An Introduction to Electricity Tariffs 101 for the Average Consumer

Electricity is a necessity that we cannot imagine living without. Today, a large part of the world relies on electricity to power their homes, businesses, and industries. As essential as it is to have an electricity connection at your place, it is equally important to have affordable electricity. If you are a large power consumer, you would be able to make the most out of the right tariff. It is important for you to know what electricity tariffs are, and how they are calculated.

What is an electricity tariff?

We get electricity from our power sockets from the electricity provider’s electric supply. At the end of the billing cycle, that typically runs from the first day of the month to the last day of the month, we receive our utility bills. The rate that we are charged for electricity we have used, is known as a tariff.

The price we pay to the electricity provider includes the total cost of production and supply of electricity along with added profit for them usually. There are different types of electricity tariffs depending upon user type and requirements.

If you are a large power consumer, it is important for you to know the right tariff so that you can get the best option. The tariff you choose must be highly affordable so that you are able to save money in the long run. If you are a business owner, when you can save on power costs, you will be able to manufacture your products at a lower cost.

What to look for in an electricity tariff?

Before you select a tariff for your needs, it is important to look out for the following characteristics:

Reasonable Profit:While counter-intuitive, it is important that an electricity provider makes a reasonable profit. Why?

The prime function of an electric supply company is to make profit, through serving the consumers. Hence, it is totally acceptable and normal that they will make a profit out of their service. However, the profit must not be exorbitant but a certain amount that makes it affordable for the consumers. On the other hand, if a provider is not able to make profit, it will simply exit the market. This may be a larger loss to consumers in the larger picture.

Fair Policy: The electricity tariff must have a fair policy for its consumers. There are different kinds of consumers in the power consumption market. Different consumers have different needs, so their usage varies too. The rate for small consumers shall be different than large consumers. That being said, large consumers should pay a lower amount per unit of electricity used than the small ones.

Ease of understanding: The tariff plans should be simple to understand by the layman. If the plans are too complicated, it would be difficult for people to understand them. Therefore, the electric supply company should make tariff plans that are easy to understand so that the consumers can choose the right one for their business.

What are the types of electricity tariffs?

There are several types of tariff plans used by electric supply companies. Some of them have been discussed below:

  1. Simple Tariff – In this tariff plan, a fixed rate is charged for every unit consumed by the consumer irrespective of the number of units consumed. This means that all consumers pay the same rate even if they are large consumers. It is not an ideal plan for large businesses and industries
  2. Flat-rate Tariff – In this type of tariff, consumers are divided into categories based upon their estimated usage. The rate per unit is charged at a flat rate for all consumers.
  3. Block-rate Tariff – In this tariff plan, different blocks are made for the consumers. When the consumer uses their first block of energy, they are charged at a rate. For subsequent blocks, the rate lowers down which turns out to be beneficial for the user. So, if you are the owner of an industry, you can choose this tariff plan. The more energy you use, the lower youpay for subsequent blocks of energy.

There are several types of tariff plans available that electricity providers should provide. If you are looking for the best plan, it is important that you evaluate your needs and find the best tariff for your household or business, if you are a business owner. With the right electricity tariff, you can enjoy using electricity at the most affordable rate.