Point of connection Mechanism

1. Point of connection Mechanism

2. The Point of Connection (PoC) charge mechanism for transmission services provided by the Inter State Transmission System operators has been implemented in India with effect from July 1, 2011. Though the mechanism is based on strong engineering and economic principles, inputs by various stakeholders acted as an over lay on these core discipline fundamentals. This method was developed after long debates involving Regulators, Policy Makers, Transmission Service Providers, System Operator, Generating companies, Distribution Companies, Consultants, Power Traders and Power Exchanges. This overlay helped satisfy the important requirement of acceptability, while the core discipline fundamentals helped the mechanism satisfy efficiency - sensitivity of tariffs to distance, direction and quantum of flow - requirements of the tariff design mechanism. From State networks to Regional grids and finally to an Integrated National Network, the power systems in India has physically evolved over last two decades. This not only allowed better utilization of natural resources - fossil fuel, hydro, solar and wind - which are geographically dispersed but also allowed widening of the markets for various generators and customers. With large numbers of generators and customers - this vast expanse of the interconnected transmission grid has satisfied an ideal pre-condition for competitive electricity markets.

3. This physical development of power networks had to be supported by a commercial mechanism too. The pre existing postage stamp method of transmission pricing had served its purpose when electricity markets in India were Balkanized by the state boundaries. This had to change in view of the physical expansion of the grids and to realize the objectives of the Electricity Act 2003. Point of Connection (PoC) mechanism has changed the way markets will operate in India. Artificial transmission tariff based barriers (pancaking) to the geographic outreach by generators, distribution companies and open access customers have been mitigated by the new mechanism. Further, since the electricity grid now operates as an integrated network and is no longer a loose agglomerate of regional and state grids - inter -state power flows over state lines and the state generating stations use ISTS networks to convey their energy.

4. Markets for Power and conduct of various players in this market will be influenced by transmission grid and attendant commercial mechanisms. It is therefore critical to understand and appreciate the challenges and strategically employ alternative conducts to achieve and extend the benefits of the new transmission pricing mechanism. Certain key challenges are: The data requirements from various Designated ISTS Customers. o Generators will now be required to appropriately plan transmission access. o Some state-owned lines, which are being used for interstate transmission but currently not being paid for by ISTS users will now have to be considered on due representation from the state transmission utilities. Such grid integration is a blessing and would reflect the true spirit of the national grid. The scheduling and loss allocation mechanism will undergo a change The RPCs will be required to keep a record of transmission system usage based on SEM meter data at the ISTS interface points and this shall be the basis of billing any deviations from the approved transmission usage. Realignment of the existing BPTAs to the requirements of the new TSA will be a challenge.

5. Finally, the STU charges may still get pan-caked with the ISTS charges for inter-state OA transactions. In case a PoC mechanism is implemented at the state level also (for which each SERC may take a decision), we could have a truly integrated grid - where one pricing mechanism governs open access on the national grid. In this context it becomes pertinent for State Transmission Utilities, Distribution Companies, Generators, Traders, and consultants to understand the following fundamental attributes of the PoC mechanism: 1. Technical (both engineering and economic) underpinnings, 2. Development process - why were various assumptions and simplifications done, 3. Various agencies / committees involved and procurement of data for determination of PoC charges 4. Implications of transmission pricing on case-I bidding process 5. Implications of PoC mechanism on utilization and hence sharing of Intra State Transmission Networks 6. Regulatory Framework and the Concept of default mandatory transmission services agreement

6. The procedure aims to keep computation: • Simple • Non-Recursive • Loss Application on Regional Basis • In line with existing practice • No Pan caking. • Injection and withdrawal loss would be calculated for each zone. 1/6/2020

7. New Methodology • Point of Connection Losses • Independent of Contract Path • 50% PoC losses + 50% Uniform Losses • Uniform Loss component • Based on Regional Losses of last week • Moderation of Losses • Based on Actual Regional Lossesof last week and Losses based on studies 1/6/2020

8. PoC Loss Computation (1) Computation of changes in losses in the system due to incremental injection / withdrawal at each node. Loss Allocation Factor 1/6/2020

9. PoC Loss Computation (2) • Output of System Studies • MW Losses of each node • Loss Allocation Factor • Weighted average losses (%) for each region • Zonal Loss : Weighted Average of losses at each node • Moderation of Zonal Losses • One PoC Loss for each entity per day • Weighted average of peak and other than peak 1/6/2020

10. Loss Sharing Mechanism Software Provided by CERC Calculation of Previous week Losses from SEM Data Total Losses based on PoC Zonal Losses as Computed from Hybrid Method Moderation Of PoC Losses Total Losses (50% PoC+50%UC) 1/6/2020

11. Moderation of Losses (1) • Need of Moderation • Difference in actual and study scenarios • Correct computation of injection and drawal schedule of various utilities. • Scheduled losses to be closer to actual losses in the system so that system mismatch is avoided. • Minimizing the mismatch between UI payable and receivable • Moderation at regional Level • Moderation Factor = Actual Losses of previous week (Aact) ( In %) --------------------------------------------------- Regional Losses based on Studies (As)(In %) 1/6/2020

12. A*100 / (∑GNG ±(∑IIR ) • Regional Losses Based on Studies (As) • Weighted average losses of a region where A is Total MW losses of a region ∑GNG = Total Injection in a region ∑IIR = Inter Regional Exchange 1/6/2020

13. Application of Losses in Scheduling • Net PoC Loss = 50% Moderated PoC Loss + 50% Uniform Loss • Net PoC Loss to be applied on each regional entity • Drawee Entity to bear full losses for : • Long Term Transactions • Medium Term Transactions • Bilateral Transactions • Injecting Entity and Drawee Entity to share losses for: • Collective Transactions 1/6/2020

14. Procedure for Computation of PoC Transmission Charges 1.0 Outline 1.1 This Procedure is made in compliance with Regulation 15(1) (b) Central Electricity Regulatory Commission (Sharing of Inter State Transmission Charges and Losses) Regulations, 2010 herein after called “the Sharing Regulation” 1.2 This procedure provides the modalities followed by Implementing Agency for computation of PoC transmission charges. 2.0 Scope 2.1 This procedure will be applicable to the following categories of Designated ISTS Customers who use the ISTS: (a) Generating Stations/ Generating Units defined as regional entities in the IEGC, 2010 and any subsequent amendment made thereto. (b) ISTS Licensees and CTU and Deemed ISTS Licensees (c) Non-ISTS Licensees whose assets have been certified by RPCs as being used for inter-State transmission. (d) Any Bulk consumer directly connected with ISTS, and (e) Any other designated entity representing a physically connected entity as per clauses (a), (c) and (d) above.

15. 3.0 Data Acquisition and Basic Network Preparation 3.1 The basic network Data pertaining to the network elements shall be submitted by all DICs, inter-State transmission licensees, Deemed ISTS Licensees and non ISTS Licensees whose assets have been certified by RPCs as being used for interstate transmission, 4.0 Load Flows Studies on the Basic Network 5.0 Validation of Basic Network and Load Flow Results 6.0 Network Reduction 7.0 Computation of Point of Connection Transmission Charges 8.0 Zoning of Nodes 9.0 Determination of PoC Transmission Charges