Consumers face five-fold hike in network charges under regulator plan to take from the poor, and give to the rich

While many were winding down in the lead up to Christmas, the body which writes our energy regulations – the Australian Energy Market Commission (AEMC) – proposed a radical change in how households should be charged for electricity.

This change would mean that in the majority of cases households would no longer pay electricity network monopolies based on how much power they draw from the network and when they do it.

Instead, they would pay a substantially inflated fixed daily charge. This could involve roughly a quadrupling in the network fixed charge, although it will vary from around a 350% increase in some networks (NSW and QLD networks) to a 500% increase in others (Victorian networks).

So the pensioner in a small cottage home, who makes sure they wear their winter woollies to keep their heating bill down, and always takes short showers and who used their small surplus cash to buy solar to contain their power bill, will be hit with the same bill to use the network as the CEO in their mansion down the road who heats their pool in winter, never switches their ducted air conditioner off in Summer, and who swears off solar as something for hippies and lefties.

For many of you this may seem so ridiculous that it can’t be true. But according to the AEMC this will be far fairer and more economically efficient than the current network tariff framework.

This current tariff framework, by the way, was also the result of an AEMC inquiry recommendation made back in 2012 to introduce what it called, ‘cost-reflective tariffs’.

This inquiry (entitled Power of Choice) was commissioned in the wake of a 70% increase in power prices over the preceding 4 years driven mainly by electricity networks splurging tens of billions of dollars on expanding their assets.

At the time networks justified this huge increase in costs as necessary to cater for what they claimed would be a large increases in electricity demand for household air conditioning.

The AEMC recommended that to ensure such large increases in network costs were avoided in the future, consumers needed to be charged much higher fees for their usage during periods of high demand for network capacity (roughly 2pm to 9pm on hot and cold days), but with compensating lower prices at other times when network capacity was unconstrained.

While this reform would hurt solar owners as well as big users of air conditioning, according to the AEMC back in 2012, this would be more economically efficient because it would ensure we minimised expenditure on expensive network capacity expansions that were poorly utilised.

Plus, it would be fairer because those that got the greatest benefit from use of network capacity would pay the most.

This AEMC reform has ultimately led to consumers being compulsorily required to pay for upgrades to smart meters, with solar owners being prioritised as the first to pay.

This has been accompanied by network businesses shifting households progressively over to new tariffs that charged more for power during peak demand periods and less in off-peak periods, again with solar owners (who lost out from this deal) prioritised to be shifted to these new tariffs.

The AEMC would now like you to forget all that. Apparently, we have so much spare network capacity that consumers should stop being so careful about when they use electricity, and be encouraged to use far more. Given networks have spent so much money building lots of network capacity it would be economically wasteful not to use it.

Also, according to the AEMC, it would be fairer if everyone paid the same amount to the network irrespective of their need for network capacity, because rich people are installing batteries that reduce their peak demand to almost nothing, meanwhile those who rent can’t get these systems.

So what’s the truth here? One thing we know for sure is that this new recommendation would be extremely good for the shareholders in electricity distribution networks.

Unfortunately for these shareholders, growth in household electricity peak demand has evaporated which has removed the opportunity for growth in their asset base and therefore revenues. As you’d imagine they’d really much prefer to see their revenues growing.

Also, what company wouldn’t like the idea of customers paying them a fixed amount even if that customer’s demand for their production capacity is declining.

Especially when it comes with upside that if demand for their service did actually grow, perhaps because of widespread electric vehicle charging during the evening peak period, then they’ll get to grow their revenues.

But in terms of fairness the AEMC’s recommendation is like a Robin Hood scheme in reverse.

What the boffins in the AEMC don’t seem to realise (or have perhaps chosen to ignore?) is that low income households consume noticeably less electricity than high income households.

That has been found from survey after survey from bodies like the Bureau of Statistics, state regulators, and Energy Consumers Australia. This remains true even with the proliferation of solar systems. As an example, the chart below is taken from 2023 survey of energy consumers by Energy Consumers Australia.

It clearly shows that as incomes rise so does the energy bill, with high income households paying almost double the energy bill of low income consumers. This suggests they would therefore likely consume around twice as much energy from energy suppliers (and not from their solar and battery system for which there is no energy bill).

Source: Energy Consumers Australia (2023) How to Close the Energy Divide

Therefore, a move to switch away from charging for network services based on power demand to one that was simply fixed per household is that the poor will pay more for electricity and the rich will pay less.

Also, it is complete myth that solar and battery adoption is concentrated amongst high income earners. The chart below maps postcodes around Australia in terms of their average household income relative to the level of battery adoption amongst those households under the Federal Government’s Cheaper Home Batteries Program.

There is no correlation between income levels within a postcode and the proportion of households adopting batteries.

What we know from other studies is that renters are missing out on solar and batteries, but amongst those who have a mortgage or own a home outright, poorer households install solar at a similar or greater rate than richer households.

Source: Clean Energy Regulator for battery adoption, ABS Census for income and number of households by postcode.

In lieu of the lack of quantitative analysis by the AEMC (but geez they’re good at vignettes), Green Energy Markets has analysed the impact of a switch to fixed network pricing in terms of equity outcomes (low income versus high income households) and also the financial attractiveness of adopting a solar and battery system with its implications for emission reduction goals. T

This analysis uses Green Energy Markets’ Household Hourly Energy Use, Solar and Battery Payback Model to assess impacts which takes into account the time distribution of energy use, tariffs and solar output across a year.

Equity impacts

The analysis of the AEMC proposal has used three archetype households to assess its impact on equity:

1. Low income household – Due to their low income this household can only afford to live in a relatively small house or unit with minimal appliances. This household has modest electricity consumption due in part to the small home and minimal appliances as well as them being highly attentive to their electricity costs and therefore constrained in their use of heating and hot water. This is consistent with surveys by the Australian Bureau of Statistics, NSW IPART and Energy Consumers Australia (as well as ACCC data on concession households) which consistently find that low income households consume less electricity from the grid than higher income households. The more detailed IPART surveys find the lower consumption of low income households is often a function of the physical attributes of the home that then ultimately drive electricity consumption.

2. Median household – The electricity consumption of this household is in line with median household consumption per state as assessed by the ACCC in its Retail Electricity Inquiry Reports

3. High income household – This household has quite high electricity consumption in line with them occupying a large house with many electrical appliances of large capacity as well as a swimming pool and two Tesla vehicles.

The table below shows the variable retail costs (includes all variable charges incorporated with retailer prices) and fixed network costs that each of these household archetypes would pay based on the default time of use tariff in place for the 2025-26 financial year (‘Current Tariff Structure’).

It then shows the cost each of these households would pay if networks were to shift all their current variable kilowatt-hour charges into the fixed daily charge. The network fixed charge under the AEMC proposal is based on the Australian Energy Regulator’s estimate of the 2025-26 average overall total network charge (variable plus fixed) per residential consumer for each respective network company.

Note we have excluded retailer fixed charges from this table to make the change in the network fixed charge transparent and because retail fixed charges would not be changed as a result of the AEMC proposal.

What this analysis illustrates is that the low income consumer will be noticeably worse off under the AEMC proposal, facing an increase in their annual power bill of anywhere between $127 in Endeavour’s network to as high as $217 in the SAPN network. Meanwhile a high income, large electricity consumer would be a major winner out of the AEMC’s proposal.

The reduction in their annual electricity bill ranges between $791 in the United Energy network to as much as $1,401 in the SAPN network area. The median consumer is also estimated to lose out from switching variable network charges into the fixed charge, although the increase in the power bill is noticeably less than for the low income household.

Annual power costs by household type under the current tariff structure versus the AEMC shift to a fixed network charge. Source: Green Energy Markets Household Hourly Energy Use, Solar and Battery Payback Model.

How the shift towards fixed network charges will impact on the value of solar and battery systems

Surveys undertaken by range of organisations, such as Energy Consumers Australia, repeatedly find that the over-riding motivation for households to adopt solar and battery systems is financial – specifically to reduce their electricity bill.

Adoption of these systems acts to reduce a consumer’s need to consume kilowatt-hours of electricity from the grid or in the case of batteries they can shift their consumption of kilowatt-hours from the grid from more expensive peak periods into less expensive off-peak periods.

This lowered reliance on grid supplied kilowatt-hours, or at least grid supplied kilowatt-hours during high-priced peak periods, then acts to reduce households’ power bills.

The AEMC, by proposing to shift network costs away from being recovered based on kilowatt-hours of consumption and into an increased fixed charge will obviously reduce the scope to which households can reduce their electricity bill by adopting solar and battery systems.

The table overleaf illustrates how shifting all network charges into a fixed component, rather than the current time of use tariff structure, acts to reduce the financial benefit delivered by adopting the combination of an 8kW solar and 20kWh battery system (which is indicative of what many solar and battery owners would have). It provides calculations for two different archetype households:

1. Median household – The electricity consumption of this household is in line with median household consumption per state as assessed by the ACCC in its Retail Electricity Inquiry Reports.
2. An environmentally conscious household – this household has energy usage characteristics in line with a typical sized home but has replaced gas with electric appliances, and also has a single electric vehicle.

As an example, the median household in the Ausgrid network under the existing default time of use tariff would reduce their annual electricity bill from $1,885 to a bill credit (where the customer would receive money from their power retailer) of $237 by installing a solar and battery system.

But this household would then see their power bill increase to $321 per annum under the AEMC proposal, leaving them $558 worse off as a result of network costs becoming entirely fixed.

Bill savings from a solar + battery system under the current tariff structure versus all network charges being fixed. Source: Green Energy Markets Household Hourly Energy Use, Solar and Battery Payback Model.

Also for those households contemplating buying a solar and battery system, the AEMC proposal will make this much less attractive than it is now. For example, under the current tariff structure the Environmentally Conscious household in the United Energy network would lower their bill by $2,196 ($2530 minus $333) through installing a solar and battery system.

But under the AEMC proposal that same solar and battery system will save $848 less money per year. On average the AEMC proposal is likely to reduce the financial benefit of installing a solar and battery system by about a quarter to a third less than what it is now.

This would push the payback period on such an investment out beyond the typical battery warranted period of 10 years for a large proportion of households. This would substantially reduce future uptake of these systems, making it more difficult to achieve emission reductions goals