Electricity Tariff: Definition, Types, Examples, and Characteristics

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Electricity tariff is defined as the rate at which electrical energy is supplied to a consumer.

Types of Tariff in Electricity

The commonly used electricity tariffs are as follows −

  • Simple Tariff – When there is a fixed rate per unit of energy consumed, it is known as simple tariff or uniform rate tariff. In case of simple tariff, the price charged per unit is constant i.e. it does not change with increase or decrease in number of units consumed.

  • Flat Rate Tariff – When different types of consumers are charged at different uniform per unit rates, it is known as flat rate tariff. In case of flat rate tariffs, the consumers are grouped into different classes and each class of consumers is charged at a different uniform rate.

  • Block Rate Tariff – In the block rate tariffs, a given block of energy is charged at a specified rate and the succeeding blocks of energy are charged at progressively reduced rates. In this tariff, the energy consumption is divided into blocks and rate per unit is fixed in each block. The price in the first block is highest and progressively decreases in succeeding blocks.

  • Two Part Tariff – When the rate of electrical energy consumption is charged on the basis of maximum demand of the consumer and the units consumed, is known as two part tariff. In case of two-part tariff, the total charges are spilt into two components viz. fixed charges and running charges. The fixed charges depend upon the maximum demand of the consumer whereas the running charges depend upon number of units consumed.

  • Maximum Demand Tariff – The maximum demand tariff is same as the two-part tariff, the only difference is a maximum demand meter being installed in the consumer’s premises. The maximum demand tariff is mostly applied to big consumer.

  • Power Factor Tariff – When the rate of electrical energy is decided by considering the consumer’s load power factor, is called as power factor tariff. The power factor tariffs are also classified into three types as −

    • kVA Maximum Demand Tariff – In case of this tariff, the fixed charges are made on the basis of maximum demand in kVA instead of kW. Since kVA is inversely proportional to power factor, thus a consumer having low power factor has to pay more as fixed charges.

    • Sliding Scale Tariff – In this case, an average power factor is taken as reference (say 0.75 lagging). If the power factor of the consumer is less than this, then additional charges are made. On the other hand, if the power factor is above the reference value, a discount is allowed to the consumers.

    • kW and kVAR Tariff – In this tariff, both active power (kW) and reactive power (kVAR) supplied are charged separately. A consumer having low power factor draws more reactive power, thus have to pay more charges.

  • Three Part Tariff – The tariff is said to be three-part tariff, when the total charges are split into three parts viz. fixed charges, semi-fixed charges and running charges. This type of tariff is generally applied to big consumers. If ‘a’ is the fixed charges, ‘b’ is semi-fixed charges and ‘c’ is running charges, then the three-part tariff can also be represented by the equation as:

$$Total\:charges = Rs. (𝑎 + 𝑏 × 𝑘𝑊 + 𝑐 × 𝑘𝑊ℎ)$$

Characteristics of Tariff

A tariff must have following desirable characteristics −

  • Simplicity – The tariff should be simple so that an ordinary consumer can easily understand it.

  • Fairness – The tariff should be fair so that the different types of consumers are satisfied with the rate of charge of electricity.

  • Attractive – The tariff should be attractive so that large number of consumers are encouraged to use electricity.

  • Proper Return – The tariff should be such that it ensures the proper return from each consumer, i.e. the total receipt from the consumers must be equal to the cost of production and distribution with reasonable profit.

Numerical Example

A consumer has a maximum demand of 300 kW at 35% load factor. If the tariff is Rs. 125 per kW of maximum demand plus 15 paise per kWh, calculate the overall cost per kWh.


Units Consumed/annum= Max.demand × Load factor × Hours in a year

⇒ Units Consumed/annum = 300 × .35 × 8760 = 919800 kWh

Annual energy charges = (Units Consumed/annum) × (Rs./kWh )

⇒ Annual energy charges = 919800 × .15 = Rs.137970

Total annual charges = Annual max. demand charges + Annual energy charges

⇒ Total annual charges = (300 × 125) + 137970 = Rs. 175470


Overall cost per kWh = Rs. $\frac{175470}{919800}$ = Re. 0.1907 = 19.07 paise

Published on 02-Jul-2021 09:33:55