It would not be an extravagant claim that electricity is the base foundation in any country or community’s progress. The presence of electricity can be felt all around our modern lives, whether in agriculture, industries, transport, etc.
It would be quite hard to name a single activity that is not affected by electricity in either a direct or an indirect way. Needless to mention, the usage of electricity comes with a cost.
Electricity pricing or tariff is levied in all countries of the world irrespective of their economic or social status. The unit on which the rates are based is commonly known as KwH or KiloWatt Hour.
This unit essentially provides the measure of how much Kw of electric power is consumed in an hour. The Price per KwH varies from one country or even locality to another.
There are multiple aspects, like:
- Power generation cost
- Various kinds of subsidies and taxes as imposed by the local government
- Infrastructure for transmission, distribution, and storage
- Other factors e.g. weather patterns, etc.
While the above-mentioned points dealt with the power sources, other categories that help in rate determination is the customer types, which are:
- Retail: Includes the residential connections
- Commercial: Includes the connections serving commercial purposes
- Industrial: Includes those commercial connections which are dedicated for industrial purposes only
Rate structure and meaning
The Energy Information Administration (EIA) of the US states, "Electricity prices generally reflect the cost to build, finance, maintain, and operate power plants and the electricity grid.” Almost all countries have a governance structure that works at multiple levels for determining the rates of electricity unit usage.
Rates of electricity usage come in varied types to suit the type of usage. Some of the most common types of rates are:
- Fixed-Rate: It is the flat rate, which the customers pay for electric units used
- Step-Rate: The rate changes with the usage of electric units. Usually, such rates start with minimal charges for the initial units’ incrementing after consumption of a certain number
- Time of Use or TOU: The rate is determined based on the time of the day during which electricity is used
- Demand Rates: The rate uses the demand surges and drops during the day and keeps a track of the peak demand
- Combination of Step and TOU Rate: This combination allows the use of electric units in a blend of tiered rate and TOU rate
- Seasonal Rate: The rate is based on the time of year during which consumption happens in certain establishments like summer cottages
- Holiday Rates: The rate differs during the holidays and remains regular during the normal working days
The primary reason behind the introduction of such different types of rates is to increase awareness about the unnecessary use of electricity leading to its wastages. Besides, still many sources of power generation remain thermal ones. An increase in demand from such sources would cause detrimental effects to the environment as well. Therefore, we should use our resources with proper care.