A new tariff option

TasNetworks is proposing the introduction of an opt-in ‘demand time of use’ tariff for residential and small business customers starting from July 2017. The new tariff is likely to be of most benefit to customers who can manage the time of their energy use. It may also allow customers with on-grid battery systems to manage their energy costs by storing grid or solar PV energy and using it to reduce peak time consumption.


TasNetworks is currently working on its Distribution Determination for the period July 2017 to June 2019. Details are available on their Tariff Reform web page.

The introduction of an opt-in demand time of use network tariff is one outcome of this process.

Two important caveats should be noted about this proposal:

  • Network tariffs are not paid directly by customers, they are passed through to Aurora and other retailers who add additional charges and decide on the retail tariffs offered to customers. Retail tariffs have to comply with national frameworks administered by the Australian Economic Regulator (AER). Tasmanian standing offer retail tariffs have to be approved by the Tasmanian Economic Regulator.
  • The proposed network tariff is required to pass through a number of internal and external review and regulatory process, including the development of the TasNetworks Tariff Structure Statement (TSS) and the review of the TSS by the AER.

As a result, this description is based on many assumptions which may not eventuate.

What is a demand based tariff?

Demand based tariff are based on the fact that most of the costs of building and maintaining an electricity distribution network are determined by the peak demand on the system rather than by the amount of electricity used by consumers. The national electricity market is moving toward ‘cost reflective tariffs’ which is based on the principle that the cost to consumers should reflect the cost of the building and maintaining the network. As a result there is a national move away from consumption based charging and towards fixed and demand based charging. There are many variations on demand based charging – a range of options are described in the TasNetworks paper Demand Based Network Tariffs – offering a new choice. This post is just about the TasNetworks preferred model. For more information see our formal response to TasNetworks.

What is the proposed demand time of use tariff?

The proposed network tariff would be based on two peak periods (probably 7-10am and 4-9pm, Monday to Friday) and an off-peak period (all the rest). This matches the peaks in Tasmanian residential demand profile.

The customer’s meter would average the demand in kW in every 30 minute interval through the day and record the highest peak and the highest off-peak consumption in the quarterly or monthly billing period.

The network tariff would consist of a fixed supply charge and a peak and an off-peak demand charge in $/kW multiplied by the highest demands recorded in the peak and off-peak times for the billing period.


Who will benefit from the new tariff?

Retail tariffs based on the new demand time of use tariff are likely to be of most benefit for customers who can manage the time of their energy use. This could be either manually (eg using appliances during the day, minimising use of heating at peak times) or using home automation systems that control usage of appliances, particularly heating and hot water, to minimise usage in peak times.

The lower retail price for energy consumed combined with the lower off-peak demand charge will both provide an incentive for customers to move consumption from peak to off-peak times and make it more affordable to consume more energy at off-peak time (for example charging electric vehicles).

The principle of cost reflective tariffs is that in the longer term, all customers will benefit financially from reducing peak demand on the network while increasing consumption at times the network is underused.

How will the demand tariff be implemented?

When will it start? The intention is that the tariff will be available from July 2017
Will it be compulsory? No. For at least the first two years the tariff will optional, customer will request to be put on a retail tariff that is based on the demand network tariff.
Will I need a smart meter? You will need an electronic meter to calculate and record maximum demand as well as consumption. The meter will not need to have communication facilities. Demand and consumption figures will be read and recorded by the meter reader and passed to your retailer.
Will I have to pay for a new meter? A final decision has not been made on this.
How will I know what my maximum demand is? A range of commercial home automation and monitoring services are available to track your instantaneous energy demand and send warnings or control appliances.
What if I install battery storage? A grid connected battery system (with or without solar panels) is one way to reduce your energy consumption in peak periods.
How different will the peak and off-peak demand charges be? Final charges have not been set but TasNetworks modelling is based on the assumption that off-peak demand charges will be about a third of peak demand charges.
Will I still pay for the amount of electricity I use? It is expected that retailers will need to include a consumption (kWh) charge for energy used to cover the cost of purchase of wholesale electricity and other variable charges. However because the network charges (which make up about 60% of the average residential bill) will not include a consumption component, the price in c/kWh should be substantially lower than current consumption charges.
Can I get a ‘bill shock’ from a single spike in usage? Because a significant part of the bill will come from the size of the single highest 30 minute consumption in a billing period, demand time of use tariffs are best suited to customers who are sure of their consumption pattern or have mechanisms in place to be alerted in real time to high usage situations. Using 30 minute averages will reduce the chance of a large bill coming for a very short peak in energy usage (eg start-up currents, welding)
Will there be a discounted heating tariff? No. Any retail tariff based on demand time of use will have a single price for all energy consumed.
What will the charges be? Exact costs for supply, demand and consumption will not be known until TasNetworks has completed its tariff determination and Aurora and other retailers get approval for retail tariffs based on these network tariffs.

Is the new tariff a good thing for solar owners?

As we have argued in our submission to the TasNetworks Tariff Reform Working Group, the move to lower consumption charges and higher fixed and demand charges has a number of undesirable impacts:

  • Reduced consumption charges will discourage investment in energy efficiency.
  • Reduced consumption charges will discourage investment in distributed generation including household and commercial PV.
  • Forced changes to tariffs for existing PV owners will disadvantage customers who have made significant investment decisions based on existing c/kWh consumption charges.

We are pleased that, at least for the 2017-2019 period any demand time of use tariff introduced will be opt-in which avoids most of these problems.

The new tariff will probably not be of interest to existing solar owners, however it does present some new opportunities for suppliers and customers wanting to install on-grid solar and battery systems.

Author: TREA

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