AEMC paves way for changes in network pricing for solar, air-con

Solar households face inevitable changes to the way their bills are packaged after the Australian Energy Market Commission delivered new rules which will require networks to impose “cost reflective” pricing on networks.

As first proposed in August, the National Electricity Rules will be changed on December 1, 2014 to require electricity network operators to structure their prices to better reflect the consumption choices of individual consumers.

According to the AEMC, the changes will not only cater better to different patterns of consumption, they will benefit all consumers in the longer term as lower peak demand reduces the need for spending on infrastructure.

They will likely result in changes in tariffs to encourage households to avoid switching everything on at peak times, or at least pay for the privilege, and also for solar households. It could, for instance, encourage more homes to install west-facing panels rather than north-facing panels, but the final tariffs will be up to the networks to decide.

In effect, while the Australian Energy Regulator decides how big a revenue pie the networks can eat – and based on today’s decision it is a lot smaller than last time – the AEMC is proving rules that decide how the networks can slice and dice that pie.

“These changes put consumers at the centre of future decision-making about energy,” said AEMC chairman John Pierce.

“By having prices that reflect the costs of different patterns of consumption, we are giving consumers clearer choices as we develop a more efficient, incentive-based network regulation framework.”

But as we noted back in August, the proposed changes will also have the effect of lumping rooftop solar households in the same basket as homes with big air conditioning units, as the main targets of new tariffs aimed at recovering network revenue to drive down future electricity costs.

One of the biggest fears of the networks is that they are losing money to solar, so they are keen to get as much “network pricing” out of the solar households as they can.

As the AEMC noted in August – and we have noted several times, ourselves – “We’re all paying for air conditioning, whether we have it or not.”

By the AEMC’s reckoning, a household with a large air-conditioner (5kW) will cause about $1,000 a year in additional network costs compared with a household without air-con.

While the consumer with the air-conditioner pays about $300 extra for the comfort of cool air, says the AEMC, the remaining $700 is recovered by all other consumers through higher network charges.

The other example used by the AEMC in August was a household using an average-size north-facing rooftop solar PV system in South Australia, which it estimated would save about $200 a year in network charges compared with a non-solar neighbour.

“Because most of the solar energy is generated at non-peak periods during the day, it reduces the network’s costs by $80, leaving other consumers to make up the $120 shortfall through higher charges,” it reasoned.

But critics say this fails to take into account the potential grid benefits rooftop solar households offer – which the grid operator in South Australia says are considerable – both in shifting the peak and in stabilising the grid; instead choosing to hike the fixed component of network tariffs.

These charges recovered from different consumers, says the AEMC, will more accurately reflect individual usage, with the key factor to determine how much consumers pay being their individual usage pattern or load profile.

“This rule change will not actually set new network prices – that is a role for the networks themselves and the AER. It does create a new requirement that reveals the cost of people’s energy choices,” Pierce said.

“Under these changes, we estimate around 70-80 per cent of consumers would have lower network charges in the medium term.

“Research undertaken since the draft rules were released for public consultation in August shows network prices are likely to be lower in the long run with cost-reflective prices,” he said.

“Research shows average residential charges could reduce by $28 to $145 per year. Households which use power at a steady rate through the day will receive the biggest benefits.

“Based on Victorian trials, we also found a small business could save up to $2,118 or 34% of its total annual electricity network charges by using less electricity at peak times for just 20 hours per year when networks are congested,” Pierce said.

“Once the new rule commences on 1 December 2014 network businesses need to start consulting on their new tariffs and submit draft proposals to the AER in late 2015 for new prices that will start no later than 2017.”