Two-part Tariff for Coal-Based Power Plant
Fixed and Variable Cost Structure (Illustrative)
This interactive model is provided for illustrative purposes only. It is intended to support conceptual understanding of tariff formation and cost sensitivities, not regulatory or commercial tariff determination.
Coal-based power stations account for over 70% of India’s total electricity generation and, for the vast majority of the 8,760 hours of the year, the Market Clearing Price (MCP) is set by a coal-based station positioned at the margin of the merit order dispatch stack
Only during a limited number of hours—typically under conditions of tight supply or elevated demand—do higher-cost alternatives such as imported gas-based or naphtha-based generation set the MCP
Unlike solar and wind generation, coal-based tariffs are two-part in nature: Annual Fixed Cost (AFC), which is capacity-linked, and Energy Charge Rate (ECR), which represents the variable cost of fuel and auxiliary consumption.
The analytical framework adopted in this model is broadly aligned with the cost-based methodology historically used by the Central Electricity Regulatory Commission (CERC) for determination of coal-based power tariffs. However, this model is not intended to be a strict, line-by-line replication of regulatory norms.
Certain assumptions and treatments differ marginally and deliberately, to maintain methodological consistency with the solar and wind tariff models presented elsewhere on this platform. These variations are small in magnitude and do not affect the material economic drivers or insights relating to coal-based tariff formation.
The Energy Charge Rate depends on the landed price of coal at the plant. Coal prices vary significantly depending on whether a plant is mine-mouth or load-centre based, whether domestic or imported coal is used, and the prevailing cost of imported coal in international markets.
Parameters kept fixed in the model
To maintain analytical clarity and internal consistency across the technology-specific tariff models presented on this platform, a limited set of structural and financial parameters are kept fixed in this coal-based tariff model.
These assumptions are broadly aligned with CERC norms, but differ marginally in a few cases to ensure consistency with the solar and wind tariff methodologies used elsewhere on this website. The variations are small in magnitude and do not affect the material conclusions or economic intuition relating to coal-based tariff formation.
- Plant life: 25 years
- Debt–equity structure: 70% debt and 30% equity
- Long-term loan interest rate: 9% per annum
- Normative post-tax return on equity (ROE): 14%
- Depreciation: 5.83% per annum for the first 12 years and 1.54% per annum thereafter, corresponding to an assumed residual value of 10% at the end of plant life
- Loan repayment is assumed to be aligned with depreciation, with no moratorium period
- Interest on working capital: 8% per annum
- Taxation assumptions: corporate tax rate of 30%, MAT rate of 15%, surcharge of 12%, and health & education cess of 4%
- Receivables: 2 months
- Base-year O&M cost: Rs 24.4 lakhs per MW, escalated at 5.25% per annum