Tariff reform could save billions on grid costs, slash customer bills

The introduction of smart meter-enabled demand-based network tariffs across Australia could save consumers more than 10 per cent a year on their electricity bills and rack up broader economic benefits of $1.8 billion, according to a new report by energy consultancy Energeia.

And if networks were to tap distributed energy resources (DER) customers, buying  buy grid services from them, this ‘orchestration’ could replace the need for $16.2 billion in network investment by 2050, avoid $18.6 billion in cross subsidies, and lower average network bills by around 30 per cent compared to today.
As we have noted here many times in the past, network charges make up a huge part of customer electricity bills – around $625 or 42 per cent of the average annual amount spent by customers on electricity, according to Energeia. Likewise, it is a cost segment with huge potential for savings – both for networks and customers.
Energeia’s Network Pricing and Incentives Reform report – which was prepared for the Energy Networks Association and CSIRO as part of the Electricity Network Transformation Roadmap – confirms the recent findings of the Institute of Sustainable Futures, that better rewarding local energy generators for their contributions to the grid would unlock savings north of $1 billion in avoided network costs; in Energeia’s case, $1.4 billion by 2026 (see chart below).
The report, released on Tuesday at the All-Energy Australia conference in Melbourne, says that that proposed demand-based network tariffs will perform better than the legacy volume-based tariffs by integrating distributed generation like rooftop solar more fairly and efficiently.

Without changes to prices and incentives, however, customers would be exposed to the risk of unnecessary investment in network infrastructure and DER, leading to higher average electricity bills and unfair cross-subsidies.
“Customers, not utilities, will make more than $224 billion – or more than a quarter – of all energy system investment decisions between now and 2050,” said Energy Networks Association chief John Bradley in a statement on Tuesday.
“Energy networks can unlock the full value of these distributed resources, like solar, storage and demand  management, with smart incentives for grid-support services.
“These benefits rely on distributed resources providing the grid support needed in the right place at the right time,” Bradley said.
“Some networks are already introducing new partnerships, such as rewarding customers for allowing the energy network to use their battery storage during times of peak demand.”
On current projections, Energeia believes investment in battery storage will likely reach a ‘critical mass’ before 2030, such that battery charging profiles could lead to new peak demand events without appropriate incentives or orchestration.
A proliferation of distributed storage could expose limitations in current maximum demand tariff structures, the report says, and unintentionally impose higher system costs on other users, who would be effectively ‘cross subsidising’ the owners of storage.
Like the ISF report, Energeia also finds that the introduction of new pricing frameworks would encourage customers with standalone power systems to remain grid connected, in a way that benefitted all consumers – including those who did not, or could not, invest in solar.
Energeia argues that assigning all customers to demand-based tariffs soonest, with the option to revert to the legacy tariff, achieves $1.4 billion in reduced network investment by 2026 compared to opt-in tariff assignment.
Without actively assigning customers to demand-tariffs, it warns, 60 per cent of forecast smart meters would remain unused for cost-reflective tariffs in 2050, resulting in $2.4 billion in under-utilised investment.