Handbook to deliver fairer, more efficient electricity prices

energy networks

Australian electricity networks are drawing on international experience to assist the implementation of fairer, more efficient electricity prices for customers.

The Energy Networks Association (ENA) has released an Electricity Network Tariff Reform Handbook for consultation to guide the development and implementation of electricity prices that provide benefits to customers.

ENA CEO John Bradley said Australia’s energy customers are some of the fastest in the world to embrace new energy technologies, but they are in danger of being left behind when it comes to fair and efficient pricing.

“About a third of households in the US now have smart meters, with many US states moving to implement tariffs that reward customers for lowering peak demand – and we have seen similar changes in Italy and Canada,” Mr Bradley said.

The draft Handbook, released for consultation over the weekend, highlighted insights from the implementation of tariff reform in Europe, Canada and the United States, as well as recent experience in Australian markets.

“Most Australian network service providers are currently implementing new tariff options for customers to choose, which reward reductions in peak demand,” Mr Bradley said.

He added most customers today were charged for how much electricity they used, regardless of when they used it.

“By rewarding customers who reduce peak demand, we can avoid future network investment, encourage the best use of solar panels and battery storage, and reduce cross-subsidies between customers,” he said.

“Australian analysis has indicated tariff reform could save consumers $250 per year over the long-term, while the draft Handbook highlights US customer bill savings of 11-41 per cent. “

Mr Bradley said the Handbook recognised successful reform would require a clear customer focus with better analysis of customer preferences and outcomes, direct assistance for customers to respond and support for vulnerable customers.

“New tariffs have to be simple for customers to understand respond to – and that means collaboration with energy retailers and other new market participants will be vital.

“Fair and efficient prices are important for enabling choice when investment decisions move from a few large entities to millions of individual customers.

“Some customers will save by simply changing the time when they run appliances, while others can consider take up of rooftop solar PV, household battery storage or smart appliances and thermostats and electric vehicles.

 

The ENA engaged KPMG Australia to assist the production of the Electricity Network Tariff Reform Handbook to guide networks and stakeholders in the process of tariff redesign. A public webinar will be hosted on Wednesday, April 27, to discuss the key insights.

Mr Bradley said the Handbook highlighted well-recognised principles for network tariff design including they be easily comprehended by customers, reflect the efficient cost of providing network services, and minimise unintended subsidisation of some customers by others.

According to the Handbook, evidence suggests, many vulnerable customers would be better off immediately under a demand-based tariff.

The Handbook references dynamic pricing trials in the US that found 80 to 90 per cent of low- income customers would benefit from moving away from flat or inclining block rates to dynamic pricing.

“In the short-term, tariff reform will reallocate costs among customers more fairly, while over the longer term, reform will lead to network prices lower than they otherwise would have been,” Mr Bradley said.

Download the draft Electricity Network Tariff Reform Handbook.