Factors of tariff; two-part and time of day tariff

Factors affecting the tariff

A tariff must recover the full cost of supplying energy and give a fair return. The main factors considered are:

1. Fixed (capital) cost: interest and depreciation on generation, transmission and distribution plant; this depends on the maximum demand.
2. Running cost: fuel, wages, maintenance; this depends on the energy (kWh) supplied.
3. Load factor and diversity factor of the consumer: a high load factor uses the plant better, so it deserves a lower rate.
4. Power factor: low pf needs larger plant (more kVA), so it is penalised.
5. Time of use: supply at peak hours costs more than at off-peak hours.
6. Type and size of consumer (domestic, commercial, industrial, irrigation) and supply voltage (LV, MV, HV).
7. Quantity of energy used, profit margin, taxes, and social or government policy (subsidies, lifeline block).

Two-part tariff

The total bill is split into two parts:

$$\text{Bill} = a \times \text{kW (or kVA) of max. demand} + b \times \text{kWh}$$

• The first part (demand charge) recovers the fixed cost; the second part (energy charge) recovers the running cost.
• Used for industrial and large commercial consumers.
• Merit: fair, since each consumer pays for the plant capacity he reserves. Demerit: needs a maximum demand meter, and the consumer pays the fixed part even if little energy is used.

Time of day (TOD) tariff

The energy rate differs with the time at which energy is used.

• The day is divided into peak, normal and off-peak periods; the peak rate is highest and the off-peak rate lowest. In Nepal, NEA's TOD tariff for industries uses peak (about 17:00–23:00), off-peak (about 23:00–05:00) and normal (05:00–17:00) periods.
• It encourages consumers to shift loads (pumping, furnaces, charging) to off-peak hours, which flattens the load curve and improves the utility's load factor.
• It needs a TOD (multi-register) energy meter.