How it works
Total cost in a power system has three components: fixed costs (interest, depreciation, management — independent of units generated), semi-fixed costs (proportional to maximum demand, covering part of the generating plant), and running costs (fuel, oil, operator wages — proportional to kWh generated). The two-part tariff charges a consumer separately for maximum kVA demand and per-kWh consumed. A three-part tariff adds a flat meter rental. Load factor = Average Load / Maximum Load; a high load factor means capital assets are used efficiently. Diversity factor = Sum of individual maximum demands / Coincident maximum demand of the group, always ≥ 1.
Key points to remember
Load factor ranges from near 0 for highly peaky industrial loads to about 0.7–0.8 for a well-managed utility system — the higher the better for economics. Diversity factor greater than 1 means individual peaks do not coincide, allowing a smaller installed capacity than the sum of individual maxima. Tariff design must satisfy three criteria: revenue adequacy, fairness, and simplicity. Depreciation is commonly calculated by the straight-line method or the sinking-fund method; straight-line gives equal annual charges while sinking-fund charges increase each year. Demand charge in a two-part tariff is typically expressed in rupees per kVA of maximum demand per month.
Exam tip
Every Anna University power systems paper asks you to calculate load factor and diversity factor from a given load curve table — set up the table neatly and state both formulas before substituting numbers.