Pricing reform needed “urgently”

Australia risks falling behind the rest of the world in developing fairer and more equitable energy tariffs to reflect the changing nature of the energy market, according to a new report.

The report, commissioned by the Energy Supply Association of Australia (ESAA), surveyed the ways other countries were implementing fairer tariff structures to cope with increased uptake of solar panels, air conditioners and other technologies.

Power Pricing Internationally: Learnings for Australia found many economies similar to Australia had already developed fairer ways to charge for power based on actual household capacity and their demand on the network.

“Electricity prices that reflect the real cost of supplying energy send a better signal to consumers, encouraging them to take control of how much energy they consume, when they use it and how much they pay,” esaa chief executive Matthew Warren said.

Mr Warren said the way electricity was priced in Australia was based on a 1970s model of supply that was increasingly inequitable in the 21st century. He said the current structure needed to be “urgently” changed.

“Currently Australian consumers mostly pay for the network via a simple charge for each unit of electricity they consume, not for how much strain they actually put on the network,” he said.

“This method tends to undercharge households with high use at peak times, mostly driven by their air conditioner use, and is also distorted by solar panels. This means households without these increasingly popular technologies end up paying more and more.

“This isn’t right. As more of these technologies become commonplace we need to make sure that everyone is paying their fair share and no one is getting ripped off.”

The report, prepared by AECOM, shows that in France consumers pay a connection charge that varies depending on the maximum amount of power they can draw from the network, rather than how much energy they consume overall.

The esaa said the French tariff provides a much better capacity signal than Australia yet does not require smart meters.

The association said smart meters opened up a much larger realm of tariff options and other consumer benefits, but the lesson from overseas was that Australia did not have to wait until they were rolled out before the country started moving to fairer electricity pricing.