Call for Flexibility: MoP issues draft note on merit order operation

MoP issues draft note on merit order operation

In recent years, the growth in electricity demand has not been commensurate with the generation capacity addition, which has led to a decline in the plant load factor (PLF) of thermal power plants (TPPs). While the Central Electricity Authority’s (CEA) Eighteenth Electric Power Survey had projected the power demand to grow at 8.5 per cent during 2012-17, it grew at only 4.9 per cent. The lack of demand is further exacerbated by the oor performance of distribution companies, which are plagued by high AT&C losses and resort to load-shedding rather than serving the latent demand due to poor recovery. This lack of sufficient offtake has, in turn, led to large capacities of power plants not getting sufficient loads to serve.

As a result, the PLF of coal-based plants has declined from over 73 per cent in 2011-12 to about 60 per cent in 2017-18. This has resulted in increased unrequisitioned power from coal-based TPPs during certain periods. Moreover, since power from central generating stations is allocated to beneficiaries within a region, often cheaper power from one station remains unrequisitioned, while costlier power from another station is despatched, which increases the average cost of power for discoms.

With the projected increase in renewable energy generation capacity, the PLFs of TPPs are expected to fall further. As per the CEA’s National Electricity Plan-Generation estimates, the PLF is expected to decline to 56.5 per cent by 2021-22 and then recover to about 60.5 per cent by 2026-27. As a result, the number of cheaper stations remaining unutilised may increase. The Ministry of Power (MoP) has, therefore, proposed that flexibility should be provided to a generation company to supply power from any of its TPPs against the schedule fixed for its plants, and the gains so realised can be shared with the beneficiaries. In this context, the MoP released a draft concept note, “Merit Order Operation – Flexibility in Generation and Scheduling of Thermal Power Stations to Reduce the Cost of Power to Consumers” in July 2018. Power Line presents the key takeaways from the draft note…

Need for flexibility in generation

The country’s power grid has achieved the ‘one nation, one grid, one frequency and one price (on most days on exchanges)’ objective and a robust constraint-free transmission system is in place. Therefore, it is time to move ahead from regional-level scheduling to national-level optimisation in generation scheduling. Currently, discoms/states tie up for supplying power from various generating stations and discoms generally requisition power from a station on a day-ahead basis considering its merit order among all the stations with which it has tie-ups.

However, at the national level, many stations which have a low energy charge rate (ECR) are not fully scheduled but the costlier stations are. The beneficiary discoms are not able to schedule power from such stations owing to the lack of power allocation/power purchase agreements (PPAs) with the respective generating company. Consequently, cheaper power remains unutilised while costlier power is consumed, resulting in an increase in the average cost of power for the country.

It is, therefore, important to allow merit order operation of generating stations at the national level, that is, cheaper stations of a generating company should despatch power up to its maximum capability before costlier stations are scheduled to meet the total power requirement by its beneficiaries.

Besides, reducing the overall cost of power, the proposed initiative will also help in the optimum utilisation of railway infrastructure. Typically, pithead power plants or TPPs located close to coal mines generate power at cheaper rates owing to lower coal transportation costs and inventory costs.  If national level optimisation in generation scheduling is carried out, pithead stations will be generating more power, leading to lesser requirement of coal movement for power plants. The move will ease the pressure on the existing railway infrastructure and lead to better utilisation of rakes.

 Proposed mechanism

The MoP has proposed a mechanism for allowing flexibility in generation, according to which the present system of station-wise allocation to beneficiary discoms will continue. The individual power station will declare its availability to the regional load despatch centre (RLDC) as per the existing practice. A replica of the availability will be maintained at the National Load Despatch Centre (NLDC) for interregional or national level scheduling.

The RLDC/NLDC will seek total requisition from all beneficiaries against their total entitlement from different stations of a generating company based on which RLDC/NLDC will issue the original schedule (R-0) for generating stations as is being done currently. The RLDC/NLDC will schedule the stations, subject to the transmission constraints, as per the merit order of the generating company such that the station having the least ECR is despatched to the maximum extent followed by the station with an ECR higher than the previous one, and so on. The RLDC/NLDC will complete such merit order operation-based generation bucket filling (GBF) scheduling subject to grid security constraints. Thereafter, the RLDC/NLDC will issue the actual despatch schedule (GBF-0) for the generating stations.

Due to this exercise, it is possible that the schedule of certain stations may be reduced to the technical minimum level and few others may be put in reserve shutdown. The generating station which could not be scheduled due to higher cost in the merit order will be required to be on reserve. Meanwhile, the other stations of a generating company will be required to generate electricity as per the finalised GBF-0 schedule. The stations and beneficiaries can revise their availability and requisition respectively in real time as is being done at present. Any such revision will be reflected in the GBF.

The schedule of beneficiaries under GBF may be treated as temporary re-allocation to facilitate long-term access and avoid extra charges under short-term open access. The energy accounting and billing methodology will remain the same as per the extant regulations.

The net benefit of cost savings due to national merit operation of its stations by a generating company will be shared with the beneficiaries in a 50:50 ratio. The gain, if any, during a month will be equally shared in proportion to the total drawal of power by beneficiaries from the generating company and the reconciliation would be done annually. The unrequisitioned surplus power can be procured by any beneficiary who agrees to pay for it. A supplementary PPA may be signed by the generating company and beneficiary/ies to enable this.

For the deviation settlement mechanism, the stations will be subjected to charges for deviation from the actual despatch schedule (GBF-0), as per the DSM regulations. Further, the part-load compensation will be billed based on the original schedule R-0 and as per the extant regulations.

Implementation plan

The national merit operation is expected to provide benefits of lower overall cost of power, railway infrastructure optimisation, greater efficiency, improvement of cheaper generating stations, and creation of higher pooled reserve capacity to address unforeseen grid contingencies.

However, implementation issues may arise if all generating stations, viz central, state and private, are brought under the ambit of national merit order despatch. The MoP has, therefore, proposed to start the scheme’s implementation with central generating stations. Based on the implementation experience and operational feedback from stakeholders, the proposed scheme would be gradually extended to other state and private sector generating stations as well.

Summing up

The MoP’s proposed scheme on the national level merit order operation of power plants for introducing flexibility in generation and scheduling seems a promising option to reduce the cost of power. The proposed scheme would help in improving the efficiency of TPPs, easing the burden of a high power purchase cost on the financially stressed discoms and result in lower tariffs for the end consumers. Notwithstanding the implementation challenges, the proposed scheme offers a win-win proposition for all stakeholders.