New merit of power supply: Cost reduction for gencos, savings for discoms

India could soon have a new merit order of power supply across the country, which could potentially save Rs 2.5 crore a day for the states. Power System Operation Corporation (POSOCO) is running a pilot project with 57 thermal power projects to ensure round-the-clock availability of cheaper power and reducing outages. POSOCO is the grid manager of the country entrusted with scheduling and dispatching of power across the national grid.

The pilot that started last month has power units which are in the central pool. This includes all units of central government-owned behemoth NTPC and private interstate generating stations such as Tata Power Mundra Ultra Mega Power Plant (UMPP) and Reliance Power-promoted Sasan UMPP, which supply to more than one state.

Every state-owned distribution company (discom) sets its own merit order of dispatch of power. Discoms have multiple power purchase agreements with centrally-owned, state-owned, and private units. The merit order is based on availability and tariffs the state signs. Discoms source power from short-term markets as well.

To reduce the cost of electricity, the Ministry of Power in 2016 introduced a mechanism and monitoring portal called Merit Order Despatch of Electricity for Rejuvenation of Income and Transparency (MERIT). This entailed that states should prefer cheaper power first.

POSOCO has now developed a novel approach to take this forward. Supply from the selects units is being pooled for supply under the new Security Constrained Economic Dispatch (SCED). There are currently 167 units in the projects under the pilot with a total installed capacity of 55,000 megawatt.

SCED will rank units based on their fuel cost. Power from the lower fuel-cost units would be dispatched first, whenever any state demands power supply from the central pool.

Officials said this method would reap benefits as some of the older units of NTPC have zero fixed cost and in some cases, it is as low as Rs 1-2 per unit.

“Even if the transmission cost is added to it, the final tariff paid by the state would be lower than most of the contracts they have signed. This will also ensure power supply continuity,” said an NTPC executive.

For NTPC, it will be able to recover cost for its costlier units by supplying more from cheaper units. The benefit arising out of it will go to the discoms which will pay less than what it contracted for. The officials said the financially beleaguered discoms could potentially save Rs 800-1,000 crore annually through this model.

SCED will calculate the incremental or decremental power supply and cost for the same. This will be a separate pool which will be maintained by POSOCO during the pilot. 

POSOCO officials though pointed out that the monetary benefit would be decided by the Central Electricity Regulatory Commission after a six-month run of the pilot.

“There are benefits of power supply flexibility, outage reduction, and outage risk-sharing among generators through this model. It will lead to reduction in production cost of the generation companies as well,” said a POSOCO executive.

POSOCO has developed a new in-house programme to handle this new model. Its core scheduling software is embedded in the new system with new accounting structure and processes, said an executive.