With over four decades helping shape Australia’s energy efficiency policies, Alan Pears has witnessed the system’s progress – and its persistent flaws. He’s advised governments of all levels and been instrumental in the evolution of energy-efficient appliances, green building standards, and mandatory home insulation regulations.
However, in a recent submission to the Australian Energy Market Commission’s electricity pricing review, Pears argues that Australia’s energy pricing system is fundamentally flawed – and urgently needs reform.
Pears says Australia’s energy system is locked in a cycle of “bounded rationality,” where limited thinking dominates decisions on pricing and policy. The result? Consumers end up paying more than their fair share, even when they strive to reduce their energy usage.
“No one actually wants energy for its own sake,” Pears told the SwitchedOn podcast. “People want warm homes, well-lit spaces, and hot showers. Energy costs are just one small part of their decision-making.”
Pears frustration with the current system is clear. While many households have embraced energy-efficient technologies – like solar panels and heat pumps – they’re still being hit hard with daily network charges.
These charges, which are meant to cover the cost of network transmission and infrastructure, make up a large part of an average Australian household’s energy bill, but provide no incentive or ability for consumers to control or reduce their costs.
“If you’re a retailer, do you want to sell less of what you think is your product?” Pears asks, pointing out that the fixed costs of energy networks make it financially unappealing for retailers to encourage reduced consumption.
“It reduces the incentive to actually save energy.”
But it’s not just the networks who benefit from this model. Pears argues that retailers also shift much of the financial risk onto consumers.
“Retailers try and shift some of their costs into the daily charge as well, because that’s a way of shifting risk from their bank balance to the consumer,” Pears explains. “It’s an issue pretty much with all supply chains.”
The problem with time-of-use tariffs
For Pears, the widespread rollout of smart meters and the implementation of time-of-use tariffs, which are designed to encourage consumers to shift their energy use to off-peak times, is another example of a pricing system that doesn’t work for many Australian households.
“Time-of-use tariffs are problematic,” Pears explains. “Prices are often high at times when people really need electricity, and low when they’re not home and can’t take advantage of them.”
“If you create periods where people feel they’re being penalised for doing things they need to do, or really want to do, then that is a problem.”
He points to the ludicrous scenario where a household is paid a few dollars to reduce its energy use just as they’re about to cook dinner for the family.
“If you’ve committed to a demand response program, and just as you’re about to cook your children’s dinner, you’re told, ‘Hey, we’ll pay you $5 if you stop using some energy’—it’s just not realistic.”
Instead, Pears believes in a flat tariff system that rewards consumers for saving energy and producing their own electricity.
“When households receive their monthly bill, they should also receive a credit for the energy they’ve saved or produced,” he suggests.
For consumers to embrace this model, Pears argues that the savings must be “clearly visible” and significant enough to provide a real incentive.
The solar disconnect
Pears also raises concerns about the dramatic reductions in feed-in tariffs for rooftop solar. While falling tariffs might make sense from an energy company or regulator’s perspective, for many consumers they feel like a broken promise.
“In Victoria the Essential Services Commission has just proposed that the [solar] feed-in price will be dropped to point zero four cents per kilowatt-hour – almost nothing,” Pears laments.
For many consumers who invested in rooftop solar based on previous financial assumptions, these changes create frustration and erode trust in the energy system.
“How many hundreds of thousands of Australian households have borrowed money to install their PV system on the assumption that they will get a revenue from the exports?”
“You might be being rational from an industry perspective,” Pears says, “but you’ve just upset a lot of people and increased the mistrust of consumers.”
Postage stamp pricing
One of the most glaring inefficiencies in Australia’s energy pricing system, according to Pears, is the use of “postage stamp pricing”, where consumers pay the same rate for electricity regardless of whether they live in a city or at the end of the grid.
“When you’ve got postage stamp pricing, whether you use 20 meters of the electricity grid or 200 kilometres, you pay the same amount, then that is inefficient pricing,” Pears argues.
Pears acknowledges that the retailers know the government will lose votes if people living in the country are charged more, but he says “there have to be some constructive solutions.”
He points to what Western Australia has done as a potential solution, where the government has started taking customers off the grid who are at the end of long, skinny power lines.
“The Western Australian government realized that 52% of their network was servicing just 3% of their customers, so they’re building micro-grids to reduce their peak demand.”
By developing micro-grids and leveraging solar energy, Western Australia is reducing peak demand and improving efficiency for remote areas.
“It’s a constructive solution that the East Coast could learn from,” Pears argues.
The case for rethinking energy risk
At the heart of Pears critique is the notion of risk. He argues that energy networks and retailers need to shoulder more of the financial risk associated with the energy transition.
“That will give them incentives to change things from the traditional poles and wires and traditional pricing structures.”
Currently, network operators are allowed to pass on most of their fixed and operating costs through standard pricing, which Pears believes creates a significant imbalance.
“A lot of industries accept that they have to carry that risk,” he says. “It’s time energy networks and retailers accepted the same responsibility.”
A vision for the future: Empowering consumers
Pears vision for the future is one where consumers are empowered to manage their own energy use, and rewarded for doing so. Advances in smart technology – like plug-in batteries, solar panels, and even smart cookers – should be available to more people, including renters and apartment dwellers.
“Germany is already selling balcony solar systems that don’t need professional installation. You can just plug them into a power point,” says Pears.
In the US, an induction cooker with a built-in battery that can be plugged into a standard power point and avoid the cost of wiring upgrades, is now available.
Ultimately, Pears sees energy pricing reform as more than a cost issue – it’s about rethinking the entire system to support a smarter, more sustainable energy future, and rewarding households for making choices that benefit both them and the grid.
You can hear the full interview with Alan Pears on the SwitchedOn podcast.
Anne Delaney is the host of the SwitchedOn podcast and our Electrification Editor, She has had a successful career in journalism (the ABC and SBS), as a documentary film maker, and as an artist and sculptor.
