Electricity Tariffs

Definition: The amount of money frame by the supplier for the supply of electrical energy to various types of consumers in known as an electricity tariff. In other words, the tariff is the methods of charging a consumer for consuming electrical energy. The tariff covers the total cost of producing and supplying electric energy plus a reasonable cost.


where, C – total charge for a certain period (say one month)
x – maximum demand during the period (kW or kVA)
y – Total energy consumed during te period (kW or kVA)
A – cost per kW or kVa of maximum demand.
B – cost per kWh of energy consumed.
D – fixed charge during each billing period.

Thus, the total bill of the consumer has three parts, namely, fixed charge D, semi-fixed charge Ax and running charge By. This is known as three-part electricity tariff, and it is mainly applied to the big consumer.

Factors Affecting the Electricity Tariffs

The following factors are taken into accounts to decide the electricity tariff:

  • Types of Load – The load is mainly classified into three types, i.e., domestic, commercial, or industrial. The industrial consumers use more energy for a longer time than domestic consumers, and hence the tariff for the industrial consumers is more than the domestic consumers. The tariff of the electric energy varies according to their requirement.
  • Maximum demand – The cost of the electrical energy supplied by a generating station depends on the installed capacity of the plant and kWh generated. Increased in maximum capacity increased the installed capacity of the generating station.
  • The time at which load is required – The time at which the maximum load required is also important for the electricity tariff. If the maximum demand coincides with the maximum demand of the consumer, then the additional plant is required. And if the maximum demand of the consumers occurs during off-peak hours, the load factor is improved, and no extra plant capacity is needed. Thus, the overall cost per kWh generated is reduced.
  • The power factor of the load – The power factor plays an important role in the plant economics. The low power factor increases the load current which increases the losses in the system. Thus, the regulation becomes poor. For improving the power factor the power factor correction equipment is installed at the generating station. Thus, the cost of the generation increases.
  • The amount of energy used – The cost of electrical energy is reduced by using large amounts of energy for longer periods.

Types of Electricity Tariff

Some of the most important types of tariff are as follows;

  1. Flat Demand Rate tariff
  2. Straight-line Meter rate tariff
  3. Block meter Rate tariff
  4. Two-part tariff
  5. Power factor tariff
  6. Seasonal rate tariff
  7. Peak load tariff
  8. Three-part tariff

The different types of tariffs are explained below in details

1. Flat demand rate tariff – The flat demand rate tariff is expressed in the form, C = Ax Here the bill depends only on the maximum demand. It is independent of the energy consumed. This system is used in street lighting, sign lighting, signal system, and irrigation tube wells. In all such systems, the amount of connected load and hours of their use is unknown, and the rate of charge is made accordingly. Thus, metering is not required in this system of the tariff.

2. Straight-line meter rate tariff – This type of tariff is given by the relationship C = By. In this system, the bill depends only upon the amount of energy consume. The different types of consumers are charged at different rates.

The rate for each type of consumption is decided by taking into consideration the load factor and diversity factors of the load. For examples, the rate for light load and fan load is higher than that for power load. For this purpose, separate energy meters are to be installed for light and power load.

3. Block meter rate tariff – In this system, the energy consumption is distinguished into blocks, and the per unit price is fixed in each block. The price per unit in the first block is the highest, and it decreases for the succeeding blocks.

block-meter-rate-tariff-graph The price and the energy consumption are divided into three blocks. The first few units of energy at a certain rate, the next at a slightly lower rate and the remaining unit at a still lower rate.

4. Two-part tariff – In two-part tariff, the total charge from the consumer is divided into two components. The first component is the fixed charge which depends upon the maximum demand. The second component is the running charge which depends upon the energy consumed.


The factor A and B may be constant and vary according to some sliding.

5. Power factor tariff – The tariff in which the power factor of the consumer load is taken into consideration is called power factor tariff. The power factor tariff is mainly classified into two types.

a. kVA maximum demand tariff – This is also a two-part tariff.

kva-maximum-demand-tariff-equation-3In this system, the consumer is compelled to improve the power factor of his load since low power factor will increase the KVA.

b. kWh and kVarh tariffkwh-and-kvarh-tariff-equation-4

Since kVArh decreases with the increases in power factor. This type of tariff will induce the consumer to improve the power factor.

c. Sliding Scale or Average power factor tariff  In such type of tariff the average power factor, say 0.8 lagging may be taken as the reference. If the power factor of the consumer is below this reference value, a suitable additional charge is realised from the consumer for each step. Similarly, if the power factor is above the reference value, the suitable discount is allowed to the consumer for each step rise.

6. Seasonal rate tariff – This tariff specifies a higher price per kWh used during the season of the year in which the system peak occurs. This is known as the on-peak season. The price per kWh unit is lower during the season of the year in which the usage is low. This is known as the off-peak season.

7. Peak-load tariff  This peak load tariff is similar to the seasonal rate tariff. It specifies higher prices per kWh used during the peak period of the day and lower prices during the off-peak period of the day.

The seasonal rate and peak load tariff both are designed to reduce the system peak load and hence reduce the system idle standby capacity.

8. Three-part tariff – The three-part tariff is in the form of electricity-tariff-equation-1and it is applied to the big consumer.

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