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Types of tariff for Electrical Energy Updated


Types of tariff for Electrical Energy Updated

The rate at which electricity is supplied to a consumer is as referred to as a tariff.

Although tariff should include the entire cost of manufacturing and supplying electricity plus the profit, yet it can't be an equivalent for all kinds of consumers.

It is because the value of manufacturing electricity depends to a substantial extent upon the magnitude of electricity consumed by the user and his load conditions.

Therefore, altogether fairness, due consideration has got to tend to differing types of consumers while fixing the tariff. This makes the matter of an appropriate rate-making highly complicated.

Objectives of tariff:

Like other commodities, electricity also sold at such a rate in order that it not only returns the value but also earns an inexpensive profit. Therefore, a tariff should include subsequent items :

(i) Recovery of the value of manufacturing electricity at the facility station.

(ii) Recovery of cost on the capital investment in transmission and distribution systems.

(iii) Recovery of the value of operation and maintenance of a supply of electricity e.g., metering equipment, billing, etc.

(iv) an appropriate profit on capital investment.

Desirable Characteristics of a Tariff

A tariff must have subsequent desirable characteristics :

(i) Proper return:

The tariff should be such it ensures the right return from each consumer.

In other words, the entire receipts from the consumers must be adequate to the value of manufacturing and supplying electricity plus an inexpensive profit.

This will enable the electrical supply company to make sure continuous and reliable service to the consumers.

(ii) Fairness:

The tariff must be fair in order that differing types of consumers are satisfied with the speed of charge of electricity. Thus an enormous consumer should charge at a lower rate than a little consumer.

It is because increased energy consumption spreads the fixed cost s over a greater number of units, thus reducing the general cost of manufacturing electricity.

Similarly, a consumer whose load conditions don't deviate much from the perfect (i.e., non-variable) should charge at a lower rate than the one whose load conditions change appreciably from the perfect.


(iii) Simplicity:

The tariff should be simple in order that a standard consumer can easily know ita sophisticated tariff may cause opposition from the general public which is usually distrustful of supply companies.


(iv) Reasonable profit:

The profit element within the tariff should be reasonable. an electrical supply company may be a utility company and usually enjoys the advantages of a monopoly.

Therefore, the investment is comparatively safe thanks to non-competition within the market. This involves the profit to be restricted to eight approximately once a year.

(v) Attractive:

The tariff should be attractive in order that an outsized number of consumers are encouraged to use electricity. Efforts should make to repair the tariff in such how in order that consumers pay easily.

Types of Tariff

There are several sorts of tariffs. However, the subsequent are the commonly used sorts of tariff :


Types of tariff: Simple tariff:

When there's a hard and fast rate per unit of energy consumed, it's as referred to as an easy tariff or uniform rate tariff.

In this sort of tariff, the worth charged per unit is constant i.e., it doesn't vary with a rise or decrease within the number of units consumed.

The consumption of electricity at the consumer’s terminals recorded by means of an energy meter. this is often the only of all tariffs and is quickly understood by the consumers.


(i) there's no discrimination between different types of consumers since every consumer has got to pay equitably for the fixed charges.

(ii) the value per unit delivered is high.

(iii) It doesn't encourage the utilization of electricity.

Types of tariff-Flat rate tariff:

When differing types of consumers charged at different uniform per unit rates, it's is referred to as a flat-rate tariff.

In this sort of tariff, the consumers are grouped into different classes and every class of consumers is charged at a special uniform rate.

In this sort of tariff, we will divide customers into different categories. and every class of consumers is charged at a special uniform rate.

For instance, the flat rate per kWh for lighting load maybe 60 paise, whereas it's going to be slightly less (say 55 paise per kWh) for power load.

The different classes of consumers are made taking into consideration their diversity and cargo factors. The advantage of such a tariff is that it's fairer to differing types of consumers and is sort of simple in calculations.


(i) Since the flat rate tariff varies consistent with the way the availability is employed, separate meters are required for lighting load, power load, etc. This makes the appliance of such tariff expensive and sophisticated.

(ii) a specific class of consumers is charged at an equivalent rate regardless of the magnitude of energy consumed. However, an enormous consumer should charge at a lower rate. Because in his case the fixed charges per unit are ultimately reduced.

Types of tariff-Block rate tariff:

When a given block of energy charged at a specified rate and therefore the succeeding blocks of energy charged at progressively reduced rates, it's is referred to as a block rate tariff.

In block rate tariff, the energy consumption is split into blocks and therefore the price per unit is fixed in each block.

The price per unit within the first block is the highest. it's progressively reduced for the succeeding blocks of energy.

For example, the primary 30 units may charge at the speed of 60 paise per unit; subsequent 25 units at the speed of 55 paise per unit, and therefore the remaining additional units may charge at the speed of 30 paise per unit.

The advantage of such a tariff is that the buyer gets an incentive to consume more electricity. This increases the ratio of the system and hence the value of generation is reduced.

However, its principal defect is that it lacks a measure of the consumer’s demand. this sort of tariff is employed for the bulk of residential and little commercial consumers.

Types of tariff-Two-part tariff:

When the speed of electricity charged on the idea of the utmost demand of the buyer and therefore the units consumed, it's is referred to as a two-part tariff.

In a two-part tariff, the entire charge to be made up of the buyer is split into two components viz., fixed charges, and running charges.

The fixed charges depend on the utmost demand of the buyer while the running charges depend on the number of units consumed by the buyer.

Thus, the buyer is charged at a particular amount per kW of maximum demand plus a particular amount per kWh of energy consumed i.e.,

Total charges = Rs (b × kW + c × kWh)


b = charge per kW of maximum demand

c = charge per kWh of energy consumed

This type of tariff is usually applicable to industrial consumers who have appreciable maximum demand.


(i) it's easily understood by the consumers.

(ii) It recovers the fixed charges which depend on the utmost demand of the buyer. But these are independent of the units consumed.


(i) the buyer has got to pay the fixed charges regardless of the very fact whether he has consumed or not consumed the electricity.

(ii) there's always a mistake in assessing the utmost demand of the buyer.

Types of tariff-Maximum demand tariff:

It is almost like a two-part tariff with the sole difference that the utmost demand actually measured by installing maximum demand meter within the premises of the buyer.

This removes the objection of a two-part tariff where the utmost demand assessed merely on the idea of the rateable value.

This type of tariff is usually applied to big consumers. However, it's not suitable for a little consumer (e.g., residential consumer) as a separate maximum demand meter is required.

Types of tariff–Power factor tariff:

The tariff during which the facility factor of the consumer’s load is being taken into consideration is referred to as the facility factor tariff.

In an a.c. the system, the facility factor plays a crucial role. A low* power factor increases the rating of station equipment and line losses. Therefore, a consumer who features a low power factor must be penalized. the subsequent are the important sorts of power factor tariff :

(i) k VA maximum demand tariff:

It is a modified sort of a two-part tariff. during this case, the fixed costs made on the idea of maximum demand in kVA and not in kW.

KVA is inversely proportional to the facility factor. therefore, a consumer having a coffee power factor has got to contribute more towards the fixed charges.

This type of tariff has the advantage that it encourages the consumers to work their appliances and machinery at improved power factor.

(ii) wage scale tariff:

It is referred to as the typical power factor tariff. during this case, a mean power factor, say 0·8 lagging, is taken because of the reference.

If the facility factor of the buyer falls below this factor, suitable additional charges are made. On the opposite hand, if the facility factor is above the reference, the owner allows the customer a reduction.

(iii) kW and kVAR tariff:

In this type, both active power (kW) and reactive power (kVAR) supplied are charged separately. A consumer having a coffee power factor will draw more reactive power and hence shall need to pay more charges.

Types of tariff- Three-part tariff:

When the entire charge to be made up of the buyer is split into three parts viz., fixed charge, semi-fixed charge, and running charge, it is referred to as a three-part tariff. i.e.,

Total charge = Rs (a + b × kW + c × kWh)


a = fixed cost made during each billing period. It includes interest and depreciation on the value of secondary distribution and labor cost of collecting revenues,

b = charge per kW of maximum demand,

c = charge per kWh of energy consumed.

We can see that by adding fixed cost or consumer’s charge (i.e., a) to a two-part tariff, it becomes a three-part tariff.

The principal objective of this sort of tariff is that the fees are split into three components. this sort of tariff is usually applied to big consumers.


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