New Solar Homes Robbed Of Choice In ACT: Demand Or Time-of-Use Tariffs Only

If you are getting a new house built or having solar power installed in the ACT I have some bad news.  You will lose the ability to freely choose between electricity plans. You will no longer be able to select a standard tariff; which is usually best for solar households.  Instead you will be forced on to either a time-of-use tariff or a demand tariff.

This article in the Canberra Times from February says households can opt out if they wish. but last week we were contacted by a man in Canberra who told us he was not allowed to opt out.  I called ActewAGL¹ on Friday and the person I spoke to said he knew of no way people could opt out and select a standard tariff if they have a smart meter installed.

Evoenergy Changed The Rules

The change was made by the ACT’s Distributed Network Service Provider Evoenergy that takes power from long distance transmission lines and distributes it to Canberra’s homes and businesses.  They make the rules for connecting to the grid and the Australian Energy Regulator has said they can stop people with smart meters using standard tariffs if they want.

The lack of choice in electricity plans applies to anyone who gets a smart meter installed.  This includes for newly built homes, but as Canberra’s population is only growing at around 1.5% a year, the largest category of households getting smart meters are those who have new solar energy  systems installed.  The annual rooftop solar installation rate in the ACT has averaged 1.7% over the past eight years and as installations have picked up it’s likely to now be over 2%.

If your solar power system was installed more than six months ago, you probably don’t have a smart meter.  While it will be digital it’s unlikely to be smart unless you specifically requested one.  If you have a smart meter and are currently on a standard tariff then you appear to be safe for now but this may change in the future.

If you install solar in Canberra and are forced to choose between a time-of-use or demand tariff it is very difficult to say which is best.  But I will give a weak recommendation by the end of the article.

Opting Out Of Smart Meter Installation Can Be Expensive

Opting out of smart meter installation is a possibility and ActewAGL have a form on their site for doing so.  But this may result in you being hit with $440 a year in manual meter reading charges.  So you are not really free to chose to forgo a smart meter and remain on a standard tariff.

The Reason For The Change

The idea behind time-of-use and demand tariffs is to discourage electricity use during periods of high demand, which reduces the cost of operating the grid.  But I thought people with smart meters would be encouraged to take them up with the carrot of competitive pricing rather than the big stick of not being given a choice.  Given that the Australian Energy Market Commission, which makes the rules relating to electricity supply, has made a big deal out of putting “consumers in the driving seat” and giving “opportunities for consumers to make informed choices about how they use energy” I am surprised they allowed it².  You’d think given their past statements about how important choice is to consumers they’d resist consumers being stripped of it to their last drop of blood and last erg of energy.

The Three Tariff Types

The are generally three tariff types offered to Australian homes:

1. Standard tariffs:  Also known as flat tariffs, these have a flat charge for every kilowatt-hour used.  They are the only type of tariff available to homes without smart meters.
2. Time-of-use tariffs:  These require a smart meter and charge different rates for electricity depending on the time of day.
3. Demand tariffs:  These also require smart meters and charge a fee based upon the maximum amount of power the household draws averaged over a half hour period.  Their advantage is the per kilowatt-hour charge for electricity is less than for a standard tariff.

I will give details of these three types of tariffs that ActewAGL provides.  You are not limited to these and can use other retailer plans available in the ACT.  But ActewAGL’s demand tariff is the only one I could find that’s currently available in Canberra.

Standard Tariffs

Standard tariffs charge a flat rate for every kilowatt-hour of electricity used and are the only type available to people who don’t have smart meters.

They can vary between seasons.  For example, in South Australia we are charged more for electricity used in summer.  Also, your electricity plan may charge either more or less after you use a certain number of kilowatt-hours.

Here are the three standard tariffs ActewAGL offers in the ACT.  The information is taken from their pricing brochure:

The first plan has the lowest daily supply charge but the highest charge per kilowatt-hour, while the plans below have increasing supply charges and decreasing per kilowatt-hour charges.  The typical Canberra household without solar power uses around 18 kilowatt-hours a day³.  If you use less grid electricity than this you will be better off with the “Home” standard tariff and if you use this much or more you’ll be better off with “Home Saver”⁴.  The “Home Saver +” plan is only for people who use way too much grid electricity and need to think about what they are doing with their lives.

Because solar households usually use less grid electricity than average they will generally be better off with the “Home” standard tariff — if they have that option.

Time-Of-Use Tariffs

Time-of-use tariffs require smart meters because they record not only how much electricity is used, but also when.  The charge per kilowatt-hour depends on whether it was used during an off-peak, shoulder, or peak period.  This is ActweAGL’s time-of-use tariff:

To make the times clearer I’ve rewritten them below.  Note they are Australian Eastern Standard Time and don’t change with daylight savings:

• Breakfast / get to work — 7 am to 9 am:  Peak  28.7 cents
• Bulk of the day — 9 am to 5 pm:  Shoulder  20.5 cents
• Late afternoon and evening — 5pm to 8 pm:  Peak  28.7 cents
• Connect with spouse / answer emails — 8 pm to 10 pm:  Shoulder  20.5 cents
• Late night and early morning — 10 pm to 7 am:  Off-Peak 16.1 cents

Time-of-use tariffs are designed to discourage people from using power during peak times and encourage them to shift consumption to off-peak times or at least to shoulder periods that charge an in between rate.  Unlike most time-of-use tariffs in Australia, in the ACT they are the same every day of the year with no change for weekends or public holidays.  The ACT also has a peak period in the morning, which is unusual.  They have it because in winter it can be bloody cold in Canberra and so morning electricity consumption can be very high as homes and businesses draw power for heating.  This is not a problem in summer but the morning peak still applies all year round.  It is something people have to always be thinking about if they want to keep their electricity bills down but it really only helps the grid during the coldest months.  This is an example of how time-of-use tariffs and demand tariffs can make life difficult for consumers even when it’s not providing the grid with any real benefit.

Because solar households use little grid electricity for most of the day they are usually better off with a standard tariff than a time-of-use tariff that charges a high rate in the late afternoon and evening.  Also, in Canberra the sun doesn’t even rise until as late as 7:12 am in July, so little solar electricity is produced during winter morning peak periods.

Demand Tariff

Demand tariffs are designed to lower electricity use during peak periods by slugging people with a charge based upon the maximum amount of power they draw from the grid averaged over half an hour.  Here is ActweAGL’s residential demand tariff:

Because smart meters are still pretty dumb they can’t report instantaneous power usage. Instead they look at which half hour period has the highest average power use.  With ActewAGL’s plan, the only demand tariff available now in the ACT, they look at every half hour period from 5 pm to 8 pm in a month and pick which ever has the highest average power, then charge you a demand fee based on that for every day that month.

For example, let’s say one cold and wet Sunday evening you cook a big dinner with your electric stove while someone else is running an electric heater and the clothes dryer.  This results in the highest average power consumption over a half hour period that month of 8 kilowatts.  The demand charge of 16.6 cents per kilowatt will be multiplied by the 8 kilowatt figure and then multiplied by the number of days in the month and added to your monthly bill.  So in a 31 day month your demand charge would be $41.19.

To keep your demand charge low you could have instead heated your home before you started cooking.  Also, if you were using your stove’s oven you could have switched it off before using the hot plates and the clothes dryer could have been used after 8 pm so there would be no chance of it increasing your demand charge.  With effort you can keep your demand charge reasonably low, but this effort is an extra cost to be kept in mind when working out if a demand charge is worthwhile.  It will require everyone in the household to be on board to get the best results, and if you are the sort of person who prefers to turn on a heater than put on a jumper you are not likely to have much luck keeping  demand charges low.

The advantage of the demand tariff is you pay less for each kilowatt-hour you use.  Almost one quarter less than with a standard tariff.  If you use the Canberra average for a non-solar home of 18 kilowatt-hours a day, your average monthly demand charge would have to be under 3.4 kilowatts for you to be better off on a demand tariff than a standard tariff.  Many households will struggle to keep their demand charges below this.

While it is difficult for households without gas to keep their demand charges low, those that use gas for heating and cooking have an advantage.  Also, homes with the right sort of battery system can keep their demand charges low or eliminate them altogether⁵.  But even with demand tariffs, home batteries still aren’t close to paying for themselves in Canberra, which has the lowest grid electricity prices in Australia.

Which Is The Best?  A Time-Of-Use Or A Demand Tariff?

As new solar households won’t have a choice, it is important to consider which is better — a time-of-use tariff or a demand tariff?  Would you rather be boiled in oil or drawn and quartered?  But maybe I shouldn’t engage in hyperbole.  They’re both much nicer than medieval torture.  It’s more like being boiled in cholesterol free oil or being drawn and only halved.

It’s very difficult to draw a firm conclusion as it will depend on individual household consumption patterns and how willing people are to make changes to their lifestyles to benefit their electricity plans.  But I will give a couple of hypothetical examples which may or may not be relevant to your personal household electricity consumption.

If we assume a household has the following characteristics:

• Total daily electricity consumption is equal to the typical Canberra average of 18 kilowatt-hours a day.
• 5 kilowatt-hours comes from solar panels.
• 6 kilowatt-hours of grid electricity is used during peak periods
• 6 kilowatt-hours of grid electricity is used during shoulder periods.
• 1 kilowatt-hour of grid electricity is during the off-peak period.⁶
• The demand charge is based on an average of 4 kilowatts per month.
• The solar feed-in tariff is ignored to keep things simple.

In this case, on ActewAGL’s time-of-use tariff, the electricity bill would come to $134 a month and on ActewAGL’s demand tariff the household would be charged $124 a month before any feed in credits.

So given the assumptions, the demand tariff appears slightly better for solar households.  If we bump up the demand charge so it is based on 6 kilowatts instead of 4 then the monthly charge will come to $134 which is a tie with the time-of-use tariff.  So it looks like the demand tariff may be a good bet for Canberra solar households.  But if they were on a standard tariff the monthly charge would only come to $115 so they are being screwed over by being forced to choose between a time-of-use or a demand tariff.

If the household had no solar panels and used an extra 5 kilowatt-hours during a shoulder period then their monthly charges would be:

• Time-of-use tariff:  $165
• Demand tariff:  $149
• Standard tariff:  $146

So even homes without solar panels they may be better off on a demand tariff than a time-of-use tariff but, in this example at least, they would still be better off with a standard tariff.

A Frugal Household Example

In the example above the household used the typical amount of electricity for a Canberra home with 13 kilowatt-hours of it coming from the grid.  But now I’ll look at a home that only uses an average of 6 kilowatt-hours of grid electricity a day.  This could be because they are good at making use of solar electricity, or because they use gas for heating and cooking, or simply because they’re very careful with electricity use.  The household has the following characteristics:

• Grid electricity consumption is 6 kilowatt-hours per day.
• 2 kilowatt-hours of grid electricity is used during peak periods
• 3 kilowatt-hours of grid electricity is used during shoulder periods.
• 1 kilowatt-hour of grid electricity is during the off-peak period.
• The demand charge is based on an average of 2.5 kilowatts per month.
• The solar feed-in tariff is ignored to keep things simple.

On ActewAGL’s time-of-use tariff their monthly charge would be $80 and on ActeweAGL’s demand tariff it would be $82.

So in this case the time-of-use and demand tariff come out fairly equal.  But if they were on a standard tariff their charge would be $69 so this household is also being screwed over by not being permitted to use a standard tariff.

The Demand Tariff — A Very Qualified Winner

The results of my very simple examples suggest a demand tariff may be a better choice than a time-of-use tariff for a typical solar home, but it’s not clear and will vary from household to household depending on consumption habits.  It may be a good idea to give both tariffs a go and see which one works out better.  Unfortunately, while it would be technically possible for households with smart meters to change plans on a month to month basis, you will often be expected to stick to a contract for a full 12 months.

The Hidden Cost Of Time-Of-Use And Demand Tariffs

It is possible to save money by changing from a standard tariff to a time-of-use or demand tariff.  But for most households it will take effort to either keep peak period electricity use or average half hour power consumption low.  Many households will not find this extra effort worthwhile.  This is especially true in Canberra, which is the city with the highest average income in Australia and where people often think they have better things to do than stuff around trying to keep their electricity bills low.  While some people may enjoy carefully managing their electricity use, most don’t and this extra burden on households is something that regulators completely ignore.  Even if a household finds carefully managing their electricity consumption to save $30 a month is worthwhile, if it costs them $20 worth of time and effort then they are only $10 better off.

Robbed Of Choice

What I thought would happen with time-of-use and demand tariffs is they would be offered to people with smart meters who would be free to take them up if they considered them worthwhile.  I thought that as home battery storage became more common more households would clearly benefit from the new tariffs and this would increase their uptake and decrease the cost of operating the grid and make everyone happy.  But now people in the ACT are being forced to use them, making people sad.  This coercion may spread to other parts of Australia and make the whole country miserable.  Considering how much the Australian Energy Market Commission appears to value choice they have been very cavalier⁷ in allowing this supposedly valuable thing to be stripped away from people in the ACT.