A new standard in fairer, more affordable power

Australian households could save an average of up to $250 per year in electricity bills and avoid unfair cross-subsidies of up to $650 per year under a proposed new standard for network tariff reform.

Electricity transmission and distribution network providers have proposed a national approach to fast-track the benefits of electricity tariffs, which reward consumers for contributing to lower network costs.

Energy Networks Association (ENA) released the first comprehensive analysis of the benefits of electricity network tariff reform for Australian households and businesses in December.

The analysis compared outcomes from three alternative network tariff scenarios, finding up to $655 a year in unfair cross-subsidies in 2034 could be avoided for residential customers, who cannot or do not invest in distributed energy resources.

The paper, Towards a National Approach to Electricity Network Tariff Reform, also stated while network tariff reform could remove the current incentives for $17.7 billion in over-investment in distributed energy resources by 2034, it remains technology neutral and results in rooftop solar PV and storage capacity increasing more than 1000 per cent to 35GW by 2034.

ENA CEO John Bradley said if industry doesn’t act, today’s outdated tariffs will lead to network price increases that are five-times higher than necessary.

“This analysis shows today’s network tariffs will encourage an explosion in unfair cross-subsidies, leading to a world of ‘haves’ and ‘have nots’ in 2034,” he said.

“Customers who have taken up solar and other technologies would pay electricity bills that are $1270 (about 40 per cent) lower than those who have not. About half that ‘discount’ would be paid for by other customers through unfair cross-subsidies.”

The findings support recent analysis by the Australian Energy Market Commission (AEMC), which found network tariffs currently don’t reflect network cost drivers and allow air-conditioning customers to impose costs of up to $700 per year on other users.

The review of pricing options found network tariffs based on customer peak demand would achieve the lowest network charges and cross-subsidies for residential customers.

Despite recent changes to network pricing rules by the AEMC, Mr Bradley said a range of barriers to fairer tariffs needed to be urgently addressed.

“Australia’s electricity networks want to work with their customers to implement fairer tariffs in a carefully planned way that suits local network circumstances,” he said.

“The first step is the removal of outdated regulatory restrictions that prevent the efficient network cost being charged to a retailer, such as default flat rate tariffs. The second step is to develop an industry standard for implementing network tariff reform, including collaboration with electricity retailers, working with consumer advocates on measures to support vulnerable customers and establishing some foundation principles.”

The ENA has proposed three foundation principles for consultation with customers and other stakeholders, to fast-track the benefits of network tariff reform: a national policy to install smart ready meters for new connections or replacement of meters, which can be converted to smart meters when economic to do so; the ability for networks to assign customers making new connections or upgrading their existing connection to a cost-reflective network tariff; and the ability for networks to assign customers using more than 40MWh per year of electricity, or a capacity threshold, to a cost-reflective network tariff.

“While these policies provide an important context for fair, efficient tariffs, individual network businesses will consult with their customers on network tariff proposals, which provide the best outcomes in their locations,” ENA’s report stated.

“The need for tariff reform is urgent, and concerted action is required by network businesses, retailers, governments and market participants working together in the interests of customers.”