What if the Australian Energy Market Commission (AEMC) is... kinda right? We spend most of our time at Rewiring Australia telling people to get solar and a battery. So it might surprise you that we've just submitted to the AEMC pricing review arguing that the way we recover network costs needs to change, and it might indeed involve higher fixed charges. [If you already know what I'm talking about and you've spat out your coffee, you can read our full submission here and see what you think: https://lnkd.in/gCZ6D-6M ] The problem is complicated, but basically, before we had tonnes of solar and battery, ‘volumetric’ (per kwh) charges for using the grid used to be roughly fair. Bigger house, more appliances, higher bill, bigger contribution to the grid. That assumption is breaking down. The households reducing their grid consumption fastest are the ones with the capital to invest in solar and batteries. Great for savings for those homes, and great for reducing emissions for everyone. But - those homes will still rely on the network after a couple of cloudy days and join the peak winter demand for a couple of days a year. The households left paying the same overall cost for our poles and wires? Renters. Apartment dwellers. People who can't access electrification upgrades. That's not a sustainable foundation for the electrification transition we're trying to build. But… flat fixed charges probably aren't the answer either. A low-income renter shouldn't pay the same fixed charge as a five-bedroom house. Our submission proposes something different: 1. Property-value-scaled fixed charges to become a higher share of network recovery (levied on owners, not renters) to make cost recovery genuinely progressive 2. Strong dynamic network pricing so batteries earn returns by actually reducing peaks - not just avoiding costs Lowering volumetric rates is a tiny step towards the energy abundance our renewable-powered system could offer: instead of a relentless scarcity mindset, people can heat and cool their homes as they need and face the real marginal cost of energy that choice entails. And if dynamic pricing is done right, it makes the investment case for solar and battery on our community rooftops stronger, not weaker. A battery responding to network price signals is substituting for poles and wires. That's a real service, and households providing it should share in the savings. You can actually play with a simulation we’ve quickly assembled to see what different changes to these prices might mean for different kinds of households. And you can dive under the hood and change all the assumptions. Check it out > https://lnkd.in/gaHCYcUp
The easiest way to implement property-valued scaled charges is to implement my scheme. Recover the cost of the unavoidable cost of providing the network for 'public good' uses - street lights, traffic lights, powering the NBN from Local Government as lump sums. Allow Councils to then include in their rates a percentage required to recover the lump sum. Goes a little way towards recovering network costs on the basis of capacity to pay. Make it easier on older people by specifying that the householder can defer payment untill the property is next sold, with interest accumulating at a shade over the governmen bond rate.
Tim Forcey
1mo
Dynamic pricing for everyone? Like the "demand" charges in NSW? The average person won't be able to get their head around that one. Glad that VIC was smart enough to stay away from the "demand" charges. https://www.abc.net.au/news/2024-11-28/power-price-overhaul-after-consumer-backlash/104653112
When I go to Coles or Woolworths to buy food do I buy an upfront fixed charge and then a volumetric charge? Or do I face a single price type (either an absolute $ or $ /kg)?
Matthew Davis
1mo
I don't understand how to read the results of this tool. The thickness of each bar is different. It looks like that corresponds to the total $/year. For "full power bill" there are two grey regions on each bar. What's the difference? The dark one in the legend is "Wholesale, env, retail". The lighter one is not in the legend. For "Grid costs only", there is only light gray (no dark grey), and no legend entry for it. The percentages listed don't match the graphic. e.g. "Grid costs only", "Today's mix", "Current Pricing", "Working family (renter)" says 14% but looks like 95%. What is "CER"? Why does the "Key takeaway" for the default setting say "The Working family renting pays $1,222/yr with no way to bring that down."? The purple segment is usage charges, which looks like it's about 80% of the total bar length. Plus about 5% grey, which is usage-proportional costs, right? So that's 85% of the cost which can be reduced by the end user. My understanding of the graph is that the blue part is the only part that can't be influenced by consumer effort and consumer investment. If so, then "no way to bring that down" is true if blue is big, and not if blue is small. Am I reading it wrong?
Matt Roderick
1mo
Sounds like a great idea, getting the rich to pay twice (once on their renewable energy investment and again for a grid they hardly use). I guess that’s one way to dramatically accelerate people replacing their grid with a backup diesel generator.
Ben Skinner
1mo
There is a lot of economic rationale for this sort of approach and implementing it is actually much easier than you’d expect by leveraging the process already used by local government. If local government is charged these fixed components they will pass it on through their existing rate mechanisms
Matthew Dewhirst
1mo
Is property value a reasonable proxy for energy requirements though? Not saying I have the answer or that one is better than another, but it seems a connection that may not always apply? An energy efficient house in a high value suburb has a higher fixed charge than an energy hungry home four suburbs away? Suppose it still depends on what percentage of the bill is made up of fixed vs volumetric use.
Newman Mundy
1mo
Surely that can’t be the answer property value. You’re just wanting to push the costs onto the wealthy people. Why should someone that lives in a $1m 7 star energy home pay the same money for electricity as the 2 star leaky old house that’s worth 500k they require more energy to keep cool and warm. You’re already getting network charges per day if people use solar or not. The generation going into the market should be keeping the wholesale rate down for everyone . However the energy companies keep increasing rates. How can South Australia have such low energy for most of the day but they continue to put up the prices. The hard thing is those people that have capital will just go off grid and then not contribute to supporting the network . Energy prices will rise, I understand that people living in apartments etc probably can’t have solar so it’s not fair for them, but at the end of they day they choose to live in apartments
Geoffery Gordon
1mo
All this could easily be resolved (in theroy not practice) by removing the grid connection from the bill and making it a ratable charge like the water or sewer based on how many amps of connection you have. Of course then some renters are going to get a 5 amp fuse in the meter box because some landlords genuinely don't care. It's a case of perverse manifestations of a market rule change that we as a whole need to watch for.
The tool is a quick one made on deadline for the submission, but I think it's pretty interesting https://rewiringaustralia.org/network-model