What is Tariff? Tarrif Types and everything else you want to know

(Last Updated On: February 20, 2022)


What is Tariff? The rate at which electrical energy is provided to the consumer is known as tariff. The objective of the tariff is to the recovery of the cost of electrical energy generated at generating station. We require different types of machines and equipment to generate the electricity in the generation station. For example:

  • Alternator
  • Turbine
  • Induction motor
  • Boilers

So all this equipment requires more cost to arrange and operate.

Objectives of the tariff:

Generating stations recover the cost from consumers as a charge. This rate is fixed and according to this rate, we pay charges in the bill. The rate of Tariff depends upon the generation of electricity.

Now after generating electricity; we need transmission lines, towers, insulators, and poles to transmit the electricity. So at the tariff rate, we will return the cost of construction to transmit the electricity. Now after the transmission cost, if we have faced any fault in the transmission line due to which equipment and conductors are damaged so in order to repair this equipment this cost will also be paid by the consumer by the rate of tariff. Suitable profit on capital investment.

Desirable characteristics of Tariff:   

Proper return:

The tariff should be such that the income generated must cover all expenses and should gain reasonable profit to enable future expansion of the plant.


Consumers are encouraged for more extended use of electricity so that lead factor is improved and hence cost of energy decreases for a given max demand i.e. plant capacity.

  • Consumers should be encouraged to consume power at off-peak hours
  • More charges are imposed on consumers who have less load factor
  • A consumer should be penalized for low power factor


The tariff should be simple and easily understandable.

Types of tariff:

There are the following tariff rates according to which the consumer will pay the cost.

  • Simple tariff
  • Flat rate tariff
  • Block tariff
  • Two part tariff
  • Three part tariff
  • Maximum demand tariff
  • Power factor tariff

Simple Tariff:

In simple tariff, per unit rate is fixed and consumers pay the charge as per units rate. For example, if we pay 3 rupees per unit and if we consume 20 units in 30 days. Then we will pay 60 rupees as a tariff. The disadvantage of the simple tariff is that the same charge will pay by the small and big consumers. In this case, the charge is not depending on the load it depends on the units. It does not encourage the consumer to use more energy.

Flat rate tariff:

In this type of tariff, the bill depends only on the maximum demand irrespective of its amount of energy. In flat rate, the rate depends upon the load which is a light load and heavy load. When we use the electricity for domestic purposes known as light load for example fan, TV, Bulb, refrigerator, etc. When we use the electricity for heavy machines then it is known as a heavy load. For example synchronous motor and induction motor. The tariff rate will be different for both loads. One of the easy systems of charging energy rates is by using this method of tariff the cost of meter reading equipment is eliminated. It is used in street lights and traffic light systems.

The disadvantage of flat rate tariff is that if we use the electricity for domestic use then it will be costly. Separate meters are required for light load and heavy load. It is very difficult to derive the load factor and diversity factor of various types of load in deciding the tariff. Consumers are charged at constant rate irrespective of no of units consumed.

Block rate tariff:

Tariff is divided into different blocks after consuming the one block, when consumer will purchase another block the rate of tariff will be reduced. For example, we have three blocks and in each block, we have 30 units. For example, in the first block, we have 25 rupees per unit and after consuming the first block units then in another block unit, the rate will be either reduced. The price of energy should be decreased with an increase in consumption.

The disadvantage is there is no measure of consumer maximum demand used for the majority of residential and small commercial consumers.

 Two-part tariff:

In two parts tariff rate is divided into two parts:

  • Maximum demand
  • Running charge

Maximum demand means the maximum amount of electricity used by the consumer. So this rate will be fixed; for example, if the maximum demand of industry is 8KV then he will pay 10000 rupees.

In running charge the consumer will pay according to the units for example if the unit price is 20 rupees per unit then according to the number of units he will pay the bill. So in two part tariff the consumer will pay by adding the running charge and maximum demand charge. In the two part tariff the disadvantage is that consumers can tell false maximum range if maximum demand meter is not installed.

Maximum demand tariff:

It is the same as two part tariff but a maximum demand meter is installed to measure the maximum demand of the consumer. In maximum demand tariff the maximum demand meter is installed. It is used for the industrial consumer. It encourages the consumer to keep their maximum demand at a lower value.

Power factor tariff:

When the power factor of equipment or device is less it will consume more power. So in the power factor tariff the rate is according to the power factor. When the low power factor increases the rating of station equipment and line losses. Consumers having low power factors must be penalized.

Three part tariff: 

In the three part tariff the tariff is divided in to three parts:

  • Maximum demand
  • Running charge
  • Semi charge

It is similar like two part tariff the only difference is it has semi charge. For example, if the equipment in our house is damaged. So to repair the equipment we will pay to the operator so due to which it is called three part tariff. So the total tariff will be the sum of these three parts.

In Pakistan the various tariff rates are:

a) For Sanctioned load up to 5 kW
i Up to 50 Units 3.95
For Consumption exceeding 50 Units
ii 1- 100 Units 7.74
iii 101- 200 Units 10.06
iv 201- 300 Units 12.15
v 301- 700 Units 19.55
vi Above 700 Units 22.65
b) For Sanctioned load 5 kW & above
Peak Off-Peak
Time Of Use 22.65 16.33


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About the Author: Engr Fahad

My name is Shahzada Fahad and I am an Electrical Engineer. I have been doing Job in UAE as a site engineer in an Electrical Construction Company. Currently, I am running my own YouTube channel "Electronic Clinic", and managing this Website. My Hobbies are * Watching Movies * Music * Martial Arts * Photography * Travelling * Make Sketches and so on...

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