## Introduction

We have seen in our previous article that electricity generation is a business like most other businesses and is carried out for profit purposes. Hence the usual concepts of business such as supply and demand also come into the picture. We have already seen how power is transmitted and distributed from the powerhouse. In this article we will find out about the various factors which effect tariffs of electricity.

## Factors affecting tariff

Demand – it goes without saying that demand for any product or service is the key to its production. The company needs to know the demand or at least an accurate prediction of demand is necessary for production to take place. In terms of electricity generation, demand is referred to as the load requirement over a short period of time. This short period could be in the range of few minutes to a few hours. Since the demand is of power, the units of demand are also the same as that of power namely kW or KVA.

Instantaneous demand – we know from the study of Calculus (relax don’t stop reading – I am not going into mathematical details here) that quantity varies over a period of time is bound to have an instantaneous value as well. Hence if we plot the actual demand over a period of time we would get demand at a particular instance. But it must be noted that for practical purposes there is no such thing known as instantaneous demand.

Average demand – this term is the same as demand in its definition, except that the time span in case of average demand is greater than that of demand. This time period could be in the range of one day, one week, one month and even one year.

Maximum demand – this is a self explanatory term and obviously it refers to the maximum value of demand within a given time frame which again could vary from a day to a year. Since instantaneous demand is not defined in power parlance, this demand does not represent any actual peak at an instant but only an average over a relatively short period of time.

Connected load – this refers to the sum total of the loads which are connected to a power supply. Take a simple example that your house has a television, computer, heaters etc and the total power rating of all these come to say around 4 kW. This is the connected load of your house and similarly there might be thousands of such homes and industries which are connected to the plant. In short, it refers to the total load which is connected to the plant or supply.

Demand factor – theoretically the maximum load on the plant can be equal to the connected but it seems a bit strange that the whole city or region connected to a plant will switch on all the appliances at the same instant. Therefore at any given time the actual load is a fraction of the connected load and this fraction is known as demand factor. Mathematically it is given by the maximum demand divided by connected load. The value of demand factor is always less than one.

Demand diversity – this is not a mathematically defined term but basically it refers to the fact that the demand of various sectors (say like domestic and industrial) have diverse patterns. For example the demand at homes goes up during early morning and late evening when either people are getting ready for their jobs/offices or come back from their work.

Diversity factor – this is a mathematical ratio used to signify diversity in demand and is calculated by taking the ratio of the sum of individual maximum demand of individual load items to the maximum demand defined above, both taken in the same time period. Obviously this value always comes greater than unity.

Having understood the basic terms associated with the distribution, we will now take a look at their significance in setting tariffs.