Energy Network Association releases roadmap for pricing reform

The Energy Network Association (ENA) has released two new publications - ‘The Road to Fairer Prices’ and ‘Electricity Prices and Network Costs’ - highlighting recent influences on energy prices and suggesting smarter pricing structures.

According to ENA CEO John Bradley, “Since 2007, household electricity bills have increased on average by 10% per annum and, along with environmental schemes and the carbon tax, network costs were a key driver.

“However, significant falls are now occurring in key network cost drivers, including the cost of finance, capital expenditure and changes to prescriptive reliability standards.”

But while these falling cost drivers are positive for consumers, Bradley says bills continue to be exposed to trends in demand growth, subsidised solar schemes and retail offers. He noted, “Energy consumption has been falling since 2007, but it is the peak demand on just a few days per year that drives network capacity costs.

“Most electricity customers pay network charges based on the volume of energy they use in a quarter, regardless of what time of day it’s used or how much they contribute to the peak demand.

“This creates unfair cross-subsidies. For instance, it’s estimated a customer using an air conditioner without load control at peak times receives a hidden subsidy of $350 per year from other customers who don’t.”

Bradley said significant cost-shifting had occurred with the rapid take-up of solar panels, which are now used by almost 1.2 million network customers. If tariffs are based on energy volume, customers without solar panels are likely to pay more than their fair share.

“Recent Victorian indicative analysis suggests that solar customers can receive network subsidies from other customers of $60 to $180 per year, while in Queensland approximately $100 million has been added to the electricity bills of households without solar PV.”

Smarter tariffs are thus required, said Bradley, to ensure fairer cost recovery and reward consumers who conserve energy at times of peak demand, reducing network cost pressure.

“It makes sense to have tariffs which reward customers who help to reduce the need for network investment,” he said.

ENA’s roadmap to fairer prices includes five key elements:

• A balanced framework for smart meters that achieves the fastest, economic rollout to benefit all consumers.
• Better information and decision tools for consumers through a joint initiative between electricity networks, retailers and governments.
• National agreement to introduce flexible pricing and smart meters for key consumers, based on triggers (such as the connection of solar panels, battery storage, electric vehicles and connections to new premises) and consumption thresholds.
• Review of customer hardship programs to support vulnerable consumers during change to pricing structures.
• Deregulation of retail prices, delivering long-standing Council of Australian Governments (COAG) commitments to deregulate where markets are sufficiently competitive.