.

22. Transmission pricing Methods Postage Stamp Method MW-mile Method Contract Path Method Location Based Marginal Pricing Method Incremental Postage Stamp Method Spot Pricing Short-Run Marginal Cost (SRMC) Long-Run Marginal Cost (LRMC)

23. The selection of transmission pricing approach Relatively easy to implement and administer in practice. Does not lead to materially inefficient allocation of resources. Compatible with wholesale market and regulatory arrangements.

24. Postage Stamp Method A postage stamp rate is a flat per kW charge for network access within a particular zone, based on average system costs. The cost for transmitting within the zone is independent of the transmission distance. A generator transmitting to a load in a different zone would have to pay the postage stamp charges for the zone of origin and the zone of delivery and any intervening zone. Postage stamp rates provide a way to recover the fixed costs of the network. But provide no information about congestion .

25. MW-Mile Method The Megawatt-Mile pricing is based on the economic principle that the buyer pays only for the transmission capacity they use and nothing else. The power flow �mile on each transmission line due to a transaction is calculated by multiplying the power flow and distance of the line. The total transmission system use is then the sum of all the power flow �mile and this provides the measure of how much each transaction use the grid. Many economists prefer the Megawatt-Mile pricing concept because it encourages the efficient use of the transmission facility and the expansion of the system.

26. Adjustment factor for MW-Mile Method Adjustment factor =1,for an overhead line in which the flows of power do not adversely affect a restricted interface. Adjustment factor > 1,for lines in which the flows of power increase the constraint on a restricted interface. Adjustment factor < 1,for lines in which the flows of power alleviate a constraint on a restricted interface.

27. Contract Path Method This method requires the identification of the supply and the receipt point for a bilateral transaction and a �contract path� between the two nodes. This method directs the amount of contracted capacity as well as the distance associated with the contract path. In this method the network charges are allocated to individual transaction. The contract path is fiction path method. The physical load flow of a single transaction may be different from the contractual load flow, particularly in the meshed electricity network. Transmission pricing becomes complex when electricity does not flow over the contracted path.

28. Problems Associated with Contract Path Method 1) Fixed cost of transmission network are not recovered 2) Pricing manipulation 3) Difference between short term and long term prices 4) Calculation of available transfer capacity is difficult 5) Transmission affects the other parallel paths in the electricity meshed networks. 6) Power can flow on different paths depending upon the generation schedule.

29. Location Based Marginal Pricing Method It is complex, but accurate pricing method. It determines transmission prices at each bus in the system, based on: costs, including the price of power as measures in the spot market, and the cost of moving power to various locations. Transmission cost for any new transactions taking place between any two buses is then taken as the difference of these costs.

30. Problems with LMBP May inflate the economic costs of transmission constraints. May encourage the use of generation market power. May encourage uneconomic investments to relieve transmission constraints. May encourage gaming of rebates. May discourage the development of bilateral contracts.

31. Problems with Optimal Power Flow in Indian Scenario Generation should be more than the demand for optimal scheduling of the generator. Non availability of the generation coefficient (a, b, c) for simulation of the generation cost. Past data of heat rate curve of generator is not available. An independent transmission company have nothing to do with the generation company as cost of the energy is fixed at prior decided cost

32. Incremental Postage Stamp Method The incremental postage stamp rate is assigned to a zone to make this method distance sensitive. According to CERC such rate can be assigned by drawing grid lines 100 Km apart on the map of India from North to South and East to West. The wheeling charges could also be comprehended as the crosses the square zone of 100x100 Km , provided that the circuit path is straight and parallel to the side.

33. Spot Pricing Spot pricing is designed to take advantage of short term operation of competitive power markets. Price bids are accepted every half hour or one hour. Transactions are settled at market clearing prices. Price bids are reconciled on the basis of economic dispatch. Spot price bid is efficient because it is linked to the operation of the transmission system. Spot prices are transparent and are based on market liquidity.

34. Short Run Marginal Cost Used for Interruptible Wheeling service. SRMC is the �running cost� that covers variable expenses for operation and maintenance. SRMC accounts for congestion cost and reflects opportunity costs. SRMC methods allows congestion charges to increase as transmission capacity becomes over utilized. It allocates capacity to customers that value transmission.

35. Long Run Marginal Cost Firm Service Includes both Capital cost of system expansion and running costs after expansion. Firm service customers receive priority service. Firm service requires host utility to commit to provide transmission capacity. Long term firm service has two parts: a. Fixed-Variable pricing structure b. Resale rights

36. Comparative Parameters of MW-Mile , Postage Stamp and Contract Path method

37. Comparative Parameters�

38. Availability Based pricing (ABT) In ABT, generators and buyers must declare day-ahead availability and demand based on 15-minute time blocks. Energy charges would be done only on the scheduled drawal by the buyers. UI charges are levied on the generators or buyers in the case of any deviation from the schedule and also subject to the grid conditions at that time. ABT system will entitle the generating station to reimbursement of fixed cost based on the availability or declared capacity of the generating station. ABT introduces system of incentives and disincentives based on actual performance.

39. National pricing Policy The objective of the pricing Policy is to ensure reliable and quality power to the consumers at competitive rates. pricing should be determined by fair and transparent process for generation, transmission and distribution. Appropriate commissions should specify the Multi-Year/Long Term pricing while reducing the risk possibilities and uncontrollable parameters. The pricing should progressively reflect the cost of supply of electricity and also reduce and eliminate the effect of cross-subsidies within the period specified by the Appropriate commission

40. International Experiences in Electricity Market

41. International Experiences�

42. P.K.KALRA Available Transfer Capacity And Congestion Management

43. Available Transfer Capacity Calculation ATC is a measure of the transfer capability remaining in the physical transmission network for further commercial activity over and above already committed uses. ATC = TTC � TRM � CBM � TC TTC = Total Transfer Capacity TRM = Transmission Reliability Margin CBM = Capacity Benefit Margin TC = Transmission Commitments

44. Congestion Management Congestion results when power flows in the transmission line are higher than allowed by the operating reliability limits. In other words, congestion occurs due to the operating constraints of the transmission lines. There are three constraints- 1) Voltage constraints 2)Thermal constraints 3)Stability constraints

45. Functions of ISO in Congestion Management Force changes in generation schedules, ordering some generating units to increase their generation and others to reduce output, until the congestion is eliminated. Compensate the units who were asked to generate more, effectively paying them for their additional power production, and the units who were ordered to cut back, granting them �lost opportunities payments�. �Sends the bill� for compensation payments to the users who caused the congestion in the first place, raising transmission prices during the congestion, by collecting �congestion fees� to compensate affected generating units.

46. P.K.KALRA Ancillary Services And Reactive Power Pricing

47. Ancillary Services Ancillary services are defined as all those activities on the interconnected grid, that are necessary to support the transmission of power while maintaining reliable operation and ensuring the required degree of quality and safety. Ancillary services include: Voltage / Reactive Power control Scheduling and dispatch control Frequency control System stability control Operating reserve service Black start capabilities

48. Pricing of Ancillary Services Unbundle transmission service from ancillary service. Not necessary to price ancillary service at market based rates. They should be cost-based and established price caps. Transmission pricing must have sufficient data to determine ancillary services prices. Rates should take into account the location, customer load and resources

49. Ancillary services in various markets

51. Reactive Power Control Reactive Power is required to maintain voltage balance on the Transmission System. It is necessary for System Operator to control Transmission System voltages to avoid damage to the Transmission System and to Generation plant.

52. Reactive Power Support Choices Shunt capacitors and switched shunt capacitors Synchronous condensers Synchronous generators Static VAR compensators Distributed generation

53. Characteristics of Reactive Power Support Equipments

54. Features associated with Reactive Power Pricing Simple to compute Incorporate locational nature of reactive power Adapt to changing conditions

55. Some locational aspects of Reactive Power Case 1: When distant market or generator is cheaper source to supply local load. -line flows increase -lines absorb more reactive power -load needs more voltage support

56. Locational aspects� Case 2: When local generation is cheaper source to supply local load. -line flows reduce -lines absorb less reactive power -local generation provides energy, reactive power -no need for more voltage support

57. Methods for determining Reactive Power Cost Charging based on Direct Reactive Power Consumption Charging through adjustment to Billing Quantities Locational Spot Pricing

58. International Experience in Reactive Power Management

59. P.K.KALRA Optimal Scheduling, Dispatching , Congestion Management Ancillary Service Management Model&Electricity Trading

60. P.K.KALRA

61. What is New Electricity Trading Arrangements (NETA) ? A two sided market, with demand fully incorporated Firm bids and offers, to enable costs and risks to be reduced and shared efficiently Simple bid and offers ,to improve transparency and encourage liquidity Bilateral contracting rather than a centralized market for greater competition Flexible governance arrangements to cope up with the market change Centralized real time balancing and settlement.

62. Markets are based on Infrastructure

63. How would we know if Transmission is adequate?

64. Why is some form of price cap or bid cap needed? Fundamental elements for a competitive market are not in place. They take time to develop and may be slow to develop How much progress is needed in these elements to be considered as adequate to change price cap levels (e.g. amount of price responsive demand necessary to effectively curtail high prices)? Regulatory intervention is still needed, until the fundamental elements of a competitive market are available.

65. Proper cost allocation for new Transmission Investment in an electricity market The cost of transmission upgrades should be borne by the customers who need or benefit from the upgrades. Socialization of cost of transmission upgrades will harm customers who do not benefit. Transmission investments designed to provide necessary levels of reliability as well as investments to provide economic benefits should have cost recovered from the beneficiaries of such investments. The ISO will have full responsibilities for determining the scope of benefits accruing from new transmission investment in the system they control and identifying what parties receive those benefits.

66. Private Investments in Power Sector Private sector investors can now invest in the Indian power transmission system as a �Transmission Licensee� under the regulatory umbrella of CERC\SERC. The commission would provide the comfort and confidence to the investors. POWERGRID/ State utilities (SEBs) will identify transmission projects to be established at National/ Regional and State levels. The projects shall be so located that right of way problems are not a deterrent.

67. Private Investments� The Private Sector (Transmission Licensee) will finance, construct, operate and maintain the identified transmission system. The entire transmission capacity will be available to POWERGRID/ SEBs as the case may be. The private Transmission Licensees would not be concerned with the third party access and wheeling issues. They would be operating the transmission system in accordance with the instructions of RLDC/ SLDC. Transmission Licensee will not be concerned with the quantum of energy that would be transmitted on the line.

68. Importance of demand response in an electricity market In the planning area Demand response can be a critical factor for determining the generation and transmission adequacy. In a short term grid operations, demand responses can be important factor in congestion management. Demand responsiveness can be an important tool for mitigating market power. In some markets, price caps have been viewed as a substitute for demand responsiveness

69. Lighten the Load Demand-side initiatives will help with four problems: price spikes, market power, reliability, and portfolio balance Exclusive supply side focus: the never-ending problem of weakest links Demand-side resources: can be cheaper, cleaner, faster Reliability benefits for the entire network -- from local wires to regional fuel supply Power cost benefits, too

70. Wholesale Market Structure Wholesale markets should be designed to invite demand-side price responses to bid against supply, and should permit demand-side resources to compete with transmission and generation investments to meet system needs. Demand-side bidding Reforming load profiles Multi-settlement markets Dispatchable load Efficient reliability levels

71. Competition Myth: Load Will Respond to System Costs Customers see average prices, and they see them long after consumption Few customers on interval meters or real-time prices Many generation and reliability costs are socialized Historic market barriers to efficiency remain: first-cost, discount rates, information barriers etc.

72. P.K.KALRA

73. Power Quality Market in Context with Environmental Economics Permits should be created for: Harmonic emission (harmonic currents causing voltage distortion) Unbalanced load (unbalanced loads causing unbalanced voltages) Surge currents (surge currents causing voltage dips) Irregular, flicker causing loads

74. P.K.KALRA Use of Information Technology in different fields of Power system

75. Role of IT Information plays a major role in the deregulated market to pass the information to ISO/RTO IT tool not only reduce the amount of time but also it takes a participant to execute its market strategy and they can also reduce the potential for errors. Market participants needs an IT system that will provide all constituencies with the operation data. IT needs from a single central repository that is accessible by everyone from traders to plant managers.

76. Role� Automating the information that defines this relationship reduces the potential for error and minimizes the Market participant's time to market. Automation and IT should minimize the amount of human invention required to interact with the market. Market participant�s need to be reply on a product that automatically validates beds against market rules for syntax, data independency and the ISO/RTO communication protocols. The trader, the scheduler or other Market participants staff member should be concerned with is marketing sound business decisions, not whether the information they are exchanging with market adheres to market requirements.

77. Decision tools for market participant Tool to manage physical and financial assets, manage risk, participate in various market and decision tools to provide the edge in very competitive environment

78. A - Integration Infrastructure Objectives Minimize long term development of maintenance costs Allow parallel development external components Third party application Allow reusability of the components Components Configuration services Alarming services Messaging services Time services Task scheduling Data base services Logging services Calculating services Security services

79. B - Generation management Objective Monitor and control all generation and responsive load assets Components Real time monitoring and communication Control of resources and dispatch Supervisor control and data acquisition (SCADA) Historical information system Distributed generation management Demand side and supply side management

80. C - Market management Objective Provide the interface between participant, market operator and customer Components Communications module Market interface manager Market data manager Customer data manager

81. D - Trade management Objective Determine the risk associated with various trades Components Contract manager Trade manager Risk manager Credit manager Electronic scheduling

82. E - Portfolio Management Objective Forecast ,coordinate outages ,optimize the scheduling of resources, simulate market condition Components Forecasting module Resource scheduling Bid strategist Outage manager

83. F- Financial Management Objective Track the money that is to receive and paid Components Settlement module Standing data input management Dynamic data input management Settlement calculation Dispute management Report management Billing interface Meter data management

84. P.K.KALRA

85. P.K.KALRA Illustrative Example of pricing Calculation

86. P.K.KALRA

87. P.K.KALRA

88. P.K.KALRA

89. Summary of Results

90. Cost of the Lines

91. Total amount paid by each Generator in MW-Mile Method Assume that the capacity of each line is 600 MW Generator 1 Price = Rs. 52,360 Generator 2 Price = Rs. 136,500

92. P.K.KALRA

93. Calculation of Incremental Postage Stamp method The postage stamp charges in the first zone = Rs. x per MW and the Incremental Postage Stamp Charges per zone = Rs. y per MW The total charges in the first transaction from 2 to 3 = Rs. ( x+3y)* 600MW The total charges in the second transaction from 1 to 3 = Rs. (x+2y )* 300MW

94. Comments on the two methods The Incremental Postage Stamp Method is not technical method for calculating the transmission pricing. The charges calculated in Incremental Postage Stamp Method do not provide any information about the actual power flow in the lines and hence no information about the congestion. MW-mile method gives the real time power flow in the lines and hence the ATC.

95. P.K.KALRA thanks