ECONOMICS OF POWER GENERATION- TARIFF METHODS

The art of determining the cost of producing electrical energy per unit (i.e., one kWh), known as the economics of power generation. The economics of power generation has assumed a great importance in this fast developing Economics of Power Generation

1. https://www.slideshare.net/slideshows/power-generation-methodspower-generation-power-
plants/266214209

3. Introduction,definitionsofconnectedload,maximum
demand,demandfactor,loadfactor,diversityfactor,
Loaddurationcurve,numberandsizeofgenerator
units.Baseloadandpeakloadplants.Costofelectrical
energy-fixedcost,runningcost,Tariffonchargeto
customer.

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Important Terms and Factors
Connectedload:Itisthesumofcontinuousratingsofalltheequipment's
connectedtosupplysystem.
Maximumdemand:Itisthegreatestdemandofloadonthepowerstation
duringagivenperiod.
Demandfactor.Itistheratioofmaximumdemandonthepowerstationtoits
connectedloadi.e.,
Demandfactor=Maximumdemand/Connectedload
Thevalueofdemandfactorisusuallylessthan1.
Averageload:Theaverageofloadsoccurringonthepowerstationinagiven
period(dayormonthoryear)isknownasaverageloadoraveragedemand.
Dailyaverageload=No.ofunits(kWh)generatedinaday/24hours
Monthlyaverageload=No.ofunits(kWh)generatedinamonth/Numberof
hoursinamonth
Yearlyaverageload=No.ofunits(kWh)generatedinayear/8760hours

26. TARIFF
The rate at which electrical energy is supplied to a consumer is known
as tariff
Objectivesoftariff.Likeothercommodities,electricalenergy
isalsosoldatsucharatesothatitnotonlyreturnsthecostbut
alsoearnsreasonableprofit.Therefore,atariffshouldinclude
thefollowingitems:
(i)Recoveryofcostofproducingelectricalenergyatthepower
station.
(ii)Recoveryofcostonthecapitalinvestmentintransmission
anddistributionsystems.
(iii)Recoveryofcostofoperationandmaintenanceofsupply
ofelectricalenergye.g.,meteringequipment,billingetc.
(iv)Asuitableprofitonthecapitalinvestment.

27. CharacteristicsofaTariff
(i)Properreturn:Thetariffshouldbesuchthatitensurestheproperreturnfrom
eachconsumer.Inotherwords,thetotalreceiptsfromtheconsumersmustbeequal
tothecostofproducingandsupplyingelectricalenergyplusreasonableprofit.
(ii)Fairness:Thetariffmustbefairsothatdifferenttypesofconsumersare
satisfiedwiththerateofchargeofelectricalenergy.Thusabigconsumershould
bechargedatalowerratethanasmallconsumer.Itisbecauseincreasedenergy
consumptionspreadsthefixedchargesoveragreaternumberofunits,thus
reducingtheoverallcostofproducingelectricalenergy.
(iii)Simplicity:Thetariffshouldbesimplesothatanordinaryconsumercan
easilyunderstandit.Acomplicatedtariffmaycauseanoppositionfromthepublic
whichisgenerallydistrustfulofsupplycompanies.
(iv)Reasonableprofit:Theprofitelementinthetariffshouldbereasonable.An
electricsupplycompanyisapublicutilitycompanyandgenerallyenjoysthe
benefitsofmonopoly.
(v)Attractive:Thetariffshouldbeattractivesothatalargenumberofconsumers
areencouragedtouseelectricalenergy.Effortsshouldbemadetofixthetariffin
suchawaysothatconsumerscanpayeasily.

28. Types of Tariff
1.Simpletariff.Whenthereisafixedrateperunitofenergyconsumed,itis
calledasimpletarifforuniformratetariff.Inthistypeoftariff,theprice
chargedperunitisconstanti.e.,itdoesnotvarywithincreaseordecreasein
numberofunitsconsumed.Theconsumptionofelectricalenergyatthe
consumer’sterminalsisrecordedbymeansofanenergymeter.Thisisthe
simplestofalltariffsandisreadilyunderstoodbytheconsumers.
Disadvantages
(i)Thereisnodiscriminationbetweendifferenttypesofconsumerssince
everyconsumerhastopayequitablyforthefixedcharges.
(ii)Thecostperunitdeliveredishigh.
(iii)Itdoesnotencouragetheuseofelectricity.
2.Flatratetariff.Whendifferenttypesofconsumersarechargedatdifferent
uniformperunitrates,itiscalledaflatratetariff.Inthistypeoftariff,the
consumersaregroupedintodifferentclassesandeachclassofconsumersis
chargedatadifferentuniformrate.Thedifferentclassesofconsumersaremade
takingintoaccounttheirdiversityandloadfactors.Theadvantageofsucha
tariffisthatitismorefairtodifferenttypesofconsumersandisquitesimplein
calculations.

29. Disadvantages
(i)Sincetheflatratetariffvariesaccordingtothewaythesupplyisused,separate
metersarerequiredforlightingload,powerloadetc.Thismakestheapplicationof
suchatariffexpensiveandcomplicated.
(ii)Aparticularclassofconsumersischargedatthesamerateirrespectiveofthe
magnitudeofenergyconsumed.However,abigconsumershouldbechargedata
lowerrateasinhiscasethefixedchargesperunitarereduced.
3.Blockratetariff.Whenagivenblockofenergyischargedataspecifiedrate
andthesucceedingblocksofenergyarechargedatprogressivelyreducedrates,itis
calledablockratetariff.Inblockratetariff,theenergyconsumptionisdividedinto
blocksandthepriceperunitisfixedineachblock.Thepriceperunitinthefirst
blockisthehighest**anditisprogressivelyreducedforthesucceedingblocksof
energy.Forexample,thefirst30unitsmaybechargedattherateof60paiseper
unit;thenext25unitsattherateof55paiseperunitandtheremainingadditional
unitsmaybechargedattherateof30paiseperunit.
Theadvantageofsuchatariffisthattheconsumergetsanincentivetoconsume
moreelectricalenergy.Thisincreasestheloadfactorofthesystemandhencethe
costofgenerationisreduced.However,itsprincipaldefectisthatitlacksameasure
oftheconsumer’sdemand.Thistypeoftariffisbeingusedformajorityof
residentialandsmallcommercialconsumers.

30. 4.Two-parttariff.Whentherateofelectricalenergyischargedonthebasis
ofmaximumdemandoftheconsumerandtheunitsconsumed,itiscalleda
two-parttariff.
Totalcharges=Rs(b×kW+c×kWh)
where,b=chargeperkWofmaximumdemand
c=chargeperkWhofenergyconsumed
Thistypeoftariffismostlyapplicabletoindustrialconsumerswhohave
appreciablemaximumdemand.
Advantages
(i)Itiseasilyunderstoodbytheconsumers.
(ii)Itrecoversthefixedchargeswhichdependuponthemaximumdemandof
theconsumerbutareindependentoftheunitsconsumed.
Disadvantages
(i)Theconsumerhastopaythefixedchargesirrespectiveofthefactwhether
thehasconsumedornotconsumedtheelectricalenergy.
(ii)Thereisalwayserrorinassessingthemaximumdemandoftheconsumer

31. 5.Maximumdemandtariff.Itissimilartotwo-parttariffwiththeonly
differencethatthemaximumdemandisactuallymeasuredbyinstalling
maximumdemandmeterinthepremisesoftheconsumer.Thisremoves
theobjectionoftwo-parttariffwherethemaximumdemandisassessed
merelyonthebasisoftherateablevalue.Thistypeoftariffismostly
appliedtobigconsumers.However,itisnotsuitableforasmallconsumer
(e.g.,residentialconsumer)asaseparatemaximumdemandmeteris
required.
6.Powerfactortariff.Thetariffinwhichpowerfactoroftheconsumer’s
loadistakenintoconsiderationisknownaspowerfactortariff.Inana.c.
system,powerfactorplaysanimportantrole.Alowpowerfactor
increasestheratingofstationequipmentandlinelosses.

32. 7.Three-parttariff.Whenthetotalchargetobemadefromthe
consumerissplitintothreepartsviz.,fixedcharge,semi-fixedcharge
andrunningcharge,itisknownasathree-parttariff.i.e.,
Totalcharge=Rs(a+b×kW+c×kWh)
wherea=fixedchargemadeduringeachbillingperiod.
Itincludesinterestanddepreciationonthecostofsecondary
distributionandlabourcostofcollectingrevenues,
b=chargeperkWofmaximumdemand,
c=chargeperkWhofenergyconsumed.

33. Cost of Electrical Energy
Thetotalcostofelectricalenergygeneratedcanbedividedintothreeparts,namely
(i)Fixedcost(ii)Semi-fixedcost(iii)Runningoroperatingcost
(i)Fixedcost.Itisthecostwhichisindependentofmaximumdemandandunits
generated.Thefixedcostisduetotheannualcostofcentralorganisation,interestoncapital
costoflandandsalariesofhighofficials.Theannualexpenditureonthecentralorganisation
andsalariesofhighofficialsisfixedsinceithastobemetwhethertheplanthashighorlow
maximumdemandoritgenerateslessormoreunits.Further,thecapitalinvestmentonthe
landisfixedandhencetheamountofinterestisalsofixed.
(ii)Semi-fixedcost.Itisthecostwhichdependsuponmaximumdemandbutis
independentofunitsgenerated.Thesemi-fixedcostisdirectlyproportionaltothemaximum
demandonpowerstationandisonaccountofannualinterestanddepreciationoncapital
investmentofbuildingandequipment,taxes,salariesofmanagementandclericalstaff.The
maximumdemandonthepowerstationdeterminesitssizeandcostofinstallation.The
greaterthemaximumdemandonapowerstation,thegreaterisitssizeandcostof
installation.
(iii)Runningcost.Itisthecostwhichdependsonlyuponthenumberofunits
generated.Therunningcostisonaccountofannualcostoffuel,lubricatingoil,
maintenance,repairsandsalariesofoperatingstaff.

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