‘Tariff’ isn’t a particularly common word, so you’re certainly excused if you don’t know what it means.
It has two common usages, both with different meanings.
You may have heard of ‘import tariffs’, particularly regarding Australia’s current international trade issues. That tariff is essentially a set tax or duty that’s added to a class of products (like wine) that’s brought into a country, essentially to protect the interests of the local industry.
That’s not the tariff that concerns us, though.
The other sort of tariff simply refers to the way you are charged for energy.
Originally the way everyone was charged for energy was simple. It was based solely on volume and was measured in units of usage (kWh). This means the more you used, the more you paid.
Then things got more complex. The concept of being charged according to when you use power was introduced and ‘time-of-use’ tariffs were born. These tariffs mean that a different unit rate is charged depending on when the energy is used.
Who sets electricity tariffs?
The distributors set tariffs and decide which you can access. These are usually one or more of a flat-rate tariff, a two-rate tariff (peak/off-peak), a flexible-rate tariff (peak / off-peak / shoulder), or a demand tariff.
Occasionally the distributors change the kind of tariffs that are available, usually looking to optimise the way users access the grid and balance that against supply and demand.
To achieve this, distributors are standardising tariffs. They are expiring (or ‘retiring’) old ones and changing the default tariff. The new tariffs are designed to incentivise users to shift usage away from peak demand.
This will have an impact on customers who are still on older ‘legacy’ tariffs.
What does the change mean for most users?
The ‘old’ two-rate tariffs are being replaced by a new standardised two-rate tariff. This change will impact some households who until now were on the old-style two-rate tariff.
Anyone installing a new meter or changing something at their premises, such as installing solar, will find that they will be automatically placed on the new two-rate tariff.
On the old two-rate tariffs, the peak period was quite long. The peak commonly ran from 7am all the way to 11pm. The old joke was it’s off-peak while you’re asleep and peak while you’re awake. The new peak period is much shorter, from 3pm to 9pm.
That sounds good – and it is – however, there is a catch. Even though that peak period is substantially shorter, the tariff is higher.
What that means is that some customers will be better off while others will be worse off. It all depends on the time you use most power (and how flexible you are with your usage patterns).
Customers who are pushed onto the new two-rate tariff by their network may be able to apply for an alternative tariff. For example, a simple flat tariff is still available.
Why are the changes being made?
Network companies who own the poles, wires, and meters need to maintain that infrastructure. Their costs are influenced by the need to meet peak demand on the electricity network.
In other words, the infrastructure needs to be built to a high enough specification to handle the maximum stress, even if that stress is only reached for short periods of time.
That has started to happen over recent years: the peak load is occurring in a tighter time band in the evening. Even though total usage is lower, that peak demand is now higher, because it’s so much more concentrated.
The network companies have long argued that the amount of power you use is less important than the way you use it. For example, a customer who only uses a small amount of power all day, but then puts huge demand on the grid at, let’s say, 6pm puts more stress on the grid than a customer who uses a flat amount all day.
Multiply that usage pattern out over thousands of households, and you can appreciate that steady usage is preferable to concentrated usage spikes.
However, up until now, most customers were on single-rate tariff structures, which means that customers with higher usage during peak times were effectively being cross-subsidised by other customers with flatter usage profiles.
The network companies believe this creates inequities and unfairness.
When we investigate their claims, we can see that much of what they say is true. Energy prices are not fixed, they are driven by supply and demand in real time, but there is a common daily shape emerging, it’s called the duck curve. The diagram below (borrowing modelling from the Californian ‘Duck Curve’ chart), is typical of daily demand for grid energy. This is very similar to the shape we see in Australia. Demand used to be relatively flat across the day (see the black 2012 line below). The difference between peak and off peak used to be small, but it has progressively gotten worse each year.
Image is for illustrative purposes only. Data pictured is not actual*
The dip and rise of the curve have become more pronounced (see the pink 2020 line above) – meaning demand now drops drastically by midday, followed by steep rise by 6pm to a much higher peak. The oversupply of solar for a period in the day is one of the major causes. The take up of rooftop solar is being driven by generous government subsidies. Many industry experts have called for the subsidies to be diverted to battery storage. If we can capture that abundant undervalued solar and shift into the grid when prices are higher, we can flatten that curve. Until then, the demand (and therefore price) for energy in the evening peak will be higher than earlier in the day.
How Ausnet has explained it
Ausnet outlines its case in its Revised Tariff Structure Statement 2022-26 (available here in downloadable PDF format).
The following excerpt from that Ausnet statement should help you understand what all the network companies are contending:
“Today and in the future, residential customers are driving change in the way the electricity network is used. This, amongst other things, is affecting peak demand through:
continued growth in air-conditioner load, exacerbating the early evening peak;
the emergence of electric vehicles (EVs), which has the potential to exacerbate the early evening peak and therefore increase network costs;
future take-up of home batteries with solar PV, effectively allowing solar generation to be shifted to any time period;
continued new connections driven by state population growth.
To address these issues, the principal change we propose for the 2022-26 regulatory period is to introduce a new two-rate tariff structure (time-of-use tariff). From 1 July 2021, the new tariff will become our default tariff for residential customers.”
The bottom line …
So, in summary:
Your tariff has probably just changed.
The change has been made by your electricity distributor.
The period you are charged at peak prices is much shorter.
The off-peak period is therefore much longer.
The impact might be good or bad or insignificant, depending on when you use power.
You can opt out and onto another tariff if you are unhappy.
To benefit from the change, savvy energy users will shift the time they use appliances, for example, pre-heat their home, pre-cool their home, and run appliances like dishwashers, washing machines, and dryers, outside the new peak period of 3pm to 9pm.
Not only will this help stabilise the grid but hopefully save them some money to spend on something nice.
*Original version of the Californian ‘duck curve’ chart can be viewed here