Households could save billions with smarter, more flexible electricity pricing

Changing the structure of electricity pricing to encourage households and businesses to shift their demand to times of the day when cheap renewable supply is abundant could slash customer bills by billions, a new report has found.

The report, published by the Reliable Affordable Clean Energy for 2030 Cooperative Research Centre – or RACE for 2030 – estimates that households in Australia can reduce their bills by up to $3.2 billion by 2035 with the accelerated uptake of cost-reflective tariffs and incentives.

Flexibility incentives work by rewarding customers for managing their energy consumption – and rooftop solar generation – for shifting their patterns of demand and supply.

Generally speaking, this means shifting loads to the middle of the day when solar energy is abundant, and minimising consumption in the early evening when demand for power is highest – and for those with solar and batteries, sending power to the grid.

At this stage in Australia, there are a handful of networks and retailers that offer such pricing structures, although a number of those offers are focused mainly on solar households.

In New South Wales, for example, the state’s pricing regulator IPART this year shifted towards setting time dependent solar feed-in tariff ranges, starting at 4.4c-5.9c/kWh during the middle of the day, then rising slightly higher between 3-4pm, higher again from 4-5pm, and then up to 17c/kWh at times of peak demand.

On the demand side, in Western Australia, state owned electricity retailer Synergy in 2020 launched a trial in which it offered households a low daytime electricity tariff of 8c/kWh between 9am and 3pm to help soak up the state’s abundant rooftop solar energy supply.

Some upstart retailers, like iO Energy in South Australia, are making time-of-use consumption their thing – working with Energy Locals and customers to help them pay less for clean energy by becoming smarter consumers.

The company, which is headquartered at Adelaide innovation hub, Lot Fourteen, taps cheap wholesale market prices during the day to offer electricity for around 8c/kWh between the hours of 10am and 3pm.

This makes it particularly well suited to households or businesses “locked out” of rooftop solar, either for reasons of having an incompatible rooftop, or no rooftop at all.

Amber Electric allows households to pay the real time wholesale price (plus network use of system, regulated charges, carbon offset and hedging costs), while solar households are given the wholesale price for exported energy. There is also a $15 monthly subscription fee on top of the daily connection and metering charges.

In return, households are given an app to help shift their usage “away from price spikes” which provides wholesale price
information and warnings of forecast price spikes. According to the report they are also trialling a new SmartShift device in South Australia which adds control and optimisation of BESS, EHW and pool pumps.

Still, these sorts of deals are far from being in the mainstream in Australia – at least from incumbent retailers and gen-tailers. And in many cases where those companies do offer a time-of-use option, they have done little to market them to existing customers.

According to the RACE for 2030, this needs to change – not just for the benefit of customers but also as a matter of some urgency for increasingly distributed solar heavy grids, such as in South Australia and Western Australia, where huge amounts of rooftop generator power are flooding networks during the day, at times threatening the overall stability of supply.

The report notes that flexibility incentives would reduce system-wide costs by lowering average generation prices, reducing network peaks in demand and solar export, and by avoiding the need to invest in expensive new energy storage and grid infrastructure. Most importantly, they can alter patterns of demand through smarter use of batteries, electric vehicles, water heaters, pool pumps and other appliances.

Essentially, says RACE for 2030 CEO Jon Jutsen, it’s about engaging and empowering the customer, in a way that extends beyond just putting panels on the roof.

“The key to successful price reform is always to put the customer first. Customers can be sceptical that price reform is just a euphemism for higher prices and higher energy bills.

“This report shows that if we are smart about changing the shape of power prices and involve customers in the process, we can deliver a win-win outcome for customers, electricity suppliers, the economy, and the environment,” Jutsen said.

“Removing the identified barriers should increase the uptake of renewable generation, decrease reliance on fossil fuels and reduce costs for all households,” said RACE for homes program leader, Professor David Hill.

“As well as lowering electricity bills, this should lower emissions, increase reliability, and create employment.”

So how to get there? That’s what the bulk of 175-page report, Rewarding flexible demand: Customer friendly cost reflective tariffs and incentives, is all about, providing a roadmap of proposed research projects and industry development to increase flexibility of household electricity use and generation through incentives.

The chart above offers some insight into the huge amount of work and detail that has gone into the solutions side of the report, ranging from tariff structures, to technologies, to virtual power plants and behavioural demand response.

The main message is that there is plenty that can be done to better engage and reward customers for changing their energy consumption patterns, and the biggest carrot of all to offer in return: lower power bills.