Consideration of reactive energy in the tariff structure

International Journal of Electrical Engineering and Technology (IJEET), ISSN 0976 –
6545(Print), ISSN 0976 – 6553(Online) Volume 4, Issue 3, May - June (2013), © IAEME
220
CONSIDERATION OF REACTIVE ENERGY IN THE TARIFF
STRUCTURE
Prof. Dr.T.Ananthapadmanabha#1
, Parthasarathy L#2
#1
Professor, Department of Electrical & Electronics Engineering, The National Institute of
Engineering, Mysore, India
#2
Associate Professor, Department of Electrical & Electronics Engineering, ATME College
of Engineering, Mysore, India
ABSTRACT
A great many loads consume not only active but also reactive power. The electric
network itself both consumes and produces reactive power. Transmission and distribution of
electric power involve reactive power losses due to the series inductance of transformers,
overhead lines and underground cables. The generation of power also contains reactive
components. Hence it is important to monitor and control reactive power resources and
reactive power consuming elements to maintain proper voltages in the grid within safe and
secure limits [1]. In this deregulation era of power system operation, the reactive power
ancillary service is to be suitably remunerated by the transmission & distribution companies.
The allocation method throws light to discuss on the remuneration for the reactive power
ancillary service based on: reactive power relieved by the generators (during the process of
buying reactive power as ancillary service) and on the recovery of Lost Opportunity Cost
(LOC) of the generator [2].
It is indeed an obligation on transmission & distribution companies to recover the cost
spent on procuring reactive power ancillary service. This paper proposes a framework for the
consideration of the cost for reactive energy in the existing structure of active energy tariff
charged to domestic consumers by transmission & distribution companies.
Keywords: Cost of Active energy (Cp), Cost of Reactive energy (Cq), Grid Code,
Indian National Rupees (INR).
INTERNATIONAL JOURNAL OF ELECTRICAL ENGINEERING
& TECHNOLOGY (IJEET)
ISSN 0976 – 6545(Print)
ISSN 0976 – 6553(Online)
Volume 4, Issue 3, May - June (2013), pp. 220-229
© IAEME: www.iaeme.com/ijeet.asp
Journal Impact Factor (2013): 5.5028 (Calculated by GISI)
www.jifactor.com
IJEET
© I A E M E

221
I. INTRODUCTION
The Federal Energy Regulatory Commission (FERC), USA mentions that: The recent
history of reactive power pricing begins with the Commission’s Order No. 888, its Open
Access Rule, issued in April 1996. In that order, the Commission concluded that “reactive
supply and voltage control from generation sources” is one of six ancillary services that
transmission providers must include in an open access transmission tariff. The Commission
noted that there are two ways of supplying reactive power and controlling voltage: (1)
installing facilities as part of the transmission system and (2) using generation facilities. The
Commission concluded that the costs of the first would be recovered as part of the cost of
basic transmission service and, thus, would not be a separate ancillary service. The second
(using generation facilities) would be considered a separate ancillary service and must be
unbundled from basic transmission service [3].
The deregulation of electric power industry has progressed in the world. The
distribution companies serve as an agent to buy active and reactive powers from generating
companies and sell electric power to consumers. The duty of the distribution company in turn
is to provide a rational tariff structure for the power supply distributed by them to different
category of consumers in line with the rational tariff structure generated by generating
company under ABT mechanism.
The electric generating stations are aimed at structuring a rational tariff structure for
the power supply rendered from them to customers. The term Availability Based Tariff
(ABT), stands for this rational tariff structure for giving power supply to customers such as
transmission and distribution companies, on a contracted basis. The power plants have fixed
and variable costs. The fixed cost elements are interest on loan, return on equity,
depreciation, O&M expenses, insurance, taxes and interest on working capital. The variable
cost comprises of the fuel cost, i.e., coal and oil in case of thermal plants and nuclear fuel in
case of nuclear plants. In the Availability Tariff mechanism, the fixed and variable cost
components are treated separately. The payment of fixed cost to the generating company is
linked to availability of the plant, that is, its capability to deliver MWs on a day-by-day basis.
The total amount payable to the generating company over a year towards the fixed
cost depends on the average availability (MW delivering capability) of the plant over the
year. In case the average actually achieved over the year is higher than the specified norm for
plant availability, the generating company gets a higher payment. In case the average
availability achieved is lower, the payment is also lower hence the name ‘Availability Based
Tariff’. This is the first component of Availability Tariff, and is termed ‘capacity charge’.
The second component of Availability Tariff is the ‘energy charge’, which comprises
of the variable cost (i.e., fuel cost) of the power plant for generating energy as per the given
schedule for the day. It may specifically be noted that energy charge (at the specified plant-
specific rate) is not based on actual generation and plant output, but on scheduled generation.
In case there are deviations from the schedule (e.g., if a power plant delivers 600 MW while
it was scheduled to supply only 500 MW), the energy charge payment would still be for the
scheduled generation (500 MW), and the excess generation (100 MW) would get paid for at a
rate dependent on the system conditions prevailing at the time. If the grid has surplus power
at the time and frequency is above 50.0 cycles, the rate would be lower. If the excess
generation takes place at the time of generation shortage in the system (in which condition
the frequency would be below 50.0 cycles), the payment for extra generation would be at a
higher rate.

222
To recapitulate, the Indian version of Availability Tariff comprises of three
components: (a) capacity charge, towards reimbursement of the fixed cost of the plant, linked
to the plant's declared capacity to supply MWs, (b) energy charge, to reimburse the fuel cost
for scheduled generation, and (c) a payment for deviations from schedule, at a rate dependent
on system conditions. The last component would be negative (indicating a payment by the
generator for the deviation) in case the power plant is delivering less power than scheduled
[4].
Reactive power/voltage control plays an important role in maintaining secure
operation of power system and energy trading in power market, but the action has not been
reflected definitely in economy up to the present, which results in an high deviation between
value and price of reactive power. Reactive power needs to be provided locally, and hence,
the “worth” of one megavolt- ampere (MVAr) of reactive power is not the same everywhere
in the system. Thus, reactive power price should not be determined only based the cost
(investment cost or opportunity cost) like a real power market. In essence, reactive power
value measures the relative importance of the var sources. They relate to the system
configuration and operation conditions, location of each source etc, and have no direct
relationship with the cost of the sources. A var source could have a high cost yet have a low
value. In this case, it may not be profitable for the source to offer reactive support service.
Therefore, reactive power pricing methods need to take into account both offer prices and
location of the resource in order to offer a correct price signal to providers and ensure secure
operation of power system [5].
Thus for the Transmission & Distribution companies, there arises a need to charge for
reactive energy to cover up the cost of purchase that is arrived at, as mentioned in [5].
Presently some of the distribution companies in India have a tariff structure that attracts
charges only for active demand and active energy charges assuming unity power factor for
domestic loads. No provision is in place to charge for the violation of unity power factor. It is
an established fact that reactive demand arises for the violation of unity power factor which is
to be addressed rationally.
The normal operation of the distribution system demands a disciplined way of
consuming power by all the categories of the consumers. The word discipline can be
recognized as observing reference value of Power Factor, non- violating the KVA or KW
demand etc., The distribution company issues Grid Code such as: value for Power Factor,
KVA or KW demand on their tariff structure. This is aimed to ensure not to attract high
charges on a distribution company for unscheduled interchange under ABT mechanism.
Violating Grid Code by the consumers of the distribution company should be addressed to
cover the penalties for the company.
The distribution company in Karnataka State of India mentions that the billing is only
for active energy at unity power factor and the cost for the active demand is mentioned too.
The tariff structure to be framed by the company should consider the Grid Code issued by
them to consumers. Violation of the Grid Code by the consumers automatically should invite
a tariff structure that penalizes the consumer. This penalty should be structured such that it is
rational and economically compensates for active power and reactive energy purchase
agreement of the distribution company with generating company.
Rendering the demand to the consumer violating the Grid discipline is to be
considered as an extra ordinary service and certainly, the costs of these services should be
reflected in the penalty structure. The concern is how fairly the distribution company can
allocate the costs becomes an important issue. The Grid Code violation by the consumer is

223
mainly due arrival of the demand of reactive power which is confined to mainly local
consumption.
A fair and adequate method for fixing the costs may help the market participants
make appropriate and efficient investments for reactive power sources, which include static
capacitors, flexible ac transmission system (FACTS) devices, and synchronous condensers.
All of these can offer system operators more tools and can strengthen the system security.
This paper mainly discusses on presenting a hypothesis for the framing of a tariff
structure for domestic consumers that reflects the penalty charges for the consumers violating
grid discipline. On the other hand the tariff structure encourages those consumers who are
under the grid discipline. The mechanism shall allow more users to participate in the
observation of Grid Code while they draw their regular powers.
Power drawls violating Grid Code naturally demand additional reactive energy for
every ferrying of active energy. As for the matter of cost of active and reactive energy the
authors would like to treat only the consideration of reactive energy and its tariff fixation
during the violation of Grid Code which is the focus of this paper.
The authors will be concerned of fixing the price for reactive energy for all the
transactions of the consumer by the company. On the other hand the concern is on tagging
the reactive energy which is responsible for Grid Code violation by the consumer. Focus is on
to frame the tariff structure in line with ABT mechanism as: (a) capacity charge, towards
reimbursement of the fixed cost of the company for installing service to generate reactive
power, linked to the availability of the declared capacity to supply MVARs, (b) active energy
charge and reactive energy charge to reimburse the fuel cost for scheduled generation, and (c)
a payment for deviations from Grid Code power factor dependent on system conditions. [3].
II. GENERAL DEFINITION OF THE PROBLEM
Let us consider the distribution company selling power to all categories of the
consumers. The substations managed by the distribution company will have the knowledge of
the drawls of the distinguished consumers at different points of time in a routine day and also
on regional special days.
The tariff structure issued to the consumers mainly reflects fixed cost and variable
cost and thus the normal charges for active energy under Grid Code of say unity power
factor, and Active demand. The cost of active energy and Grid Codes stands as a reference
for our discussion on presenting the hypothesis for framing of a tariff structure that reflects
the penalty charges for the consumers violating grid discipline and encourages those
consumers who are under the grid discipline.
The node that violates the Grid Code of say unity power factor is the point of interest.
The node starts demanding reactive power while drawing the active demand. This newly
drawn reactive power is occupying the place of active demand. There is a violation of Grid
Code and demands the addressing of this reactive energy.
A criterion for the cost of reactive energy is needed to be developed that allow us to
price the cost of reactive energy. This stands similar to the component ‘c’ of ABT mechanism
for energy purchase of Transmission & Distribution company from generating plants.
Once the reactive energy is drawn in violation of grid code then the overall cost
having both fixed and running charges varies. A reference is derived from the data of
discipline of Grid Code and the existing tariff for active demand is used to arrive at the cost
of reactive power and hence reactive energy.

224
III. ANALYTICAL MODEL FOR EVALUATION
The following steps are used to arrive at the criterion to find the cost of reactive
energy using the existing tariff structure of Karnataka State is a two part tariff. The two part
tariff components are charges for active demand coming under fixed charges and charges for
active energy under running charges. Grid Code is derived from the available criteria for the
existing tariff structure. The Grid Code is: operating power factor used for billing (Unity
Power factor), charges for active demand, and average cost for active energy.
Practical distribution systems are too difficult and seldom to operate at unity power factor.
Majority of the consumers loads are designed for lagging power factor close to unity.
Therefore the consumer nodes are subjected to violation of the Grid Code of unity power
factor. Observing the operating power factor as unity appears to be subjective and not
definitely with the actual power system operating conditions.
Violation of power factor at any point on the distribution system should invite
charging the consumers through appropriate method of and should be discouraging the
consumers for such violation. Thus there exists a demand for a criterion to develop to charge
for any violation of power factor.
NOMENCLATURE
Pf1 Load Power factor
Pd Grid Code Active load demand
Qd Reactive demand arriving out of Grid
Code violation
S0 Grid Code KVA
S1 Load KVA arriving after violation of
Grid Code
Ca Average Cost per KW [INR/KW]
Cr Average Cost per KVAR [INR/KVAR]
Cost per Unit of Active Energy
[INR/KWh]
Cq Cost per Unit of Reactive Energy
[INR/KVARh]
Pe Active energy in KWh
Qe Reactive energy in KVARh
Qe_Pe Conventional ratio of reactive energy to
active energy
Qea_Pea Actual ratio of reactive energy to active
energy
Cfc Cost of fixed charges
Crc Total cost of running charges
Ct Total cost for Grid Code power factor
violation

225
The following steps are used to propose a new tariff structure for Grid Code violation by a
node:
i. The KW demand is nothing but KVA demand for a Grid Code of unity power factor.
ii. The KVAR demand arising out of change in Grid Code power factor can be found.
Where
iii. Increase in KVA demand is identified as a direct relationship for arrival of KVAR
demand.
iv. Cost for additional KVA demand which is considered directly proportional to KVAR
demand can be estimated on similar lines of cost for KW demand.
v. It is assumed that as per the Grid Code of unity power factor the demand of KVAR is
replacing the active demand and therefore the cost of active demand is used to arrive
at cost of reactive demand
vi. Cost for KVAR demand can be arrived using the following relation.
vii. This increase in KVAR demand is attributed to the fact of change in total fixed cost
as:
viii. For a given power factor the ratio of cost of active demand to reactive demand is:
ix. The cost of reactive energy can be estimated using the above relation ship

226
x. The reactive power content depends on the power factor violated from the reference
value, and therefore there exists the requirement of reactive energy for every unit of
active energy. The present conventional practice is to use:
xi. The total running cost component now can be reframed considering the services
rendered for reactive energy. Therefore
or
xii. Thus we find change in both fixed cost and running cost and the therefore the total
cost is fixed and running charges. This total cost that to be enforced on the customer
violating the Grid Code.
Step (x) of new tariff structure uses the common relationship of reactive energy for every unit
of active energy (conventional) that is supported by all relevant literatures at present. The
authors wish to place an actual ratio for reactive energy for every unit of active energy as
explained below.
The fundamental equation for instantaneous power after it is split up into instantaneous active
power and instantaneous reactive power the variation of them is shown in fig.1a & fig.1b
respectively.
Fig.1a
Fig.1b

227
The area under instantaneous reactive power for a period of 5ms for a supply
frequency of 50Hz gives active energy for the mentioned period and is obtained using the
following equation:
Also the area under instantaneous active power for a period of 5ms for a supply frequency of
50Hz gives active energy for the said period and is obtained using the following equation:
The ratio of actual reactive to active energy is given as:
Fig.2 shows the variation of ratio of reactive energy to active energy for both conventional
and actual value. The values obtained are used to find the cost of running charges.
It is seen that in fact the actual reactive energy to active energy ratio is of lower
values when compared to the conventional ratio of reactive energy to active energy for
variation in power factor. The running cost directly depends on this ratio.
0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Power Factor
Qe/Pe
Reactive energy per Active energy for different power factors
Conventional
Actual
Fig.2
IV COMPARISON AND DISCUSSIONS
To demonstrate the proposed method for the tariff structure for domestic loads that
are not maintain unity power factor, the information (Grid Code) available in the tariff
structure is used. Power factor as per Grid Code is Unity Power Factor (UPF), KVA demand
of the load is 3KW, because of UPF, average cost per active energy is INR3.84, Average

228
demand cost: INR31.66, and total active energy is 193units. These values slightly differ for
another domestic consumer.
Fig.3 shows the arrival of cost per KVAR (Cr) for UPF violation and its values for fall
in values of power factor from unity value. This Cr approaches to zero for UPF. The present
tariff structure allows only Ca to act as fixed charge for all power factor values. The proposed
tariff structure considers both Ca and cost due to changes in demand as variable charges.
0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1
0
5
10
15
20
25
30
35
Power Factor
INR
Cost of Active Demand & Cost of Reactive Demand versus Power factor
Cost per KVAr (Cr)
Average Cost per KW (Ca)
Fig.3
Fig.4 shows the arrival of cost per KVARh (Cq) for UPF violation and its values for
fall in values of power factor from unity value. This Cq approaches to zero for UPF. The
present tariff structure allows only Cp to act as variable charge for all values of power factor.
On the other hand the proposed tariff structure considers both Cq and Cp as variable charges.
0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1
0
0.5
1
1.5
2
2.5
3
3.5
4
Power Factor
INR/Unit
Cost of per unit Active Energy & Reactive Energy Versus Power factor
Cost of Active Energy/Unit (Cp)
Cost of Reactive Energy/Unit (Cq)
Fig.4
Fig.5 shows the fixed, variable and total cost for all values of power factor for the
present tariff structure of the distribution company for an active energy of 193 units. Also
seen is the arrival of fixed, variable and total cost as per our proposed tariff structure. These
cost values are obviously greater than the present costs.

229
0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1
0
200
400
600
800
1000
1200
1400
1600
1800
Proposed & Existing Charges Versus Power Factor
Power Factor
INRCharges
Proposed Total Cost (Ct)
Proposed running Cost (Crc)
Proposed fixed Cost (Cfc)
Existing fixed Cost
Existing Total Cost
Existing running Cost
Fig.5
V CONCLUSIONS
An adequate effort in a rational way is made to consider the reactive energy and its
cost in the tariff structure. A frame work is developed to bring them by considering the
information available in the present tariff structure. Violation of UPF Grid Code may
definitely invites additional penalties for seeking reactive power ancillary service for the
distribution companies from plant operators in the present tariff structure. Derivation of cost
for reactive energy certainly paves way for companies to introduce them for loads violating
UPF. Needless to say that the charges are more for loads not observing UPF. The charges for
loads with UPF go on as it is with the existing charges. Thus the proposed method
encourages loads with UPF and discourages the load violating UPF. The method also helps to
recover cost to be spent on reactive power ancillary service.
An actual ratio for reactive energy for every unit of active energy can be replaced for
conventional ratio to get new values for the tariff structure which is slightly less than the one
discussed above for same data.
VI REFERENCES
[1] Powersystem Operation Corporation Ltd (POSOCO, India) - NLDC “Reactive Power
Management- A Resource Handbook” 2012.
[2] T.Ananthapadmanabha, Parthasarathy L, “Participation of Reactive Power Service on
Demand Side Management” International Journal on Power System Optimization and Control,
pp.1-5, vol-4, Issue no.1, 2012.
[3] The Federal Energy Regulatory Commission (FERC), USA, “Principles for Efficient and
Reliable Reactive Power Supply and Consumption”, Staff Report – February 4, 2005.
[4] Bhanu Bhushan, “A Primer on Availability Tariff” Power Grid Corporation of India PGCIL,
June 2005.
[5] J.Wang, R.G. Yang and F.S.Wen, “On the Procurement & Pricing of Reactive Power Service
in the Electricity Market Environment”, IEEE Power Engineering Society General Meeting, Vol.
1, pp. 1120-1124, June 2004.
[6] Mohd Abdul Lateef, Syed Maqdoom Ali and Dr.Sardar Ali, “Reactive Power Aspects in
Reliability Assessment of Power Systems”, International Journal of Advanced Research in
Engineering & Technology (IJARET), Volume 4, Issue 2, 2013, pp. 124 - 131, ISSN Print: 0976-
6480, ISSN Online: 0976-6499.

Consideration of reactive energy in the tariff structure

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