India's Power Sector
How Electricity Tariffs Work
How your electricity bill is calculated with slabs, fixed charges and cross-subsidies, and why industries often pay more than households.
Your electricity bill follows a tariff set by the state regulator.
Parts of a bill
- Fixed charge: based on connected load, paid regardless of use.
- Energy charge: per unit (kilowatt-hour) consumed.
- Taxes and duties.
- Fuel adjustment charges when fuel costs change.
Slabs
Many states use increasing block tariffs: the first units are cheap, and later units cost more.
- Example: first 100 units at 3 rupees, next 100 at 5 rupees, above 200 at 7 rupees.
- A household using 250 units pays 300 + 500 + 350 = 1,150 rupees in energy charges.
Cross-subsidy
Industries and commercial users often pay higher rates than their cost of supply, subsidising farmers and small households.
Problems with cross-subsidy
- Makes Indian industry less competitive.
- Encourages big users to set up captive power or buy from open markets, eroding discom revenue.
Free power schemes
Some states give free electricity up to a limit to households. These are popular but add to subsidy bills if states don’t fully reimburse discoms.
Time-of-day tariffs
New rules introduced time-of-day pricing for commercial and industrial users from 2024, with cheaper solar hours and costlier peak hours.
A small factory pays 8 rupees per unit while a farmer nearby pays almost nothing. The factory's higher rate partly funds the farmer's subsidy.
Rates vary by category and slab, with cross-subsidies between users.
- Bills include fixed charges, energy charges and taxes.
- Slab tariffs make later units costlier.
- Industries often cross-subsidise farmers and households.
- Time-of-day tariffs reward using power in solar hours.
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