Consumers need simpler energy bills, not more complicated tariffs

By the end of the decade, it’s anticipated that every home in Australia will be paying time-of-use, or cost-reflective, tariffs, rather than a flat rate for electricity.

While time-of-use tariffs may encourage households to use more electricity when renewables are plentiful and support the transition to a cleaner energy mix, consumer groups are concerned that these tariffs will make energy bills even more complicated.

The chief executive of Energy Consumers Australia (ECA), Brendan French, told the SwitchedOn podcast that consumers are already struggling to understand the tariffs they’re on, and we’re expecting even more from them as these more complex tariffs are introduced.

A recent ECA survey found that 36% of Australians don’t understand the tariffs they currently have, with that figure rising to 44% for renters.

“The whole tariff and pricing regime needs a really good review … to make sure that consumers can really participate in the market,” says French.

Complicated bills and a confusing energy market are the main reasons people don’t switch energy retailers, even if they’re eligible for a better deal with another company.

Last year, the Australian Competition and Consumer Commission (ACCC) found that 79% of residential customers would be better off with an alternative retailer, such as those suggested by the Energy Made Easy and Victorian Energy Compare websites.

“People are far less likely to engage, even when it’s in their best interest to do so, because they feel intimidated, confused, and unsure of themselves and their abilities,” says French.

French argues that consumers would get a better deal on energy if bills were simplified.

However, households are already being shifted onto time-of-use tariffs. Some consumers can take advantage of these tariffs—those who can modify when they use appliances or have a home battery that stores power for use during peak periods.

But French points out that a large percentage of households can’t yet benefit from time-of-use pricing and are seeing significant increases in their electricity bills. These households often have little opportunity to shift power use away from peak times and, in many cases, haven’t been informed by their retailer that they are being moved onto a time-of-use tariff.

ECA opposes making time-of-use tariffs mandatory and has lobbied the Australian Energy Market Operator (AEMO) to enforce a minimum three-year transition period for households to move to cost-reflective pricing.

“You can’t realistically ask people to shift their usage across time bands if they can’t tell what appliances are using how much energy and when,” argues French.

This will only be possible when all households have access to real-time data via smart meters.

Moreover, a recent ECA report found that cost-reflective tariffs don’t necessarily represent the true nature of network costs. There may also not be as strong a case for moving everyone to cost-reflective pricing as there was a decade ago.

With the rise of renewable energy sources like solar and wind, the cost of generation is becoming flatter. These sources have near-zero marginal costs, reducing the need for pricing mechanisms designed to curb peak consumption.

In addition, the increasing availability and affordability of energy storage systems, particularly batteries, allow excess energy generated during low-demand periods to be stored and used during peak times.

“The business case for mandatorily moving everyone to cost-reflective pricing may not be as compelling now as it might have been 10 or 15 years ago.”