Network tariffs – What are they and is your business paying more than it should be?

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Network charges account for between 30 and 60 per cent of an average Australian energy bill and a shift towards cost-reflective pricing models for network tariffs could result in your business paying more for use of the transmission and distribution network.

The Australian Energy Regulator (AER) keeps network tariffs in check with an annual review process, but a rapidly changing energy generation mix, rooftop solar, battery storage and distributed energy resources are all driving a need for networks to adjust their pricing models to better reflect the changing cost of providing services to energy users.

So how does that affect you? Understanding how these tariffs are calculated is not easy, which is why we are breaking it down for you.


What are network charges?

Australia is a huge country with one of the longest electricity distribution networks in the world.

Transporting electricity around such a huge grid costs a lot of money and you as a client pay towards operating, maintaining and upgrading the grid. 

Network charges comprise the costs of transporting electricity from generation to point of consumption, using the transmission and distribution infrastructure (also known as poles and wires).

It must also be understood that network operators are monopolies, which is why the AER regulates what they can charge. 

Because network charges make up a hefty chunk of electricity bills, any changes to them can have a material impact on your home or business budget if they are not planned for. To help avoid network tariff driven bill shock, regulated electricity network businesses are required by the AER to periodically (generally every five years) apply for revenue allowances for the next five years. This revenue allowance will generally equal the network businesses forecast costs plus their operating margin. Annual network tariff changes are then expected by the AER to be in line with the five-year forecasts.


The energy transition is impacting network providers’ business models

There is no doubt that Australia’s transition to renewable energy, battery storage, demand response and distributed energy resources has taken on a life of its own. 

Because the system has changed so much in such a short period of time, old pricing conventions are being phased out.

The change was first proposed in 2014 by the Australian Energy Market Commission, introducing a rule which pushed for a transition to reflective pricing. 

Reflective pricing is the concept of reflecting individual consumer choices in what they end up paying. It is also known as the cause and effect principle, put simply – those users that are creating costs in the system means that they should pay for those costs. 

The tangible effect is that network operators are generally moving away from usage (kilowatts per hour) based charges to peak demand, capacity tariffs and fixed daily charges.

The new pricing models favour those energy customers that reduce their grid energy use, those that have rooftop solar, those that participate in behind the meter distributed energy resources schemes and demand response. 


How are electricity customers charged for use of the network?

Network businesses charge for use of their network in a number of standard ways. There are various different network charges that can be applied to electricity customer accounts, and the question is, are you on a tariff structure that gives your business the best value?

Charge Description
Daily chargeThis tariff structure is the most simple one and involves a fixed charge per day to each electricity connection point where demand is recorded.
Usage charge

A usage charge can be calculated on a flat or variable charge. It is calculated on a cent per kilowatt-hour basis for energy consumed at a connection point. This can either be:

  • Flat volume charge: A flat or single-volume charge means that the user is charged according to the volume of electricity consumed, regardless of the day part it is used in.
  • Time of Use (ToU) volume charge: Time of Use charges are also referred to as variable volume charges. The charges for electricity consumed change at different times of the day: Overnight (Off Peak) charges are lower than Evening (Peak) hours, when demand is higher. Daytime (Shoulder) charges are applied between Peak and Off-Peak hours. 
    ToU charges are designed to encourage customers to switch non-essential consumption to periods when demand is lowest, at a cheaper price.
Demand chargeDemand charges are calculated over a one-month period. They are applied for demand recorded at a connection point in $/kVA/month or $/kW/month.
These charges are applied to the maximum half-hourly kW (or kVA for large customers) power reading registered at a connection point.

How are electricity customers assigned a network tariff?

Household and Small to Medium Enterprise (SME) bills normally have the network charges bundled into generalised charges on the bill such as the Peak, Shoulder and Off-Peak rates. Larger Commercial and Industrial (C&I) customers’ bills are normally unbundled and display the network charges in detail on the final invoice. 

Each customer is assigned a network tariff based on a number of variables which include:

Location:This determines which network a customer is on.
Customer/User type:Residential, Small business (SME), Large business (C&I).
Voltage:High (HV) or Low (LV)
Annual usage:Volume of electricity (kWh) that needs to be transported.
Peak demand:The maximum capacity that the network will need to provide during a time period.

Because of the different variables, each network has up to 160 different network tariffs (at the extreme end) which is why the process of understanding what network tariff a particular site should be on can be complicated. And because of the complexity, we observe that many electricity customers are in fact on a more costly network tariff than they should be.

Our blog section covers network tariffs in detail and includes a case study on how we adjusted the charges for one business, resulting in savings of $15,000 per year.


Changes to network charges starting 1st July 2021

Network charges are reviewed on 1st July each year for all networks in all states in the National Electricity Market (NEM), including Victoria (who used to reset charges on 1st January each year). Changes in network rates and charges can have a material impact on electricity bills so it’s important to have experts at hand who can assist you and your business plan for and manage the network costs.


Network Tariff Change Visualisation Tool

To give you an idea of recent changes to the most popular low voltage business network tariffs, we have created a dynamic tool that shows the different rates for each Tariff Code within each Network Operator, and their evolution from 2019 to 2021. On the tool, you can select your Network Operator and Tariff Code to see how your charges will be affected. Click on the image below to try our tool.

Network Tariffs Change Visualisation

Leading Edge Energy customer benefits

As a Leading Edge Energy client, you will receive a Network Tariff Annual Rates Review report for each of your commercial and industrial (C&I) sites in the coming weeks. Below is a sample of the report you can expect.

Network Tariff Annual Rates Review

Whether you’re a current or future Leading Edge Energy customer, we’re here to help.


Our experts can help you actively manage your costs

You may be paying more than you should be for network charges and other related fees.

If you are unsure, our experts will analyse your electricity bills and recommend ways to maximise savings by picking the right network tariff and adjusting your energy use to match it. 

Take advantage of our expert knowledge and stop paying more than you should be. Call us on 1300-852-770 or email us at hello@leadingedgeenergy.com.au to book an obligation-free consultation and let’s talk about how you can save on your network tariffs.