Study shows huge rise in network charges.

Commercial network charges and the Bing Lee factor

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Study shows massive increases in network charges, out of proportion to the rise in demand, and diminishing the solar PV industry’s ability to help business offset energy costs.

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Across the PV industry, one of the most commonly requested bits of intelligence I get asked for is a data base of commercial electricity prices. Everyone wants to know where to find best case scenario of high electricity prices, because that’s where PV will provide the biggest bang for your buck.

My response is to use the punch line of one of our countries white goods retailers; the database would be valueless because “everything’s negotiable” – the Bing Lee factor.

All around the industry I hear stories about commercial electricity prices being increasingly negotiable and staggeringly disparate, and last week Big Switch Projects released an analysis that puts some hard facts behind the confounding conundrum we face.

The team at Big Switch Projects conducted a detailed analysis of 66 businesses around Australia; 20 in NSW, 18 in Victoria, 20 in Queensland, six in South Australia and one each in the ACT and Northern Territory. A pretty good little snapshot.

What they found confirmed two key things the PV industry and consumer advocates has been saying for some time.

Firstly, that network charges are replacing energy charges at a prolific rate and this unfairly diminishes the ability of solar PV to provide value. The study revealed that during the study period, network charges rose by up to 75% and an average of 30%. Now to be clear, I’m a huge advocate of time of use charges and agree that opportunities exist for reductions in network costs through demand side management, pricing being one of the methods that can be used.

However, I am unaware of a single piece of data that suggests that peak demand has increased by 75%! I also see little evidence of network companies (or retailers) getting out there and practically helping customers to address these issues; to the contrary, we have actually seen some incentives and support mechanisms wound back or “paused”(the AusIndustry Cleantech Investment Grants, for example). Simply whacking up the price is both lazy and a transparent profit grab by the people who own most of the network companies. That’s right, your elected state officials – the state government.

So now we have the evidence; network charges and demand charges are increasing disproportionately to real demand and in doing so, diminishing the ability of the solar PV industry to help Commercial building owners offset their demand. Why? Because theres a bucket load of money involved in “network demand” charges and revenue from electricity sales is under threat, thats why. I can see the marketing promo at the electricity industry annual conference – “Cant get enough revenue from electricity sales? Change your thinking – don’t charge for energy – its too easily reduced – charge for something that can’t easily be effected and maximise profits for your shareholders!!” Trying to debate the validity of the charges is highly complex, regulatory stuff and most people – and companies just give up because it’s too hard or expensive.

In this study, these charges represented as much as 20% of the total bill. I had previously looked at a similar issue at a residential level, coming to similar conclusions. In our study we sampled average electricity prices from around Australia and found that ” fixed daily charges” now represent an average of 16% of the average residential bill.   The highest proportion was Victoria where daily charges were 28% of the typical bill and lowest was Victoria where they represented 7% of daily costs.

Energy price was also considered in the study, finding that there is a massive variation in the price per kWh being paid by this group of similar Commercial sized customers. The average price increased by 18.6% during the study period with a range of prices between $0.136c and $0.314c kWh.

So what have we learned?

Well, the opportunity for profiteering – and chance to defend ourselves  – continues, and it seems there is a good sample here of companies who are being unjustifiably charged massive increases. Secondly, that in doing so, the network companies and State Governments who reap the profits are doing a  great job of allowing the electricity industry to slow down the uptake of PV, particularly in the Commercial market.

Standard average residential electricity costs, inc. daily charges, Australia, 2012-2013.

Nigel Morris is the Director of SolarBusinessServices. After almost 20 years working for other companies SbS Director Nigel Morris, established the company in 2009 with a view to providing other organisations with the benefits of his wide experience in the renewable energy industry.

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1 Comment
  1. Warwick 8 years ago

    Aside from the debate about whether networks are “gold-plating” or not. Wouldn’t it be reasonable that networks align their charging with their investment? i.e. network capacity is driven by demand not energy, so if the charges are based upon demand, then surely that is placing the cost upon those who use the network the most.

    It’s also a great simplification to suggest that a 75% increase in a demand charge equates to a 75% increase in peak demand…this would only be true if the only network charge was a demand charge and everyone’s bill went up 75%. Depending on customer size they may be charged for daily charges, kWh’s, kW’s and kVA’s, so looking at one part of the bill is misleading….you need to confirm the total network bill assuming the consumption pattern of the customer has not changed significantly and THEN analyse the percentage increase.

    Changing each of the bill components will make some worse off and potentially others better off. You must understand that network businesses are regulated monopolies that earn a fixed revenue that is charged in a way that attempts to be both economic and equitable.

    These changes do not necessarily provide proof of profiteering…perhaps we as consumers need to consider that the investment has been made on the basis of rapid growth of air-conditioning that has necessitated increased network investment. We are all paying for that and future improvements in efficiency will do little to prevent the cost of network investments that have already been made.

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