Findings from our qualitative research with households and small businesses
- Increasingly, households and small businesses are being charged for when they use electricity.
- One example of this is ‘time-of-use’ pricing – where consumers are charged more to use electricity during peak times.
- We spoke to 60 residential and small business consumers about time-of-use pricing. Many indicated they may support it, if it aligns with their lifestyle and available resources. But most were strongly against making it mandatory.
The energy choices consumers are making position them as crucial players in energy markets. They also raise a number of questions about how the grid will operate in future.
But there is one emerging issue which is already raising some hackles: cost-reflective pricing.
Cost-reflective pricing means consumers are charged a different price for electricity, depending on when they use it. It has made news headlines, featured in market body addresses, and will be subject to an upcoming review by the Australian Energy Market Commission.
One of the more common forms of cost-reflective pricing is time-of-use pricing. This involves charging consumers more during ‘peak’ times (e.g. between 4-9pm) and lower rates in ‘off peak’ times, like the middle of the day.
Time-of-use pricing charges consumers according to when they use electricity.
In May, we asked 60 residential and small business consumers what they thought about time-of-use (TOU) pricing. Around half of those surveyed were on a time-of-use plan. The other half were either unsure, or on a flat rate.
We can’t make broad sweeping assessments based on these findings. But these 60 consumers do show there are a wide range of responses to time-of-use pricing.
Our research indicated:
1. Some consumers don’t mind time of use pricing… provided it aligns with how they already use electricity
Many of the consumers who were already on a time-of-use plan were satisfied and had noted energy bill cost savings.
Satisfied consumers claimed they hadn’t needed to make major changes to their lifestyle or energy habits. That’s because the peak and off-peak periods fitted their typical behaviours. This group included people who work from home, retirees, or shift workers, whose typical consumption is in the middle of the day.
Many of the consumers with solar had been automatically assigned a time-of-use price. Despite this, they were generally positive, as they’d already been incentivised to use electricity in the middle of the day because of the free electricity from their rooftops.
My retailer just changed the plan after installing smart meter without informing me. The way they did it outraged me, but I didn’t make fuss because it served me better since I use most of my electricity in the off-peak shoulder, so I thought joke’s on them! – Male, Regional NSW, Energy-dependent Health Needs
2. Some consumers identified technology as an important tool for changing usage
Many consumers who were satisfied with their time-of-use plan saw it as an opportunity to access cost savings and had made minor changes to how they use electricity. They identified technologies like electricity usage apps and timers on appliances as helpful to shifting when they use electricity. The most common changes were when they use their dishwasher, washing machine or dryer.
Most consumers who weren’t on a time-of-use plan said they were on the fence about whether they would consider switching to one. Those who would consider it, said they’d like access to information to help them assess possible savings, or technologies to help shift electricity usage.
I believe I would be able to save some money through a time of use tariff, but there has to be a good saving, not $5 or $10… And there should be a comparison costing, a price for time of use tariff against a price without, so it motivates people, just like what retailers use in the receipts, “you save $$$ by shopping with us”, etc. – Male, Metro NSW, General Household Consumer, Solar
Yes, I think it would be interesting to see exactly how each device used electricity. It probably would encourage me to use a time of use tariff. I would become more aware of how to save costs. – Female, Metro NSW, General Household Consumer
Some cohorts were much more likely to have made significant changes to how they use electricity. Almost all electric vehicle owners surveyed are on a time-of-use price already, with many using apps to monitor their usage, or timers to ensure it’s charging overnight.
3. …But many consumers said they would struggle to make the changes required to benefit from time-of-use pricing
Most qualitative research participants who were not on a time-of-use tariff, indicated it would be hard to change their electricity usage due to their routines, lifestyles and household makeup.
While many small businesses said their electricity use was largely driven by the nature of their work. A coffee shop operating in off-peak periods, for example, could see the benefits of a TOU, while those operating in the evening said they would be unlikely to access any cost-savings.
When customers come into our restaurant, they can go to the fridges and grab the drinks they like and pay at the counter. The fridges will be opened and closed often during the day and this means it cannot be switched to off-peak times instead. – Male, Metro NSW, Business Consumer
We haven’t really changed our energy usage behaviour… Things just get in the way, like things we need to do around the house, at work or with the kids. The incentive just hasn’t been high enough to change our behaviour. – Male, Metro NSW, General Household Consumer, Solar, TOU
Some also noted that they could change how they use some appliances, but there are certain non-negotiables. Heating and cooling, for example, would be needed whether it was a peak period or not.
Some things you can’t change – especially when hubby is working from home. And my CPAP machine has to be used at night. But by doing as much as we can in cheaper periods of time and planning things like big loads of washing / basic drying at nights in short spurts with semi dry clothes / using instant hot water and switching off appliances at the power points when not in use…not running things overnight when not necessary you hope will cut costs and make bills less when they come in. – Female, Metro NSW, Energy-dependent Health Needs, Non-TOU
4. Respondents are strongly opposed to mandating time-of-use pricing
Even those who had positive experiences with time-of-use pricing didn’t think it should be mandatory. Respondents were concerned about those who need to use power during peak periods. They didn’t think it “fair” to be penalised by paying a higher price during these times.
A lot of households like rentals and apartments would find it hard to move their energy use. People who cannot afford new appliances will also struggle then get slammed with extra energy charges through no fault of their own. – Male, Metro QLD, General Household Consumer, Solar
I think people should still be given the option to choose. Some people cannot make changes to their lifestyle and it’s unfair to charge them peak hour rates instead of the flat rates. – Female, Metro VIC, General Household Consumer, Solar
There are broader, non-financial impacts to consider
There is an emotional, or psychological, side of cost-reflective pricing that is often overlooked.
Deciding whether the true cost of turning on the heating when electricity is most expensive adds cognitive burden and stress for consumers, who are already overwhelmed and trying to keep up with broader cost-of-living pressures.
Sometimes it can be restrictive. In colder and warmer seasons [I have] guilt over using luxuries such as climate control. – Female, Metro VIC, General Household Consumer, Solar
While some respondents believed consumers have a role to play in changing when they use electricity, others believed retailer greed drove the introduction of time-of-use pricing. They were concerned that tariff changes provide an opportunity for retailers to exploit them for profit.
Their responses reflect what we already know: trust in the energy industry is low. Our most recent Energy Consumer Sentiment Survey found consumers trust energy companies less than almost every other utility, including supermarkets.
I believe the energy providers just want to make most of profit by charging higher rates on the peak hours. – Female, Metro NSW, Business Consumer
We need to remember the human side to the energy transition
Cost-reflective pricing is often put forward as the silver bullet to issues emerging in the energy transition. But it is worth remembering that households and businesses are being asked to change when and how they use electricity to fix a problem many don’t know exists.
The consumers we spoke to saw serious problems with this. They were worried about imposing costs on those with irregular working hours, kids, old appliances or health issues.
That said, there is a place for more complex pricing. We’ve seen from our research that some consumers support time-of-use prices, so the option should be there for those who want it.
Electric vehicle owners, for example, should continue to be supported to charge when there’s excess energy, which many are already doing. We do, however, need to ensure that those who can’t manage a time-of-use tariff aren’t penalised.
Consumers are being asked to change when they use electricity, to fix a problem many don’t know exists.
Consumers need a pricing option that works for them, that gives them autonomy over their energy choices. They should only be assigned a cost-reflective price if they’ve requested it. And they should be able to access a simple, flat price. Otherwise, we risk getting consumers offside when we desperately need them to be invested in the transition.
In an industry dominated by economics and engineering, it’s important to remember consumers don’t act in rational or predictable ways. This should be core to every energy decision and policy – particularly those concerning one of the fundamental ways consumers interact with energy: how they pay for it.