1 kWh is also known as one unit of electricity. Normally the tariff of electricity is mentioned in rate per kilowatt hour of power consumed or rate per kWh.ġ kWh refers to the amount of electricity consumed when an appliance of one kilowatt power rating runs for one full hour or sixty minutes. We shall study about these factors in our next few articles. The price at which electricity is sold is known as tariff for electricity and several factors come into play while determining the tariff. This is necessary to ensure that the less privileged people of the society do not get deprived of this important source of energy which is become so vital for our existence these days. Of course I must tell you at this stage that in several countries, especially developing countries, the electricity production is tightly regulated by the government and the prices of electricity are not varied like other free-market commodities. The company needs to set the rate of electricity in a manner which gives profit as well as competitive rates from other companies. That electricity is sold at a certain cost to the consumers. Having taken a look at the inputs, now what is the output of the plant? Obviously the output of the plant is the production of electricity.

These include heads such as fuel supply to the plant, maintenance and breakdown repair costs etc. Īpart from these fixed costs, there are variable running/operational costs as well which vary with the power generation.There are several other costs which remain more or less the same despite the operating condition and capacity of the plant and could include costs such as insurance, taxes to be paid, salaries to be given and so on. Technically this is known as depreciation and this allowance has to be made to the plant which also is a fixed cost since it is incurred irrespective of whether there is any production or not. These factors include time, age and normal wear and tear. Whenever any machinery or equipment is bought or the plant is constructed, its value starts to decrease from the very moment due to various factors.

The capital invested on the plant is a fixed cost to the company which is there irrespective of the fact whether any generation takes place or not.

So what are the inputs and outputs for electric power company? Like any other normal business practice, the output of business should be more than the input which goes to the company in the form of profit. Still the main motive of companies dealing with power generation and distribution is to earn profit by selling that electricity. Of course because of the very nature of the product, it comes under essential services which are regulated closely by the government in many countries. We may or may not realize it but power generation, transmission and distribution is a commercial activity like any other manufacturing or service industry.

How to calculate electricity bill