Hybrid Methodology for Sharing of Transmission Charges in Indian Power System

Subhro Paul1, B.Tech, AMIE (AM135424-0)

Synopsis: The revised framework for sharing of transmission charges and losses of ISTS

based on hybrid method had its roots in the National Electricity Policy (NEP). The NEP

mandates that the tariff framework should be sensitive to distance, direction and quantum of

power flow so that the transmission system users (Designated ISTS Customers, DICs) share

the total transmission cost in proportion to their respective utilization of the transmission

system. The overall tariff framework should not restrict planned development/augmentation

of the transmission system and prior agreement with the beneficiaries should not be a pre-

condition for network expansion. However, non-optimal transmission investment should be

avoided. On the allocation of losses, Tariff Policy requires that transactions should be

charged on the basis of average losses arrived at after appropriately considering the distance

and directional sensitivity on the transmission system. The Hybrid method was adopted for

the Indian System. An attempt is made here to explain it with a simple example.

1. The sharing of transmission charges and transmission losses was earlier being done on the

basis of Regional Postage Stamp Method. In this method all States in the Region were

sharing the transmission charges and transmission losses on a Regional pooled basis, in the

ratio of the weighted average quantum of power drawn through the Inter-State transmission

system. The quantum of power drawn was calculated as the sum of entitlements from Central

Generating Stations and long-term contracts. Development of new transmission was

dependent upon long term PPAs.

1
ERPC, 14 Golf Club Road, Tollygunge, Kol-700033, Ph-2423 9658, FAX-2423 9652, [email protected]
 The mechanism served the needs of the system, as it was at that point of time, well enough.

However, with many new IPPs planned to come up in the near future, integration of the

regional grids and with bulk consumers also being allowed to purchase power through open

access from anywhere in India, even across Regions, the method was on the threshold of

obsolescence and an appropriate change in the pricing mechanism was felt necessary.

2. Under the earlier mechanism, transfer of power from state ‘A’ in WR to state ‘B’ in NR,

requires the transacting parties to pay a sum of transmission charges in both these regions - a

phenomenon referred to as "pancaking" of charges. This way of charging for transmission

system was technically non-reflective of the network utilization. Further, it was felt that an

ideal transmission pricing mechanism should allow the power plant developers and customers

to decide the optimal location of the power plant by comparing the costs of fuel

transportation and the cost of electricity transmission. This was not possible through the

existing mechanism.

Therefore, in order to facilitate a market for power, a technically efficient methodology for

transmission charge sharing needed to be formulated.

3. Against this background, hon’ble CERC circulated the approach paper on "Formulation of

Inter-State Transmission pricing Mechanism" on May 15 2009 for public comments. This

was followed by workshops held by CERC in Delhi, Kolkata, Guwahati and Bangalore to

explain the proposed transmission pricing mechanism to various constituents. This was

followed up by a public hearing.

4. Thereafter, CERC considered implementation of the Point of Connection (PoC) methodology

based on a hybrid method, which is a combination of the Marginal Participation and the
Average Participation Method. In the Hybrid Method the slack buses are selected by using

the Average Participation Method and the apportionment of asset tariff to each node/bus/zone

is computed using the Marginal Participation Method.

Apportionment of usage of each transmission line/asset among different network users/DICs

may be done by the Marginal Participation (MP) Method (as in UK, New Zealand). The

MP Method analyzes how the flows in the grid are modified when minor changes are

introduced in the production or consumption of agent i.

For each of the considered scenarios (the PoC rate calculation based on hybrid method started

with only one scenario initially and now PoC rates are calculated quarterly) the procedure can

be considered as follows:

• Marginal Participation sensitivities Aij are obtained that represent how the flow in line

j changes when the injection in bus i is increased by 1 MW.

• Total participations for each agent are calculated as a product of its net injection by its

marginal participation. If net injection is considered positive for generators and

negative for demands, the total participation of any agent i in line j is Aij(generation i

– demand i).

• The cost of each line is allocated pro-rata to the different agents according to their

total participation in the corresponding line.

Apportionment of power flows through each transmission line due to different network users
may be done by the Average Participation (AP) Method. The AP method works as follows:

• For every individual generator i, a number of physical paths are constructed, starting

at the node where the producer injects the power into the grid, following through the

lines as the power moves through the network, and finally reaching several of the

loads in the system.

• Similar calculations are also performed for the demands, tracing upstream the energy

consumed by a certain user, from the demand bus until some generators are reached.

One such physical path is constructed for every producer and for every demand.

• In order to create such physical paths, a basic criterion is adopted: A rule allocates

responsibility for the costs of actual flows on various lines from sources to sinks

according to a simple allocation rule, in which inflows are distributed proportionally

between the outflows.

Some of the benefits attributed to the Hybrid methodology by the Commission are as under:

1. Remove uncertainties with commissioning delays of generation. Facilitate financial

closure of transmission investments.

2. The proposed mechanism would facilitate integration of electricity markets and

enhance open access and competition by obviating the need for pancaking of

transmission charges.

3. The National Electricity Policy requires the transmission charges to reflect network

utilization. The Point of Connection tariffs are based on load flow analysis and

capture utilization of each network element by the customers.

4. The distinction between generation and demand customers would provide siting

signals to the DICs, through accurate transmission charges vis-a-vis.

5. Solar based generation will be facilitated.

dispatch centre) based on imputs from generators, DIC’s, RPC’s, etc. Calculations are done

as per guidelines of CERC using web net use software developed by IIT Bombay. However,

the implementation of PoC resulted in substantially higher transmission charges for some

beneficiaries and relief for some others resulting in much resentment.

An attempt is made here to explain the basic philosophy with a simple set up example of the

hybrid methodology so as to better appreciate the issues concerned. A simple indicative

calculation is shown below:-----*

Consider the following 4 bus system:

60 A D 20 to Y
30
G2

50

5 45
30

to X 10
C
B

G1 120
100 75

Fig-1_Base case

The above network represents a simple system/region R. There are two generators at

node/bus A (60 MW) and C (120 MW) and two DICs/Load/Beneficiaries at B (100 MW) and

D (50 MW). There are two lines interconnecting the system/region with other systems (X,Y).
Let us assume that the development of transmission system was on regional basis and the

lines AD, DC, CB and BA were sufficient to carry the power from generators at A, C to

loads/benefiiaries B, D.

The line DB was built later for system strengthening to facilitate transfer to beneficiary x (in

neighboring region X) and beneficiary y (in neighboring region Y). The cost of this line is

pooled in region X and Y only (say shared by x and y 1:1).

Let the cost/AFC of the lines be CAD, CDC, CCB, CBA, CDB. Further assume that line DB is a

new line while other lines are old whose capital cost has already been recovered [ CDB>>

CAD, CDC, CCB, CBA].

Assume all generators are generating at their installed capacity ignoring auxiliary

consumption.

Postage stamp method:

As per the postage stamp method, B and D would share the cost of regional assets only and in

proportion to their allocation/LTA (Total ISGS capacity in the region = 180 MW).

Therefore, transmission charges paid by 100 MW DIC at B would be:

TCB = (CAD+ CDC+ CCB+ CBA)*100/180 ………………………………(1)

Similarly, transmission charges paid by 50 MW DIC at D would be:

TCD = (CAD+ CDC+ CCB+ CBA)*50/180 …………………………………(2)

TCx = (CAD+ CDC+ CCB+ CBA)*10/180 ………………………………..(3)

Transmission charges paid by beneficiary y in region Y for share in region R would be:

TCy = (CAD+ CDC+ CCB+ CBA)*20/180 ………………………………(4)

In addition to the regional transmission charges above for region R, beneficiaries of X and Y

regions will pay transmission charges for their respective regions in proportion to the MW

imported from R.

The following conclusions are drawn:

(1) There is a pancaking of charges (transmission charges for region R and respective

drawal regions are added) in case of beneficiaries of region X and Y.

(2) Beneficiaries of region R do not have to pay for transmission assets deemed to be of

use for power transfer to outside regions such as line BD. These assets may be new

transmission schemes with higher AFC.

Hybrid method:

The Hybrid method is a combination of Average participation (AP) and Marginal

Participation (MP) methods. The AP is used for identification of slack bus whereas; the MP is

used for calculation of utilization factors.

D…………….. (5)

A-30
X-10
D-5
B-100
C-75

B
Fig_2

100 MW load at B is drawing 100 * 30/ (30+5+75) = 27.27 MW from A (Generator)

Similarly, 100 MW load at B is drawing 4.55 MW from D and 68.18 MW from C

(Generator)

Further, 4.55 MW from D to B is coming from (at D):

Y-20
B-5
A-30
D-50
C-45

Fig_3

4.55 * 30/(30+45) = 1.82 from A (Generator) &

4.55 * 45/(30+45) = 2.73 from C (Generator)

So, Generator A is supplying = (1.82+27.27) = 29.09 MW to 100 MW load at B &

Generator C is supplying = (2.73+68.18) = 70.91 MW to 100 MW load at B

60 A 1.82 D 20 to Y
30
G2

29.09 1.82 50
27.27
5 45
2.73
30

to X 10
C 2.73
B
70.91

G1 120
100 75
29.09 70.91
68.18

Fig_4

So, for one MW load increase at B, Generator A supplies 0.29 MW and Generator C supplies

0.71 MW. Now, using this Load/ Generation details we undertake a Marginal Load Flow

Analysis and get the transmission line flows. A solution of LFA is given in Fig-

2…..………(6)

60+0.29 A D 20 to Y
30.1

G2

50

5 .2 45.1
30.19

to X 10
C
B

120+0.71
100+1 75.61 G1

Fig_5
 We now calculate the utilization factors as follows:

………………………………………..(7)

UBAD = [(New Line Flow in line AD due to one MW increase in load B)- (Base case line

flow in line AD)]* Base Case Load at B. Where UBAD is the utilization factor of the line AD

due to the load at bus/node B

UBAD = (30.1-30)*100 = 10

UBDC = (45.1-45)*100 = 10

UBCB = (75.61-75)*100 = 61

UBBA = (30.19-30)*100 = 19

UBDB = (5.2-5.0)*100 = 20 : So, DIC at B is utilizing line DB also in PoC method

By a similar process repeating steps 1,2,3 for load at node D we get the following results for

utilization factor:
60+0.2 A D 20 to Y
30.2

G2

50+1

4.9
45.7
30.00

to X 10
C
B

120+0.8
75.10 G1
100

Fig_6
UDAD = (30.2-30.0)*50 = 10 ……………………………….. (8)

UDDC = (45.7-45.0)*50 = 35

UDCB = (75.1-75.0)*50 = 5

UDBA = (30.-30)*50 = 0

UDDB = (4.9-5.0)*50 = -5 = 0 (negative contribution is considered as ‘0’)

Restricting our enquiry to the system of lines in region R, we can similarly proceed for

calculation of utilization factors for beneficiary x (in region X) at node B and beneficiary y

(in region Y) at node D. Tracing the load 0f 10 MW (x) at node B Consider the following:

A-30
X-10
D-5
B-100
C-75

B
Fig_7

10 MW flow at B (for x) is drawing 10 * 30/ (30+5+75) = 2.73 MW from A (Generator)

Similarly, 10 MW load at B is drawing 0.45 MW from D and 6.82 MW from C (Generator)

Further, 0.45 MW from D to B is coming from (at D):

Y-20
B-5
A-30
D-50
C-45

D Fig_8
 0.45 * 30/(30+45) = 0.18 from A (Generator) &

0.45 * 45/(30+45) = 0.27 from C (Generator)

So, Generator A is supplying = (0.18+2.73) = 2.91 MW to 10 MW flow at B (for x) &

Generator C is supplying = (0.27+6.82) = 7.09 MW to 10 MW flow at B (for x)

Now, for 1 MW increase in flow at B due to x, 0.71 MW power will be supplied by

Generator at C and 0.29 MW power will be supplied by A. As this is the same as for 1MW

change for 100 MW load at B, the flows will remain the same.

60+0.29 A D 20 to Y
30.1

G2

50

5 .2 45.1
30.19

to X 10
C
B

120+0.71
100+1 75.61 G1

Fig_9

UXAD = (30.1-30)*10 = 1 ……………………………(9)

UXDC = (45.1-45)*10 = 1

UXCB = (75.61-75)*10 = 6.1

UXBA = (30.19-30)*10 = 1.9

Similarly for 20 MW flow at node D (to y)….the line flows and generator contributions will

be same as for 50 MW at D

UYAD = (30.2-30.0)*20 = 4 …………………………(10)

UYDC = (45.7-45.0)*20 = 14

UYCB = (75.1-75.0)*20 = 2

UYBA = (30.-30)*20 = 0

UYDB = (4.9-5.0)*20 = -2 = 0

Cost of line AD to be shared by 100 MW at node B will be = CAD*

UBAD/(UBAD+UDAD+………UNAD)

Now, we can proceed to make the Utilization (U) matrix & % (%U) matrix:

……………..(11)

U AD DC CB BA DB %U AD DC CB BA DB

B 10 10 61 19 20 B 40 16.7 82.3 90.9 90.9

D 10 35 5 0 0 D 40 58.3 6.7 0 0

X 1 1 6.1 1.9 2 X 4 1.7 8.3 9.1 9.1

Y 4 14 2 0 0 Y 16 23.3 2.7 0 0

25 60 74.1 20.9 22 100 100 100 100 100

Table_1

Now, let AFC of line AD= CAD = CDC = CCB = CBA = 100 and CDB = 200
Total charges shared by 100 MW customer at B in postage stamp method (refer equation 1-4)

= (100+100+100+100)*100/180 = 222.22

Total charges shared by 100 MW customer at B in hybrid method (refer % utilization matrix -

11) = 40% AFC of line AD + 16.7% AFC of line DC + 82.3% AFC of line CB + 90.9% AFC

of line BA + 90.9% AFC of line DB

=(0.4*100+0.167*100+0.823*100+0.909*100+0.909*200)=411.70

Similarly,

Total charges shared by 50 MW customer at D in postage stamp method (refer equation 1-4)

= (100+100+100+100)*50/180 = 111.11

Total charges shared by 50 MW customer at D in hybrid method (refer % utilization matrix -

11)=(0.4*100+0.583*100+0.067*100+0*100+0*200)= 105.00

Total charges shared by 10 MW customer at node B (beneficiary x) for region R in postage

stamp method (refer equation 1-4) = (100+100+100+100)*10/180 + 200/2 = 122.22

Total charges shared by 10 MW customer at node B (beneficiary x) for region R in hybrid

method (refer % utilization matrix - 11) =

(0.04*100+0.017*100+0.083*100+0.091*100+0.091*200) = 41.3

Total charges shared by 20 MW customer at node D (beneficiary y) for region R in postage

stamp method (refer equation 1-4) = (100+100+100+100)*20/180 + 200/2 = 144.44

method (refer % utilization matrix -11) = (0.16*100+0.233*100+0.027*100+0*100+0*200)

= 42

The comparison matrix of Transmission Charges shared by various DIC’s for transmission

assets in region R under Postage stamp and Hybrid methods is given below:

Postage Hybrid

Stamp

B 222.22 411.70

D 111.11 105.00

X 122.20 41.30

Y 144.44 42.00

Total 600.00 600.00

Table_2

The following may be inferred:

(1) Transmission charges shared by 100 MW customer at B has increased substantially.

Transmission charges shared by customer x and y has come down substantially.

(2) Cost of new costly asset DB which was not earlier being shared by the 100 MW

regional beneficiary at B is now being shared by it.

(3) The method is based on Tracing and Load flow studies which have a better technical

appeal than the crude Postage Stamp method.

The Hybrid method was brought in as a facilitator for development of transmission

infrastructure to encourage power markets. However, the new method resulted in rise of

transmission charges of some beneficiaries. As, seen in the example above, a portion of the

rise in transmission charges due to change in methodology was because the new PoC method

resulted in removal of region specific transmission asset identification. Due to this, some

constituents were now also sharing charges for newer and high capacity transmission assets

with higher AFC instead of only the old assets which had lower AFC.

Further, six years have passed since the implementation of the new sharing regulations. Over

this period of time a huge quantity of additional transmission infrastructure has been

commissioned. Therefore, the PoC rates and transmission charges would naturally rise to a

certain extent.

It is hoped that that now that the transmission infrastructure has been developed substantially,

there would be a thrust towards bringing more power to the market and a shift in preference

from long term PPAs towards more short term trades.

Reference: CERC (Sharing of Transmission Charges and Losses), Regulation, 2010

Abbreviations used:

1. NEP: National Electricity Policy

2. DIC: Designated ISTS customers as defined in the CERC (Sharing of Transmission

Charges and Losses), Regulation, 2010

4. PPA: Power purchase agreements between the generators and the

beneficiaries/distribution licenseess

5. WR: Western Region

6. NR: Northern Region

7. PoC: Point of Connection Transmission rates based on hybrid methodlology

8. MP:Marginal Participation as explained in CERC (Sharing of Transmission Charges

and Losses), Regulation, 2010

9. AP: Average Participation as explained in (Sharing of Transmission Charges and

Losses), Regulation, 2010

10. NLDC: National Load Dispatch Centre, Power System Operation Corporation

11. RPC: Regional Power Committees as defined in the Electricity Act, 2003

12. ISGS:Inter State Generating Station as defined in the Indian Electricity Grid Code

13. AFC: Annual Fixed charges as determined by CERC upon petition filed by ISTS

licensees for Tariff determination