Tariff

Definition
 The rate at which electrical energy is supplied to a consumer is known as tariff.
 The tariff should be framed in such a way that it should recover the total cost of
producing electrical energy and it should provide marginal profit on the capital
investment.
Objectives of Tariff or Parameters guide of tariff of an electrical utility
 The tariff should be farmed in such a way that it should include the following objectives:
1. Recovery of cost of capital investment in generating equipment, transmission and
distribution system.
2. Recovery of the cost of operation, supplies and maintenance.
3. Recovery of the cost of material, equipment, building and collection coast as well
as for miscellaneous services.
4. A net return on the total capital investment must be ensured.
Cost of Electrical Energy
 The cost associated with the electrical energy can be divided into three parts
1. Fixed cost
2. Semi fixed cost
3. Running cost
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1. Fixed Cost
 This is the cost which is independent of the maximum demand and the units which are
generated.
 It is the cost which must be spent for purchase of assets such as land and equipments
required for plant.
 It also consists of annual cost of organization, interest on capital cost of land and
salaries of high officials.
 The capital investment on land and rate of interest is also fixed.
2. Semi Fixed Cost
 The cost which is not dependent on the number of units generated but depends on
maximum demand is called semi fixed cost.
 It is proportional to maximum demand and is due to annual interest and depreciation
on capital investment of buildings and equipments, different types of taxes, insurance
charges along with salaries of management and clerical staff.
 The size and the cost associated with installation of plant is determined from the
maximum demand.
 With increase in maximum demand, the size and cost of installation of plant is greater.
 With increase in size, the taxes and clerical staff will also be large.

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3. Operating or Running Cost
 It is defined as the cost which is dependent on the number of units generated.
 It consists of following costs :
1. Fuel cost
2. Cost associated with lubricating oil and water
 Maintenance and repairing cost of the equipment in generation, transmission and
distribution sections.
 The salaries of operating and supervising staff.

 All these costs are dependent on output energy from the plant.
 The running cost is always proportional to number of units generated by the station.
 High running cost indicates that the number of units generated by station is high.

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Important Terms and Factors
Connected load :
 It is the sum of continuous ratings of all the equipments which are connected to the
system of supply.
 The sum of connected loads of all the consumers is the connected load to the power
station.

Maximum demand :
 It is the highest demand of the load on the power station for a given period.
 It is already stated that the load on the station goes on changing from time to time.
 The maximum of all the demands that have occurred during a given period is the
maximum demand.
 The connected load is greater than the maximum demand as all the consumers do not
switch on their connected loads simultaneously.
 The installed capacity of the station can be determined by knowing the maximum
demand.

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Demand factor :
 The ratio of maximum demand to the connected load is called the demand-factor. Its
value is less than 1.
 The capacity of plant equipment can be decided by using demand factor.
Average load :
 It is defined as the average of loads occurring on the power station at a specified period
which may be a day or a month or a year.
Load factor :
 It is defined as the ratio of average load to the maximum demand during a specified
period.
Units generated in given period
Load factor 
Maximum demand  Time of operation of plant
 The load factor may be daily, monthly, or yearly depending on time period considered.
 It is less than unity.
 The total cost per unit generated is obtained with the knowledge of load factor.
 If load factor is high then it indicates that maximum demand is less which in turn
indicates that the plant capacity is low which reduces the cost of plant and hence the
cost per unit generated.
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Diversity factor :
 It is defined as the ratio of the sum of individual maximum demands to the maximum
demand on power station.
Sum of individual consumer's Max. demand
Diversity factor 
Station maximum demand for the whole load

 The load associated with various types of consumers will not have their maximum
demands occurring the same time.
 Sum of individual maximum demands is always greater than maximum demand on
power station and the diversity factor is always greater than 1.
 With greater diversity factor, the cost of generation of power is less.
Capacity factor :
 It is the ratio of actual amount of energy that is produced to the maximum possible
energy which could be produced during a specified period.
 It represents reserve capacity of the plant. There must be some reserve capacity for a
plant to meet increased load demand.
Plant use factor :
 It is defined as the ratio of energy produced to the product of plant capacity and
number of hours for which the plant was in operation.

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Requirements of a Tariff
 It should be easier to understand
 It should provide low rates for higher consumption
 It should be uniform over large population.
 It should encourage the consumers having high load factors.
 It should take into account maximum demand charges and energy charges.
 It should provide incentive for using power during off-peak hours.
 It should provide less charges for power connection than lighting.
 It should be have a provision of penalty for low power factor.
 It should have a provision for higher demand charges for high loads demanded at
system peaks.
 It should apportion equitably the cost of service to be different categories of
consumers.
 The profit must be marginal.

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Different Types of Tariff
 The commonly used types of tariffs are as follows
1. Simple tariff
2. Flat rate tariff
3. Block rate tariff
4. Two part tariff
5. Three part tariff
6. Maximum demand tariff
7. Power factor tariff
8. Availability Based Tariff

1. Simple Tariff
 This tariff is the simplest form of tariff.
 There is a fixed rate per unit of energy consumed
 The simple tariff is defined as
annual running ch arg es  Annual fixed ch arg es
Simple Tariff 
Total number of units sup plied to the consumers
 In this type of tariff, there is no differentiation between various types of consumers.
 All the consumers are shining equal burden of capital investment.
 The price charged pet unit is constant i.e. independent of number of units consumed.
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2. Two Part Tariff
 When the rate of electricity is charged on the basis on the maximum demand of the
consumer and the units consumed, is called a two part tariff.
 The total charge is split into two components the fixed charges and running charges.
 The fixed charges depend on the maximum demand of the consumer while the running
charges depend upon the number of units consumed by the consumer.
 Thus, the consumer is charged at a certain amount per kW of maximum demand plus a
certain amount per kWh of energy consumed i.e.
Total charge = Rs ( y × kW + z × kWh)
where y = charge per kW of maximum demand and
z = charge per kWh of maximum demand
 The industrial consumers with appreciable maximum demand is charged with this type
of tariff.
Advantages of two port tariff
1. It is simple and can be easily understood by the consumers.
2. The fixed charges which depend on the maximum demand but independent of
units consumed are recovered.
Disadvantages of two port tariff are
1. Irrespective of whether the consumer has consumed the energy or not, he has to
pay the fixed charges.
2. Error may occur in calculating maximum demand of the consumer.
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5. Three Part Tariff
 In three port tariff, the total charge to be made from the consumer is split into three
parts namely fixed, semi-fixed and running charges.
Total charge = Rs ( x + y × kW + z × kWh)
where x = Fixed charge which has to be paid which covers the interests depreciations
and labor cost of collecting revenues
y = Charge per kW of maximum demand
z = Charge per kWh of energy consumed
 In the two part tariff if we add the fixed charges then it gives three part tariff which is
applicable to big consumers

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8. Availability Based Tariff (ABT)
 Availability Based Tariff (ABT) stands for a rational tariff structure, for supply of
electricity from generating station to beneficiaries on a contracted basis.
 It is a system of scheduling and dispatch, with rewards and penalties seeking to enforce
day-ahead pre-committed schedules for both generators and beneficiaries.
 Availability Based Tariff (ABT) is a frequency based pricing mechanism for electric power.
ABT tries to improve the quality of power and curtail the following disruptive trends:
1. Unacceptable rapid and high frequency deviations causing damage and
disruptions.
2. Frequent grid disturbances resulting in generators tripping, power outages and grid
instability.

Objectives of ABT
 The main objectives of introduction of ABT mechanism at regional level have been:
1. Promote trade in energy and capacity
2. Economic load dispatch
3. Encourage higher generation availability
4. To encourage grid discipline.

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ABT includes:
1. Scheduling and load dispatch (current day, day ahead scheduling).
2. Tariff structure (fixed charges, schedule or energy charges and unscheduled
interchange).

Availability Based tariff components (Features)

 ABT splits the existing monolithic energy charge structure into three basic
components. By treating both fixed and variable cost components separately.
a) Capacity charges (fixed): Towards reimbursement of the fixed cost of the plant,
linked to the plant’s declared capacity to supply MWs, it is linked to availability of
the generating station. That is, its capability to deliver MWs on a day-by-day basis.
At zero availability, no capacity charges shall be payable.
b) Energy charges (variable): Energy charge is the fuel cost for scheduled generation.
Energy charges or variable charges shall be payable by every user on the scheduled
energy irrespective of actual drawl.
c) Unscheduled interchange (UI) charges: It is a payment for deviations from
schedule at a rate dependent on system conditions (frequency) at that time. The
deviation from schedule is technically termed as unscheduled interchange (UI) in
Availability based Tariff terminology. This component would be negative in case the
power plant is delivering less power than scheduled.
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Benefits of ABT
 Benefits of ABT are listed below:
1. Enforce grid discipline by maintaining frequency in prescribed band (49.5-50.5
Hz) and control frequency excursions
2. By bifurcating the method of charging capacity charges (fixed) and energy
charges (variable), the incentive for trading in power is enhanced.
3. The beneficiaries have a claim on the capacity, which they can trade either within
or outside the region.
4. By isolating the variable charge, a beneficiary can again trade such power
depending upon its needs, market demand and the economics of power in the
home state.
5. More relevant incentives and disincentives encourage better performance by
giving scope for encouraging competition among generators.
6. Improved scheduling by all the participants, generators and beneficiaries and
ensures the optimum utilization of available generation capabilities.
7. High quality metering and on line connectivity enabling the system operator to
know the actual flows and taking appropriate action.
8. Commercial and operational disputes resolved.
9. Faster settlement process.
10. Voltages improved, Transmission losses reduced, Transmission capacity increased.
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Power Factor Improvement
Power Factor
 The cosine of angle between voltage and current in an a. c. circuit is known as power
factor. In an a. c. circuit, there is generally a phase difference ϕ between voltage and
current.
 The term cos ϕ is called the power factor of the circuit.
 If the circuit is inductive, the current lags behind the voltage and the power factor is
referred to as lagging.
 However, in a capacitive circuit, current leads the volt-age and power factor is said to be
leading.
 Consider an inductive circuit taking a lagging current I from sup-ply voltage V, the angle
of lag being .
 The phasor diagram of the circuit is shown in Fig. 1.
 The circuit current I can be resolved into two perpendicular
components, namely,
1. I cos ϕ in phase with V
2. I sin ϕ, 90° out of phase with V
 The component I cos ϕ is known as active or Watt-ful
component, whereas component I sin ϕ is called the reactive
or watt-less component. Fig. 1 : Phasor diagram
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Power Triangle
 The analysis of power factor can also he made in terms of power drawn by the a.c.
circuit.
 If each side of the current triangle is multiplied by voltage V, then we gel the power
triangle OAB shown in Fig. 2
where OA = VI cos ϕ and represents the active power in watts or kW
AB = VI sin ϕ and represents the reactive power VAR or kVAR
OB = VI and represents the apparent power in VA or kVA.
 The following points may be noted form the power triangle :

A. Apparent Power
 The apparent power in an a.c. circuit has two components
viz., active and reactive power at right angles to each other
OB2  OA 2  AB2
or (apparent power)2 = (active power)2 + Reactive power)2
 (kVA) 2  (kW) 2  (kVAR) 2 Fig. 2 : Power triangle

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B. Power factor:
OA active power kW
Power factor, cos    
OB apparent power kVA

 Thus the power factor of a circuit may also be defined as the ratio of active power
to the apparent power.
 This is a perfectly general definition and can be applied to all cases, what-ever be
the waveform.

C. Reactive power:
 The lagging reactive power is responsible for the low power factor.
 It is clear from the power triangle that smaller the reactive power component, the
higher is the power factor of the circuit.
kW
kVAR  kVA sin   sin   kW tan 
cos
 The reactive power is neither consumed in the circuit nor it does any useful work.
 It merely flows back and forth in both directions in the circuit.
 A wattmeter does not measure reactive power.

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Disadvantages of Low Power Factor
 The power factor plays an importance role m a c circuits since power consumed
depends upon this factor.
P
P  VL I L cos   IL 
VL cos 
 It is clear from above that for fixed power and voltage, the load current is inversely
proportional to the power factor.
 Lower the power factor, higher is the load current and vice-versa.
 A power factor less than unity results in the following disadvantages:

(a) Large kVA rating of equipment:

 The electrical machinery (e.g. alternators, transformers. switchgear) is always rated
in kVA.
kVA  kW / cos 
 It is clear that k VA rating of the equipment is inversely proportional to power factor.
 The smaller the power factor, the larger is the kVA rating.
 Therefore, at low power factor, the kVA rating of the equipment has to be made
more, making the equipment larger and expensive.

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(b) Large copper losses
 The large current at low power factor causes more I2R losses in all the elements of
the supply system.
 This results in poor efficiency.

(c) Greater conductor size

 To transmit or distribute a fixed amount of power at constant voltage, the conductor

will have to carry more current at low power factor.
 This necessitates large conductor size. For example, take the case of a single phase
a.c. motor having an input of 10 kW on full load, the terminal voltage being 250 V.
 At unity p. f. the input full load current would be 10,000/250 = 40 A.
 At 0.8 p. f. the kVA input would be 10/0.8= 12.5 and the current input 12,500/250 =
50 A.
 If the motor is worked at a low power factor of 0.8, the cross-sectional area of the
supply cables and motor conductors would have to be based upon a current of 50 A
instead of 40 A which would he required at unity power factor.

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(d) Poor voltage regulation
 The large current at low lagging power factor causes greater voltage drops in
alternators, transformers, transmission lines and distributors.
 This results in the decreased voltage available at the supply end, thus impairing the
performance of utilization devices.
 In order to keep the receiving end voltage within permissible limits, extra
equipment (i.e. voltage regulators) is required.

(e) Reduced handling capacity of system

 The lagging power factor reduces the handling capacity of all the elements of the
system.
 It is because the reactive component of current prevents the full utilization of
installed capacity.

 The above discussion leads to the conclusion that low power factor is an
objectionable feature in the supply system.

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Power Factor Improvement Equipment
 Normally, the power factor of the whole load on a large generating station is in
the region of 0.8 to 0.9.
 However, sometimes it is lower and in such cases it is generally desirable to take
special steps to improve the power factor.
 This can be achieved it is the following equipment
1. Static capacitors
2. Synchronous condenser
3. Phase advancers
Calculations of Power Factor Correction
 Consider an inductive load taking a lagging current I at power factor cos ϕ.
 To improve the power factor of this circuit, a capacitor is connected in parallel with the
load, as shown in Fig. 3.

Fig. 3 : Connection and phasor diagram

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The following points are worth noting:
1. The circuit current I’ after p. f. correction is less than the original circuit current I.
2. The active or wattfut component remains the same before and after p. f. correction
because only the lagging reactive component is reduced by the capacitor
I cos  1  I  cos  2
3. From the phasor diagram,
I cos  1  I  cos  2  VI cos  1  VI  cos  2
Therefore. active power (kW) remains unchanged due to power factor improvement.
4. The lagging reactive component is reduced after p.f. improvement and is equal to the
difference between lagging reactive component of load (I sin ϕ1) and capacitor
current (IC) i.e.
I  sin  2  I sin  1  I C
 I C  I sin  1  I  sin  2
Capacitance of the capacitor to improve
power factor from cos ϕ1 to cos ϕ2
IC
C  X C  V / IC  1/ C 
V

Fig. 3 : Phasor diagram

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Power factor correction corresponding power triangle
 The power factor correction can also be illustrated from power triangle.
 Thus referring to Fig. 4, the power triangle OAB is for the power factor cos ϕ1, whereas
power triangle OAC is for the improved power factor cos ϕ2.
 It may be seen that active power (OA) does not change with power factor
improve-ment.
 However, the lagging kVAR of the load is reduced by the p. f. correction equipment, thus
improving the p. f. to cos ϕ2.
 Leading kVAR supplied by p. f. correction equipment
 BC  AB  AC  kVAR1  kVAR 2
 OA(tan  1  tan  2 )
 kW (tan  1  tan  2 )

 Knowing the leading kVAR supplied by the p. f.

correction equipment, the desired results can be
obtained. Fig. 4 : Power triangle

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Most Economical Power Factor
 Consider a consumer taking a peak load of P kW a power factor of cos ϕ1 and charged
at a rate of Rs x per kVA of maximum demand per annum.
 Suppose the consumer improves the power factor to cos ϕ2, by installing p. f.
correction equipment.
 Let expenditure incurred on the p. f. correction equipment be Rs y per kVAR per
annum.
 The power triangle at the original p.f. cos ϕ1, it is OAB and for the improved p.f. cos ϕ2,
it is OAC as shown in Fig. 5.
 kVA maximum demand at cos ϕ1, kVA1  P / cos  1  P sec  1
 kVA maximum demand at cos ϕ2, kVA 2  P / cos  2  P sec  2
 Annual saving in maximum demand charges
M  Rs x(kVA 1  kVA 2 )  Rs x P (sec  1  sec  2 )
 Reactive power at cos ϕ1, kVAR 1  P tan  1 Fig. 5 : Power triangle
 Reactive power at cos ϕ2, kVAR 2  P tan  2
 Leading kVAR taken by p. f. correction equipment,  P (tan  1  tan  2 )

 Annual cost of p f correction equipment, N  Rs y P (tan  1  tan  2 )

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Most Economical Power Factor
 Net annual saving, S  M  N  Rs P x(sec  1  sec  2 )  P y (tan  1  tan  2 )
 In this expression, only ϕ2 is variable while all other quantities are fixed.
 Therefore, the net annual saving will be maximum if differentiation of above
expression w. r. t. ϕ2 is zero i.e.
dS d

d 2 d  2
 
P x (sec  1  sec  2 )  P y (tan  1  tan  2 )  0

  P x sec  2 tan  2  P y sec 2  2  0

sec  2 tan  2 y
 
sec 2  2 x
y
 sin  2 
x
 Most economical power factor,

cos  2  1  sin 2  2  1  ( y / x) 2

 The most economical power factor cos ϕ2, depends upon the relative costs of supply
and p. f. correction equipment but it is independent of the original p. f. cos ϕ1.
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Economical comparison of two methods
 Suppose a power station of rating P kVA is supplying load at p. f. of cos ϕ1.
 Let us consider that the new power demand can be met either by increasing the p. f. to
cos ϕ1 at P kVA or by increasing the kVA rating of the station at the original p.f. cos ϕ1.
 The power triangles for the whole situation are shown in Fig. 6.
a. Cost of increasing kVA capacity of station
 Referring to Fig. 6, the increase in kVA capacity of the station at cos ϕ1 to meet the new
demand is given by:
 Increases in kVA capacity
BF AC OC  OA
 BD    [ BF  AC ]
cos  1 cos  1 cos  1
OE cos  2  OB cos  1

cos  1
P (cos  2  cos  1 )
 [ OE  OB  P ]
cos  1
 If Rs. x is the annual cost per kVA of the station, then, the
annual cost due to increase in kVA capacity
xP (cos  2  cos  1 ) Fig.6 : Power triangle
 Rs
cos  1
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b. Cost of p. f. correction equipment
 Referring to Fig. 6, the new demand in kW can be met by increasing the p. f. from
cos ϕ1 to cos ϕ2, at the original kVA of the station.
 The leading kVAR to be taken by the p. f. correction equipment is given by ED i.e.
 Leading kVAR taken by p. f. correction equipment
OC
 ED  CD  CE  OD sin 1  OE sin 2  sin  1  OE sin 2
cos  1
OE cos  2
 sin  1  OE sin  2  OE(tan  1 cos  2  sin  2 )
cos  1
 P (tan  1 cos  2  sin 2 )

 If Rs y is the annual cost per kVAR of the p. f.

correction equipment, then, the annual cost on p. f.
correction equipment
 Rs yP (tan  1 cos  2  sin  2 )

Fig.6 : Power triangle

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Example 1 : A factory operates at 0.8 p.f. lagging and has a monthly demand of 750 kVA.
The monthly power rate is Rs. 8.50 per kVA. To improve the power factor, 250 kVA
capacitors are inserted in which there is negligible power loss. The installed cost of
capacitors is Rs. 20,000 and fixed charges are estimated at 10% per year. Calculate the
annual saving effected by the use of capacitors.

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