The document provides an overview of the power purchase process, detailing the roles of power generators, transmitters, and distributors in the electricity supply chain. It explains how electricity is generated, transmitted, and distributed, including the management of voltage levels through transformers and the operation of substations. Additionally, it outlines long-term and short-term power purchase agreements, including their components like capacity charges and energy charges, as well as relevant regulatory frameworks governing the power sector.

1. Company Name
Understanding of Power
Purchase
(An Overview)
Company Logo

2. There are three major player in power sector:
• Power Generators
• Power Transmitters
• Power Distributors (DISCOM)
Power Generation Power Transmission Power Distribution
Fuel is burnt to
produce heat
Heat boils water to
form Steam
Steam pressure
turns a turbine
Turbine turns an
electric generator
Generator
produces electricity
Transformer used to
“step up” the voltage of
electricity produced by
generator
The high voltage
electricity is transmitted
through a nationwide
interconnected grid of
transmission lines
At substations the
voltage is reduced using
“Step Down Transformers”
for distribution
Distribution lines
carries electricity to the
premises where it is
meant to be used
Transformer steps
down the voltage to suit
the need of the
installation for which
electricity will be used.
Premises are
equipped with meters to
record the consumption
of power.

3. Power Generation
Power generation is the process of generation electric (power) from
various resources such as water, coal, nuclear, solar, wind, natural gas
and other renewal energy (i.e. waste, by-products etc.). Let’s illustrate
through diagram:
Thermal Power
(Gas, liquid fuel, & Coal)
Hydro Power
Nuclear Renewal Energy
Sources**
**Renewable Energy Sources include Small Hydro Project, Biomass Gasifier, Biomass Power, and Urban & Industrial Waste Power.
Note: The various sources of power generation in India as of the year 2011 have been estimated by the Central Electricity Authority of India.
Share
%=10.80%
Share
%=2.56%
Share
%=20.75%
Share
%=65.86%

4. Power TransmitterPower Transmission
Power Distribution (DISCOM)
Electric power distribution is the final stage in the delivery of electric
power, it carries electricity from the transmission system to individual
consumers. Distribution substations connect to the transmission
system and lower the transmission voltage ranging from 2KV and
35KV with the use of transformers. Primary distribution lines carry this
medium voltage power to distribution transformers located near the
customer’s premises. Distribution transformers again lower the voltage
to the utilization voltage of household appliances and typically feed
several customers through secondary distribution lines at this voltage.
Power transmitter connects to nearby power sources (hydro or thermal
plants) and transmits their power to another power transmitter or
distributor companies through the electric transmission lines. It’s a
bulk movement of electricity from generating sites. The interconnected
lines which facilitate this movement are known as transmission
network.
Such as DTL

5. Process Walk-through

6. Process Walk-through
Electricity is generated at power plants and moves through a complex
system, sometimes called the grid, of electricity substations,
transformers and power lines that connect electricity producers and
consumers. Most local grids are interconnected for reliability and
commercial purposes, forming larger, more dependable networks that
enhance the coordination and planning of electricity supply.
The electricity power plants generate is delivered to customers over
transmission and distribution power lines. High-voltage transmission
lines, like those that hang between tall metal towers, carry electricity
over long distances to where it is needed. Higher voltage electricity is
more efficient and less expensive for long distance electricity
transmission. Lower voltage electricity is safer for use in homes and
businesses. Transformers at substations increase (step up) or reduce
(step down) voltages to adjust to the different stages of the journey from
the power plant on long distance transmission lines to distribution lines
that carry electricity to homes and businesses.
The combined transmission and distribution network is known as the
"power grid“ or "National Grid".

7. Process Walk-through
Most transmission lines are high-voltage three-phase alternating
current (AC), although single phase AC is sometimes used in railway
electrification systems. High-voltage direct-current (HVDC) technology
is used for greater efficiency over very long distances (typically
hundreds of miles). HVDC technology is also used in submarine power
cables (typically longer than 30 miles (50 km)), and in the interchange of
power between grids that are not mutually synchronized. HVDC links
are used to stabilize large power distribution networks where sudden
new loads, or blackouts, in one part of a network can result in
synchronization problems and cascading failures.
Electricity is transmitted at high voltages (115 kV or above) to reduce
the energy loss which occurs in long-distance transmission. Power is
usually transmitted through overhead power lines. Underground power
transmission has a significantly higher installation cost and greater
operational limitations, but reduced maintenance costs. Underground
transmission is sometimes used in urban areas or environmentally
sensitive locations.

8. Process Walk-through
Today, transmission-level voltages are usually considered to be 110 kV
and above. Lower voltages, such as 66 kV and 33 kV, are usually
considered sub-transmission voltages, but are occasionally used on
long lines with light loads. Voltages less than 33 kV are usually used
for distribution. Voltages above 765 kV are considered extra high
voltage and require different designs compared to equipment used at
lower voltages.
The transition from transmission to distribution happens in a
power substation, which has the following functions:
Circuit breakers and switches enable the substation to be disconnected
from the transmission grid or for distribution lines to be disconnected.
Transformers step down transmission voltages, 35kV or more, down to
primary distribution voltages. These are medium voltage circuits, usually
600-35,000 V.
From the transformer, power goes to the busbar that can split the
distribution power off in multiple directions. The bus distributes power to
distribution lines, which fan out to customers.

9. Glossary
Abbr. Expansion of Abbreviations (A brief description)
ATS Associated Transmission System
ABT Availability Based Tariff (ABT) is a frequency based pricing mechanism applicable
in India for unscheduled electric power transactions. The ABT falls under electricity
market mechanisms to charge and regulate power to achieve short term and long
term network stability as well as incentives and dis-incentives to grid participants
against deviations in committed supplies as the case may be
Banking of
Power
It is the process under which a generating plant supply power to the grid not with
intention of selling it to either a third party or to a licensee but with the intention
of exercising his eligibility to draw back this power from the grid
Busbar A Metallic strip or bar to which outgoing feeders are connected
Co-
generation
The process in which more than one form of energy (such as steam and
electricity) are produced in a sequential manner.
CTU Central Transmission Utility as notified as GOI u/s 38 of Electricity Act, 2003
CERC Central Electricity Regulatory Commission, a quasi Judicial body as defined u/s 76 of
Electricity Act, 2003
DSGC The Delhi State Grid Code
DISCOM Entities engaged in distribution of electricity against the license granted by DERC or
deemed licensee as per the statutory authorization
Electric
grid
An electrical grid is an interconnected network for delivering electricity from suppliers
to consumers. It consists of generating stations that produce electrical power, high
voltage transmission lines that carry power from distant sources to demand centres,
and distribution lines that connect individual customers.

10. Glossary
Abbr. Expansion of Abbreviations (A brief description)
Floor Price Minimum Price determined by CERC for RE Certificate
Grid The high voltage backbone system of inter-connected transmission lines, sub-
stations and generating plants
Open
Access
Non-discriminatory provision for use of transmission lines/distribution system
/ associated facilities with such lines or system by any licensee /consumer/
person engaged in generation in accordance with the regulations specified by
the appropriate commission
O & M Operation & Maintenance
Renewable
Energy
Sources
Renewable sources such as Small Hydro, Wind, Solar including its integration
with combined cycle, biomass, bio fuel cogeneration, urban/municipal waste
and other such sources as approved by the MNRE
Substation Facility/ equipment that switches, changes, or regulates electric Voltage
Switchyard Area holding power transformers and related switchgear, circuit breakers etc.
STU State Transmission Utility
Tariff Schedule of charges for generation, transmission, wheeling and supply of
electricity together with terms and conditions for application thereof.
Transmissi
on
Charges
The charges payable by renewable energy sources for the use of transmission
system
Wheeling
Charges
Operation whereby distribution system and associated facilities of transmission
licensee /distribution licensee are used by another person on payment basis to
be determined under section 62 of Electricity Act 2003

11. Various Unit of Measurements
UOM Description
V Volt
kV Kilo volt
kVA Kilo volt-Ampere
kVARh Reactive power in Kilo volt- Ampere
kW Kilowatt
kWh Kilowatt-hour
kWp Kilowatt peak
MW Megawatt
GW Gigawatt
TW Terawatt
U Unit (of Power)
MuS Millions of Units
Hz Grid frequency
1 kilowatt (kw) = 1,000 watts
1 megawatt (mw) = 1,000,000 watts
1 gigawatt (gw) = 1,000,000,000 watts
1 terawatt (tw) = 1,000,000,000,000 watts
1 kilo volt (kv) = 1,000 volts
1 volt-ampere (VA) = 1,000 Kilo volt-ampere
Volt – the basic unit of electromotive force in the SI and MKS systems, equal to the electromotive force, or
difference in potential, that causes a current of one ampere to flow through a conductor having a resistance of
one ohm.
Watt – the basic unit of electric, mechanical, or thermal power in the SI and MKS systems, equal to one joule per
second or 10 ergs per second (of a horsepower): for electric power it is equal to one volt-ampere.
Amp – an ampere is the unit for measuring electricity. The accepted standard unit used for measuring how fast
an electric current flows is an example of an ampere.
kWh – a unit of electric energy, measured in one kilowatt or one thousand watts of power produced or
consumed over a period of one hour.
Electric current in a wire is something like water current in a pipe.
The amount of electricity passing through the wire per second is measured
in ampere (A).
The "pressure" pushing the electricity along the wire is measured in Volt
(V). For example, electricity running in the cables in your house is 240 volts.
The amount of electrical energy used in homes, offices, etc. is measured
by an electricity meter in kilowatt-hours.

12. Applicable Law & Regulation
Applicable Government Policies and Rules:
National Electricity Policy, 2005
National Tariff Policy, 2006
Integrated Energy Policy, 2006
Hydro Power Policy, 2008
Rural Electrification Policy
National Solar Mission 2010
Mega Power Policy, 1995
Legal and Regulatory Framework in Power Sector:
Electricity Regulatory Commissions Act, 1998
Electricity Act, 2003
Central Electricity Authority Regulations, 2006
State Electricity Regulatory Authority Regulations
Various Load Dispatch Centre Rules (Such as NLDC, RLDC & SLDC)
Other Authorities
Central Government
State Government
Central Electricity Authority (CEA)
Central Transmission Utilities (CTU) as notified by Central Govt.
State Transmission Utilities (STU) as notified by State Govt.
Regional Power Committees
Bureau of Energy Efficiency (BEE)
Indian Electricity Grid Code

13. Media Corner
India
becomes
the
exporter of
electricity
for the first
time…CEA
States have
to procure a
certain
portion of
their power
requirement
s from
renewal
sources.
Most states
are lagging
behind in
meeting
their solar
renewal
purchase
obligations.
Discoms
cut
revenue
losses
under
UDAY
Power
generation
cost in
Delhi
doubles in
five years.
Banks
may get
Rs.10K-Cr
relief for
troubled
power
loans
Energy
efficiency
scheme
leads to
Rs.37,685
Cr.
savings for
the
country
Solar
energy hits
10 billions
units for the
first time in
Jan-17…
CEA.

14. Process of recording Power Purchase Cost
(PPC)
- Bill verified technically by Power Management Group
- Invoice verified by Account Department
- Recording of transactions
- Preparation of MIS & Data for various stakeholders

15. Power Purchase Process
There are major two type of power purchase:
 Long Term Power Purchase
 Short Term Power Purchase
Further Short Term Power purchase can be categorized into:
 Banking Arrangement
 Bilateral Purchase
Long Term Power Purchase
A long term power purchase is pre-established power purchase
agreement (PPA), or electricity power agreement which carries a
contract between two parties, one which generates electricity (the
seller) and one which is looking to purchase electricity (the buyer). The
PPA defines all of the commercial terms for the sale of electricity
between the two parties, including when the project will begin
commercial operation, schedule for delivery of electricity, penalties
for under delivery, payment terms, and termination. A PPA is the
principal agreement that defines the revenue and credit quality of a
generating project and is thus a key instrument of project finance.

16. Power Purchase Process
Factor of Long Term Power Purchase
Fixed Cost
Variable
Cost
Incentives
Other
Charges
- Capacity Charges
- Interest during
construction (IDC)
- Incidental
expenditure during
construction (IEDC)
-Return of Equity
(ROE)
- O& M
- Base Energy
Charges (BEC)
- EC Adjustment
- Fuel Cost
- Water/ Pollution
Cess
- Income Tax
- RLDC & Other
Charges

17. Power Purchase Process
A. Computation of Capacity Charges
Capacity Computation (AFC /12)(PAF/ NAPAF)*=
Annual Fixed
Cost specified
by…..
Plant
Availability
Factor (%) as
per REA
Normative
Annual Plant
Availability Factor
(%) as per CERC
norms
* Subject to AFC of cumulative months. Further, denomination will change as per month(s).
Change
every
month
Fixed
Capacity Charge (Monthly) = Capacity Charge X Cum. Weighted Avg.
Entitlement %

18. Power Purchase Process
Plant Availability Factor (PAF) Monthly/Annual
PAFM or PAFY 10000 X Summation DCi /{N X IC X (100- AUX)} %=
DCi = Avg. Declared Capacity (in ex-bus MW) for ist day of the period
IC = Installed Capacity (in MW) of the generating station
N = Number of days during the period
AUX = Normative Auxiliary energy consumption in percentage

19. Power Purchase Process
B. Computation of Energy Charges
(For Coal based & lignite fire stations)
The energy charge shall cover the primary and secondary fuel cost
and limestone consumption cost (where applicable) and shall be
payable by every beneficiary for the total energy scheduled to be
supplied to such beneficiary during the calendar month on ex-power
plant basis, at the energy charge rate of the month (with fuel and
limestone price adjustment).
Total energy charge payable to the generating company for a month
shall be:
Energy Charge rate (ECR) in Rs/kWh X Scheduled energy ex-bus for
the month in kWh
Now,
ECR = {( GHR – SFC X CVSF) X LPPF/ CVPF + SFC X LPSFi + LC X LPL}
X 100/ (100-AUX)

20. Power Purchase Process
Where,
GHR = Gross station heat rate in kCal per kWh
SFC = Normative Specified fuel oil consumption in ml per kWh
CVSF= Calorific value of secondary fuel in kCal per ml.
LPPF = Weighted average landed price of primary fuel in Rs per Kg./per
ltr. or as per standard cubic meter as applicable
CVPF= Weighted average gross calorific value of coal as received in
kCal per Kg (for coal based station)
SFC = Normative Specified fuel oil consumption in ml per kWh
LPSFi = Weighted average landed price of secondary fuel in Rs per ml
during the month
LC = Normative limestone consumption in kg per kWh
LPL = Weighted Average landed price of limestone in Rs/Kg.
AUX = Normative auxiliary energy charge consumption in percentage

21. Power Purchase Process
C. Return on Equity:
Return on equity shall be computed at the base rate of:
 15.50% for thermal generating station, transmission system
including communication system and run of the river hydro generating
station,
 16.50% for storage type hydro generating station including pumped
storage hydro and run of river generating station with pondage.
Additional return will be provided if project is completed within the
timeline of the project commissioned on or after 1st
April-14.
Further, base rate of return on equity shall be grossed up (regulation 24)
with the effective tax rate of the respective financial year .
Effective tax rate (t) shall be based on normal provision of income tax or
MAT as the case may be, tax paid by the generating company or
transmission licensee.
Rate of pre-tax return on equity = Base Rate (15.5% or 16.5%) / (1-t)

22. Power Purchase Process
D. Interest on Loan Capital:
As per Regulation 19, gross normative loan shall be taken for
calculation of interest on loan and that normative loan outstanding as
on 01.04.2014 shall be worked out by deducting the cumulative
repayment as admitted by the commission upto 31.03.214 from the
gross normative loan.
The rate of interest shall be weighted average rate of interest
calculation on the basis of actual loan portfolio after providing
appropriate accounting adjustment for interest capitalized.
Interest on Loan = Normative Average Loan X Weighted average rate
of interest
E. Depreciation:
Depreciation shall be computed from the date of commercial operation of a
generating station or unit thereof or transmission system including
communication system.
The value base for the purpose of depreciation shall be the capital cost of
asset admitted by the commission. Salvage value of the assets shall be
considered as 10% and depreciation shall be allowed upto maximum of 90%
of the capital cost of the assets except in case of hydro generating station.

23. Power Purchase Process
E. Depreciation (continue…):
Depreciation shall be calculated annually based on Straight Line
Method and at the rate specified by CERC regulation.
F. Interest on Working Capital:
For Open Cycle Gas Turbine/Combined Cycle thermal generating Station)
The working capital shall cover:
(i)Fuel Cost for 30 days corresponding to the normative plant
availability factor,
(ii)Liquid fuel stock for 15 days
(iii) Maintenance spares @ 30% of operation and maintenance
expenses (Regulation 29)
(iv) Receivables equivalent to 2 months of capacity charge and
energy charge for sale of electricity calculated on normative plant
availability factor
(v)Operation & maintenance expenses for 1 month
Rate of interest on working capital shall be on normative basis and
shall be considered as the Bank Rate as on 01.04.2014 or 1st
April
during the tariff period 2014-19 whichever is later.

24. Power Purchase Process
G. Operation and Maintenance Expenses:
Operation & Maintenance expenses is specified in CERC regulation.
For instances; Generating Stations based on Coal rejects:
Year O & M Exps. (Rs in Lakh/MW)
2014-15 29.10
2015-16 30.94
2016-17 32.88
2017-18 34.95
2018-19 37.15
Note:
The above point C to G is components of annual fixed cost (AFC). i.e.
(i)Return on equity
(ii)Interest on loan capital
(iii) Depreciation
(iv) Interest on working capital and
(v) Operation & Maintenance Expenses

25. Power Purchase Process
Short Term Power Purchase
Bulk electric power supply in India is mainly tied in long-term contracts.
The DISCOMs who have the obligation to provide electricity to their
consumers mainly rely on supplies from these long-term contracts.
However, to meet the requirements of electric supply in case of any
shortage, it is fulfilled through purchase of short term. Here short term
refers to the contracts less than one year for the following trades:
(a)Electricity traded under bilateral transactions through inter-state
trading licensees
(b)Electricity traded among distribution companies
(c)Electricity traded through Power Exchange (i.e. IEX & PXIL)
(d)Electricity transacted through Deviation Settlement Mechanism (DSM)