Electricity Tariffs
Njabulo M. Malinga
Outline
• Introduction to Electricity Tariffs
• Desirable characteristics of a tariff
• Types of Tariffs
Introduction to Electricity Tariffs
• An electrical energy tariff is defined as the rate at which electrical energy is
sold or distributed to consumers.
• Tariffs include the total cost of generating and distributing electrical energy
plus the profit, however it cannot be the same for all types of consumers.
✓This is due to the load conditions for consumers being not similar hence
the quantity of electrical energy consumed differs classified consumers
(industrial and domestic consumers)
• Therefore, tariffs are imposed by governing bodies and must include the
following objectives:
✓Recovery of cost of producing electrical energy at the power station.
✓Recovery of cost on the capital investment in transmission and
distribution systems.
✓Recovery of cost of operation and maintenance of supply of electrical
energy e.g., metering equipment, billing etc.
✓A suitable profit on the capital investment.
Desirable Characteristics of a Tariff
A tariff must have the following desirable characteristics :
a) Proper return
✓The total returns must be equal to the cost of generating and distributing
electrical energy plus reasonable profit.
✓This will enable the electric supply company to ensure continuous and
reliable service to the consumers.
b) Fairness
✓All types of consumers must be satisfied with the rate of charge of
electrical energy.
✓Thus, industrial consumers are charged at a lower rate than domestic
consumers.
Q: Why? This is due to the fact that more energy consumption spreads the
fixed charges over a greater number of units, thus reducing the overall cost
of producing electrical energy.
c) Simplicity
✓ must be easily understood by electrical energy distributing companies and all
types of consumers.
d) Reasonable profit
✓An electrical energy distribution company is a public utility company and
generally enjoys the benefits of monopoly.
✓Therefore, the investment is relatively safe due to non-competition in the
market.
e) Attractive
✓The tariff should be attractive so that a large number of consumers are
encouraged to use electrical energy and easily pay for their electrical energy
utilization.
Types of Tariffs
The following electrical energy tariffs are commonly used:
a) Simple tariff
• There is a fixed rate per unit of electrical energy consumed
• Consumption of electrical energy at the consumer’s terminals is recorded by
means of an energy meter.
b) Flat rate tariff
• Different types of consumers are charged at different uniform per unit rates
• The consumers are grouped into different classes and each class of
consumers is charged at a different uniform rate.
c) Block rate tariff
• Electrical energy units are grouped in blocks and are charged at a specified
rate.
• The succeeding blocks of energy are charged at progressively reduced rates.
d) Two-part tariff
• The electrical energy is charged on the basis of maximum demand of the
consumer and the units consumed i.e. the rate is split into two namely fixed
charges and running charges.
• The fixed charges depend upon the maximum demand of the consumer while
the running charges depend upon the number of units consumed by the
consumer.
• This type of tariff is mostly applicable to industrial consumers who have
appreciable maximum demand.
• Q - How is the maximum demand charge determined?
• Maximum demand is the highest average power in kVA drawn by an
industrial consumer over a specific time and during a period of metering.
• The industrial consumer is billed monthly depending on the quantity of
kVA used per month.
e) Maximum demand tariff
• It is similar to two-part tariff with the only difference that the maximum
demand is actually measured by installing maximum demand meter in the
premises of the consumer.
f) Power factor tariff
• The tariff in which power factor of the consumer’s load is taken into
consideration.
• A low power factor increases the rating of station equipment and line losses,
therefore, a consumer having low power factor is fined by the electrical
energy supplier.
g) Three-part tariff
• The total charge to be made from the consumer is split into three namely
fixed charge, semi-fixed charge and running charge.
In the kingdom of Eswatini, this is how domestic and industrial consumers are
billed:
Consumers Energy Maximum demand charge
charge(E/kWh) (E/kVA)
Domestic 2,4871 Not applicable
Industrial (low 1,5346 204,450
demand – standard
at LV)
Example 5.1
A domestic consumer has the following appliances and usage pattern over a
30-day month:
• 5 bulbs × 100 W each, used 5 hours per day
• 2 fans × 75 W each, used 10 hours per day
• 1 electric water heater × 2000 W, used 1 hour per day
a) Calculate each of the following:
i. The daily energy consumption for each category of appliance (in
kWh/day).
ii. The total monthly energy consumption (in kWh).
iii. The monthly load factor.
iv. The average cost per kWh if charged at a flat rate of E2,49 per kWh.
b) The electricity supplier offers the following two alternative tariff structures
for this consumer:
Tariff A :
• First 100 kWh: E3.50 per kWh
• Next 100 kWh: E5.00 per kWh
• Above 200 kW E6.50 per kWh
Tariff B:
• Fixed charge: E 250 per month
• Energy charge: E4.20 per kWh
Using the monthly consumption calculated in (a), calculate the total monthly
bill under each tariff and state which tariff is cheaper for this consumer.
Example 5.2
An electrical energy supply is offered on the basis of fixed charges of E30 per
annum plus 30 cents per unit or alternatively, at the rate of 60 cents per unit for
the first 400 units per annum and 50 cents per unit for all the additional units.
Find the number of units taken per annum for which the cost under the two
tariffs becomes the same.
Example 5.3
Calculate annual bill of a consumer whose maximum demand is 100 kW, pf=
0,8 lagging and load factor = 60%. The tariff used is E75 per kVA of maximum
demand plus E0.15 per kWh consumed.
Example 5.4
A factory has a maximum load of 240 kW at a power factor of 0,8 lagging with
an annual consumption of 50,000 units. The tariff is E50 per kVA of maximum
demand plus E0.10 per unit. Calculate:
a) The flat rate of energy consumption.
b) The annual saving if p. f. is raised to unity.