Estimation of Unit Cost of Electricity-Final_Dr. T.C. Kandpal

7/30/2019 Estimation of Unit Cost of Electricity-Final_Dr. T.C. Kandpal

1/32

Estimation of Unit Cost of Electricity for

Renewable Energy Based Power Generation

Tara C. Kandpal

Centre for Energy StudiesIndian Institute of Technology Delhi

Hauz Khas, New Delhi - 110016


2/32

Measures of Financial/Economic Performance

Unit Cost of Energy (Rs/MJ or Rs/kWh)

Unit cost of Energy =

annualized capital cost + annual cost

of operation, repair and maintenanceannual amount of energy saved/produced

Annualized ca ital cost = Ca ital cost * Ca ital Recover Factor

Capital Recovery Factor (CRF): A factor to equally distribute a

single amount (at present) over a pre-

specified period in future with time

value of money taken into account

Pre-specified period useful life (n)

Time value of money discount

rate (d)

n

n

d(1+d)CRF

(1+d) - 1)

=


3/32

PV POWER

50 kWp System with capital cost of Rs. 7500000

Annual O&M cost = 2% of capital cost (m = 0.02)

Module: cost = 50%, useful life = 20 years

Battery: cost = 20%., useful life = 07 years

Electronics and others: cost = 30%, useful life = 15 years

Average daily output = 150 kWh/dayCRF (0.05, 20) = 0.08024

CRF (0.05, 07) = 0.17282

CRF (0.05, 15) = 0.09634

Total annual cost = [(0.08204*0.5 + 0.17282*0.2 +0.09634*0.3 + 0.02)*7500000]

= 926995

Unit cost of electricity = 926995/(150*365)

= Rs. 16.93/kWh


4/32

PV POWER

Total annual cost = (CRF + m) C0

Rs/Wp Unit Cost(Rs/kWh)

.

150 16.62

200 22.16

250 27.70


5/32

Capital cost : Rs. 7500000

Discount rate (fraction)

0.05 0.10 0.15

Installed Capacity (W) 5000

Energy Output kWh/day 150

% Modules in capital cost 40

% Batteries in capital cost 15

% Conv/reg. in capital cost 15

% Other in capital cost 30

Depreciation period modules:yrs 20

Depreciation period batteries:yrs 7

Depreciation period conv/reg:yrs 15

Depreciation period other: years 15

PV POWER

Energy Unit Cost

Output of Electricity(kWh/day) (Rs. /kWh)

100 24.93.

Maintenance cost in % cap. cost 1

Calculated annual costs

Module depreciation 240728 352379 479284

Battery depreciation 194422 231081 270405

Conv/reg. depreciation 108385 147908 192394

Other depreciation 216770 295816 384788

Total depreciation 760305 1027184 1326872

Labor + overhead 75000 75000 75000

Maintenance 75000 75000 75000

Total annual costs 910305 1177184 1476272

Unit cost (Rs. / kWh) 16. 62 22 27

n

n

d(1+d)CRF

(1+d) - 1)

=

.

200 12.47

250 09.98

(discount rate = 0.05)


6/32

A simplified approach for estimating average value of unit cost of electricity of wind

power plant

Capital cost: Rs 5 crores/MW

Useful life: 20 years

CUF: 20%

Annual cost of O&M: 1.25% of capital costDebt to equity ratio: 70:30

Return on equity: 16%

Interest on debt: 12%

* *

Unit Cost of Electricity (WIND POWER)

. . . .

= 0.132 i.e. 13.2%


7/32

With time (during useful life of the power plant)

Cost of operation and maintenance may increase

Interest payments on the debt as well as the principal amount alsodecreases

ESTIMATING UNIT COST OF ELECTRICITY FOR

RENEWABLE ENERGY BASED POWER PLANTS

The return on equity may also be revised from time to time

Interest on working capital may also change

Depreciation benefits also change depending upon the depreciationschedule


8/32

The annual electricity generation may also vary due to;

Resource availability (year to year variation not considered)

Performance deration

ESTIMATING UNIT COST OF ELECTRICITY FOR

RENEWABLE ENERGY BASED POWER PLANTS

Need to estimate for each year and study the time variation of unit costof electricity during the useful life


9/32

UNIT COST OF ELECTRICITY

UCE

ANNUAL ELECTRICITYGENERATION ANNUAL COST OFGENERATION

O&M DEBT

NOMINALCAPACITY

CUF

AUXILIARYCONSUMPTION

FACTOR COST

DEPRECIATION

REPAYMENT

INTEREST ONWORKINGCAPITAL

RETURNON EQUITY

INSURANCE

INCOMETAX


10/32

DESIGNPARAMETERS

OPERATIONALPARAMETERS

ECONOMICPARAMETERS

Nominal Capacity

Capacity UtilizationFactor

Deration per Annum

Auxiliary Consumption

Tariff Period

Capital CostDebt to Equity RatioDebt Interest Rate

Debt Repayment Period

DEFINE (KNOWN VALUES OF) DESIGN, OPERATIONAL

AND ECONOMIC PARAMETERS

Discount RateIncome Tax RateDepreciation Rate

Insurance

O&M CostInterest on Working

Capital

Life of Power Plant


11/32

ESTIMATION OF ANNUAL ELECTRICITY GENERATION

Estimate annual electricity generation (MWh) =(nominal capacity in MW)*(Capacity Utilization factor;CUF)*(hours in a year)*(deration factor in jth year; DFj)

Hours in a year = 8760 hours (=365*24)

Deration factor; DFj = (1-ADR)j-1

where,

ADR: Annual Deration Rate

j: Year varies from 1 to n (useful life)


12/32

ESTIMATION OF WORKING CAPITAL

S.No. Item Value1 O&M charges for 1 month

2 Maintenance spare (% of O&M expenses) 15%

3 Receivables for 1.5 months


13/32

Amount of loan = (debt fraction)*(capital cost)

Loan repayment period = Tlr years

Rate of interest on loan = Iloan

ESTIMATION OF LOAN REPAYMENT AMOUNT


14/32

Amount of equity = (equity factor)*(capital cost)

Rate of return on equity in jth year = Er,j

(in special cases Er,j = Er1 for j = 1 to pEr,j = Er2 for j = P+1 to n

ANNUAL EXPENDITURE ON PAYMENT OF RETURN ON

EQUITY

Annual expenditure (jth year) on payment of return on equity= (amount of equity)*(Er,j)


15/32

Capital cost = CoSalvage value = S

Depreciation period = TdpTotal amount to be depreciated = (Co - S)

Different depreciation methods include:

CALCULATION OF ANNUAL AMOUNT OF

DEPRECIATION

(ii) Declining balance method of depreciation

(iii) Modified accelerated cost recovery system (MACRS)

(iv) Accelerated depreciation (e.g. 80% of capital cost in 1st

year and 20% of capital cost in 2nd year)


16/32

AOM cost on the 1st year = (faom*Co)

or

= (AOM cost per MW)*(Rated capacity)

Annual rate of escalation of AOM cost = eaom th * -1

ANNUAL OPERATION AND MAINTENANCE (AOM)

COST

1 - aom


17/32

Income tax = (income tax rate)*(annual benefits as per provision of thecompanies act)

or= (MAT rate)*(return on equity)

A company is liable to pay tax on the income computed in accordance with theprovisions of the income tax Act, but the profit and loss account of the company isprepared as per provisions of the Companies Act.

CALCULATION OF INCOME TAX AND INSURANCE

There are large number of companies who book profits as per their profit and lossaccount but are not paying any tax because income computed as per provisions ofthe income tax act was either nil or negative or insignificant.

In such case, although the companies are showing book profits and declaring

dividends to the shareholders, they are not paying any income tax. These companiesare popularly known as Zero Tax companies. In order to bring such companies underthe income tax act, Minimum Alternative Tax (MAT) rate is introduced under which acompany has to pay the income tax on return on equity at the MAT rate.

Insurance in jth year is the certain percentage of jth year depreciation cost.


18/32

ASSUMPTIONS

S. No. Assumption Parameter Parameter Details UnitBase Case

(CSP)Generic

Case

1

Power

GenerationCapacity

Installed Power Generation Capacity MW 1 1

CUF % 24.00% 24.0%

Deration p.a. % 0.25% 0.25%

Auxiliary Consumption % 6.50% 6.50%

Tariff Period Years 25 25Life of Power Plant Years 25 25

2 Project Cost

Capital Cost/MW inc Land,Trans &Connectivity charges Rs Lacs/MW 1400 1400

Project Cost Power Plant Cost Rs Lacs 1400 1400

Tranmssion line Cost Rs Lacs/MW 0 0

ASSUMPTIONS FOR CALCULATION OF UCE FOR

SOLAR THERMAL POWER PLANT IN RAJASTHAN (INDIA)

Connectivity Charges Rs Lacs/MW 0 0

3Sources ofFund

Debt: EquityDebt % 70.00% 70%

Equity % 30.00% 30%

Total Debt Amount Rs Lacs 980 980

Total Equity Amout Rs Lacs 420 420

Funding Options-1(Domestic Loan Source-

1) Loan Amount Rs Lacs 980 980Moratorium Period years 0 0

Repayment Period(incld Moratorium) years 12 12

Intrest Rate % 12.75% 12.75%

Funding Options-2 (Equity Finance ) Equity amount Rs Lacs 420 420

Return on Equity for first 10 yrs % p.a 16.00% 16.00%Return on Equity from 11th yr onwards % p.a 16.00% 16.00%

Discount Rate (equiv. to WACC) 13.73% 13.7%


19/32


SOLAR THERMAL POWER PLANT IN RAJASTHAN (INDIA)

S. No. Assumption Parameter Parameter Details Unit Base Case(CSP)

GenericCase

4

Financial

Assumptions Fiscal Assumptions Income Tax % 30.90%30.90%

MAT Rate (for yr-1) % 19.93% 19.93%

MAT Rate (for yr-2 to yr-10) % 18.54%18.54%

80 IA benefits Yes/No Yes Yes

Depreciation Depreciation Rate(upto 12-yrs) % 5.28% 5.28%

Depreciation Rate(after 12-yrs) % 2.05% 2.05%

Years for 5.28% SLM rate 12 12

5WorkingCapital For Fixed Charges

O&M Charges Months 1 1

Maintenance Spare (% of O&M exepenses) 15.00% 15%

Receivables for Debtors Months 1.5 1.5

Intrest On WorkingCapital % 11.75% 11.75%

6Operation &Maintenance power plant Base year value Lakhs 15.00 15.00

Insurance % of depreciated capital cost % 0.30% 0.30%

Total O & M ExpensesEscalation % 5.72% 5.72%


20/32

MODEL CALCULATION OF UCE FOR SOLAR THERMAL

POWER PLANT IN RAJASTHAN (INDIA)

Units Generation Unit Year---> 1 2

Aux Consumption % 6.50% 6.50%

Deration factor % 1.000 1.000

Installed Capacity MW 1 1

Generation MU 1.97 1.97

Cost of generation Unit Year---> 1 2

O&M Expenses Rs Lacs 19.20 19.84

10 11 12 13 14

6.50% 6.50% 6.50% 6.50% 6.50%

0.985 0.983 0.980 0.978 0.975

1 1 1 1 1

1.94 1.93 1.93 1.92 1.92

10 11 12 13 14

26.95 28.14 29.42 30.78 32.37

Depreciation Rs Lacs. .

Interest on termloan Rs Lacs

119.74 109.33

Interest on workingCapital Rs Lacs

4.84 4.70

Return on Equity Rs Lacs83.93 82.49

Total Cost ofgeneration Rs Lacs 301.63 290.28

Per unit Cost ofgeneration Rs/kWh

15.34 14.77

. . . . .

26.03 15.62 5.21 0.00 0.00

3.81 3.93 3.84 3.15 3.22

82.49 97.25 97.25 97.25 97.25

213.21 218.86 209.63 159.87 161.52

11.01 11.33 10.88 8.32 8.43


21/32

CALCULATION OF WORKING CAPITAL

Particular Unit Year---> 1 2 3 4 5 6 7 8 9 10 11

O&M expense for

power plant Rs Lakh 1.25 1.32 1.40 1.48 1.56 1.65 1.75 1.85 1.95 2.06 2.18

Receivables Rs Lakh 37.70 36.29 35.05 33.83 32.61 31.40 30.20 29.01 27.83 26.65 27.36

Maintenance Spares Rs Lakh 2.25 2.38 2.51 2.66 2.81 2.97 3.14 3.32 3.51 3.71 3.92

Total Working Capital Rs Lakh 41.20 39.99 38.97 37.97 36.99 36.03 35.09 34.18 33.29 32.42 33.46

Interest Rate % 11.75%

Interest on WorkingCapital Rs Lakh 4.84 4.70 4.58 4.46 4.35 4.23 4.12 4.02 3.91 3.81 3.93


22/32


PV POWER PLANT IN RAJASTHAN (INDIA)

S. No. Assumption Parameter Parameter Details Unit Base Case(SPV)

GenericCase

1PowerGeneration Capacity Installed Power Generation Capacity MW 1 1

CUF % 20.50% 20.50%

Deration p.a. after 2nd year % 0.50% 0.50%

Auxiliary Consumption % 0.25% 0.25%

Tariff Period Years 25 25

Life of Power Plant Years 25 25

2Project Cost Capital Cost/MW inc Land,Trans &Connectivity chargesRsLacs/MW 1600 1600


Tranmssion line Cost

Rs

Lacs/MW 0 0

Connectivity ChargesRsLacs/MW 0 0

3Sources ofFund Debt: Equity Debt % 70.00% 70%

Equity % 30.00% 30%


Total Equity Amout Rs Lacs 480 480Funding Options-1(Domestic LoanSource-1) Loan Amount Rs Lacs 1120 1120

Moratorium Period years 0 0


Intrest Rate % 12.75% 12.75%


Return on Equity for first 10 yrs % p.a 16.00% 16.00%


23/32



S. No. Assumption Parameter Parameter Details Unit Base Case(SPV)

GenericCase

4FinancialAssumptions Fiscal Assumptions Income Tax % 30.90%

30.90%

MAT Rate (for yr-1) % 19.93% 19.93%

MAT Rate (for yr-2 ) % 18.54% 18.54%

MAT Rate (for yr-2 to yr-10) 18.54% 18.54%80 IA benefits Yes/No Yes Yes

Accelerated Depreciation(for 20 years) Rs/kWh 0.00 0.00



.



Maintenance Spare (% of O&M expenses) 15.00% 15%

Receivables forDebtors Months 1.5 1.5


6Operation &Maintenance power plant Rs per MW Rs Lacs 9.51 9.51


Total O & M Expenses

Escalation % 5.72% 5.72%


24/32

MODEL CALCULATION OF UCE FOR


Units Generation Unit Year---> 1 2Aux Consumption % 0.25% 0.25%


Deration factor % 0.50% 1 1.000



O&M Expenses Rs Lakh 14.31 14.61

Depreciation Rs Lakh 84.48 84.48

Interest on term loan Rs Lakh 136.85 124.95

Interest on workingCa ital Rs Lakh

5.21 5.02

10 11 12 13 140.25% 0.25% 0.25% 0.25% 0.25%

1 1 1 1 1

0.961 0.956 0.951 0.946 0.942

1.72 1.71 1.70 1.70 1.69

10 11 12 13 14

18.22 18.86 19.56 20.31 21.27

84.48 84.48 84.48 32.79 32.79

29.75 17.85 5.95 0.00 0.00

3.82 3.93 3.78 2.96 3.01

24 250.25% 0.25%

1 1

0.896 0.891

1.60 1.60

24 25

34.88 36.73

32.79 32.79

0.00 0.00

3.62 3.70

Return on Equity Rs Lakh 95.92 94.28

Total Cost of

generation Rs Lakh336.77 323.34

Per unit Cost ofgeneration Rs/kWh

18.80 18.05

Levellised cost ofgeneration (Rs/kWh)(25 yrs) 15.32

94.28 111.14 111.14 111.14 111.14

230.54 236.26 224.91 167.20 168.21

13.40 13.80 13.20 9.86 9.97

111.14 111.14

182.42 184.36

11.37 11.55


25/32


(CSP)Generic

Case

1PowerGeneration Capacity Installed Power Generation Capacity MW 1 1

CUF % 80.00% 80.0%

Deration p.a. % 0.25% 0.25%

Auxiliary Consumption % 9.00% 9.00%Tariff Period Years 20 20

Life of Power Plant Years 20 20

2Project Cost Capital Cost/MW inc Land,Trans &Connectivity charges Rs Lacs/MW 500 500


Tranmssion line Cost Rs Lacs/MW 0 0


BIOMASS BASED POWER PLANT IN RAJASTHAN (INDIA)

Connectivity Charges Rs Lacs/MW 0 0

3Sources ofFund Debt: Equity Debt % 70.00% 70%

Equity % 30.00% 30%


Total Equity Amout Rs Lacs 150 150

Funding Options-1(Domestic Loan Source-

1) Loan Amount Rs Lacs 350 350Moratorium Period years 0 0


Intrest Rate % 12.00% 12.00%


Return on Equity for first 10 yrs % p.a 19.50% 19.50%Return on Equity from 11th yr onwards % p.a 19.50% 19.50%

Discount Rate (equiv. to WACC) 14.25% 14.3%


26/32




(CSP)Generic

Case

4

Financial

Assumptions Fiscal Assumptions Income Tax % 30.90%30.90%

MAT Rate (for yr-1) % 19.93% 19.93%

MAT Rate (for yr-2 to yr-10) % 18.54% 18.54%80 IA benefits Yes/No Yes Yes



.



Maintenance Spare (% of O&M exepenses) 25.00% 25%

Receivables for Debtors Months 2 2


6Operation &Maintenance power plant % of base capital cost % 19.13 19.13


Total O & M Expenses

Escalation % 5.00% 5.00%


27/32

MODEL CALCULATION OF UCE FOR


Units Generation Unit Year---> 1 2

Aux Consumption % 9.00% 9.00%

Deration factor % 1.000 1.000




O&M Expenses Rs Lakh 23.13 23.90

Depreciation Rs Lakh 22.50 22.50

Interest on term loan Rs Lakh 39.90 35.70

Interest on working Capital Rs Lakh 6.29 6.25

9 10 11 12

9.00% 9.00% 9.00% 9.00%

0.988 0.985 0.983 0.980

1 1 1 1

6.30 6.28 6.27 6.25

9 10 11 12

30.82 32.05 33.35 34.73

22.50 22.50 22.50 22.50

6.30 2.10 0.00 0.00

6.08 6.07 6.24 6.33

19 20

9.00% 9.00%

0.963 0.961

1 1

6.14 6.13

19 20

46.79 48.91

22.50 22.50

0.00 0.00

7.06 7.19

ue onsumpt on s a . .

Return on Equity Rs Lakh 36.53 35.91Total Cost of generation Rs Lakh 276.30 272.21

Per unit Cost of generationconsidering accelerateddepreciation

Rs/kWh 4.33 4.27

Levellised Tariff (Rs/kWh)

(25 yrs) 3.99

. . . .

35.91 35.91 42.33 42.33247.72 244.38 249.81 250.91

3.93 3.89 3.99 4.01

. .

42.33 42.33261.18 263.08

4.25 4.29


28/32

Thank you

Your Attention


29/32

Praticular UnitYear-

--> 1 2 3 4 5 6 7 8 9 10 11

Pre-tax ROE Rs Lakh 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20 67.20

CALCULATION OF RETURN ON EQUITY

Income tax componentfor Gross up Rs Lakh 16.73 15.29 15.29 15.29 15.29 15.29 15.29 15.29 15.29 15.29 30.05

ROE (Grossed up forI.Tax) Rs Lakh 83.93 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 82.49 97.25


30/32

Particular UnitYear--

->

1 2 3 4 5 6 7 8 9 10 11 12

OpeningBalance Rs Lakh

980.00 898 817 735 653 572 490 408 327 245 163 82

Repayment Rs Lakh 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67 81.67

LOAN AND INTEREST

Closing

Balance Rs Lakh 898 817 735 653 572 490 408 327 245 163.3 82 0

Interest Rs Lakh119.7

4 109.33 98.92 88.51 78.09 67.68 57.27 46.86 36.44 26.03 15.62 5.21


31/32

OpeningBalance 1400 1326.08 1252.16 1178.24 1104.32 1030.40 956.48 882.56 808.64 734.72 660.80 586.88 512.96

DEPRECIATION

Depreciation 73.92 73.92 73.92 73.92 73.92 73.92 73.92 73.92 73.92 73.92 73.92 73.92 28.69

ClosingBalance 1326.08 1252.16 1178.24 1104.32 1030.40 956.48 882.56 808.64 734.72 660.80 586.88 512.96 484.27


32/32

Particular UnitYear---

> 1 2 3 4 5 6 7 8 9 10

O&M expensefor power plant

RsLakh 15.00 15.86 16.77 17.72 18.74 19.81 20.94 22.14 23.41 24.75

OPERATION AND MAINTENANCE EXPENSES

Insurance

Charges

Rs

Lakh 4.20 3.98 3.76 3.53 3.31 3.09 2.87 2.65 2.43 2.20

Total O&Mexpense

RsLakh 19.20 19.84 20.52 21.26 22.05 22.90 23.81 24.79 25.83 26.95

Documents

Estimation of Unit Cost of Electricity-Final_Dr. T.C. Kandpal