Tariffs overhaul to even out power costs: study

By Brian Robins

An overhaul of electricity tariffs could stop the ”unfair” subsidy received by households using airconditioners and those with solar panel systems paid by all other electricity users with a revamp to ensure heavy users pay their way.A report by the Grattan Institute has thrown its weight behind the need to revamp the way electricity bills are compiled, so that ”network charges”, which account for about half of the total bill, would in future be based on the maximum amount of electricity used by the customer rather than the present system of paying solely for the electricity consumed.

Electricity distributors have spent an estimated $43 billion over the past several years – more than the cost of the National Broadband Network – to upgrade the power network, in part because of the demand from the surge in airconditioners in the family home, which puts extreme stress on the network at peak times, usually in mid-summer. For the rest of the year, this spare capacity is not used.

Reducing demand at peak times would remove the need for network upgrades and reduce power bills in the process, the study found. More than 15 per cent of the tens of billions of recent investment could have been saved by adopting ”peak pricing”, it said.

At present, electricity charges are the same at peak consumption periods as at other times, so there is no incentive to reduce power usage at these times, the report found.

”We have to change the way we price the network,” Grattan Institute’s energy program director Tony Wood said. ”They’re not unfair, they’re just dumb. If we give customers different price signals, they will respond and reduce the need to build more assets.”

Installing an airconditioner could force an estimated $1550 to be invested in network upgrades, the study found, even though the consumer would pay only an additional $53.40 a year in higher charges, with the rest of the bill paid for by all other consumers. ”The result is higher prices for all users,” the report said.

”It is costing people who don’t have photo-voltaic solar systems,” Mr Wood said. ”People with an unfair benefit won’t want to lose that benefit. But these changes are fair and, in the long term, cheaper for all. The benefit, eventually, is the lack of resentment from an unfair tariff.”

Additionally, customers who consumed most of their electricity outside of peak demand times – typically late afternoon and early in the evening – ”may pay substantially more than their fair share or costs”, the report found, while others effectively received a subsidy.

”Customers who used large amounts of electricity at peak times would pay more,” the study said. ”But customers who used less at peak times would receive a discount on their power bill.”

”Because customers’ bills are more closely linked to the strain they put on the network, some customer decisions to use more at peak times will not have the same effect of pushing up bills for all users.

”In the short term these reforms will … share the cost of the power network more fairly. In the longer term the reforms will reduce the need for new infrastructure and bring down all prices through reducing the cost to build the network.”

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