Motivation

There has been significant progress to network tariff reform in recent years. Network tariff structures have become more ‘cost-reflective’ in order to better signal the times and behaviours that cause network costs.

The importance of cost reflective tariff signals is likely to increase as electrification introduces new loads to the grid, while both consumer-sited and intermittent renewable generation change the nature of electricity supply. The increasing benefit and decreasing cost of more granular tariff signals will likely result in further network tariff reform.

Networks do not decide on the final prices that consumers see – retailers do. Despite the progress for network tariff setting, about 90% of residential customers remain on flat retail prices. This may be due to structural regulatory reasons, consumer attitudes, or the interplay between network tariff structures and retail price structures.

Many see more flexible demand as essential to an orderly, low-cost transition to a low carbon economy. Changing consumer behaviour to better match their consumption of electricity with its generation will ensure that new and existing network and generation assets are used as fully as possible, thereby lowering price levels for everyone.

Such reform will inevitably cause some costs to consumers, notably increased complexity for a market that is already difficult for many consumers to navigate. Changing the structure of retail prices will also have distributional impacts in the shorter-term – some customers will benefit and some will be worse off. This outcome is not pre-determined. Some customers will be willing and able to shift some of their electricity usage to lower cost periods and transform from a price reform loser into a winner. Others may be able to handle more complex cost signals may increase with the profusion of “set and forget” smart appliances that automate price response. Many however will either not be able to materially change their behaviour or have access to such appliances.

A consumer-focussed solution to pricing reform will be required to ensure all consumers are willing participants in the transition and to ensure that no consumers are left behind, Such a solution will recognize that load flexibility is not all of the people, all of the time, for all of their load, but rather some of the people, some of the time, for some of their load.

This project begins ECA’s investigation into understanding the mechanics underlying retail pricing reform and the policy changes  needed to enable a transition, while being in the best interests of consumers.

Objective

The aim of this project was to undertake an environmental scan to get a better understanding of the range of:

• Residential retail electricity pricing structures that are currently in place and the network tariffs underlying them
• Issues that new and forthcoming prices/tariffs are seeking to address and any potential innovations in pricing or tariff design.

You can access full research findings here: