Tariffs explained - Flow Power

Tariffs explained

What is a tariff?

Network tariffs, solar feed-in, time of use, demand – do you know how these tariffs affect your electricity bill?

If you’re unsure, we’ve created this helpful resource to clear up any confusion about tariffs.

We’ll explain the different types of tariffs, how they work and what they mean for your electricity bill, to help you make informed energy decisions.

Unsure which tariff is right for you? Get a tariff review with Energy Ready

Our energy experts review your tariff annually as part of our engineering advisory service, Energy Ready, to ensure you’re getting the best deal.

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What is a tariff and how does it relate to my electricity bill?

The term tariff is used to describe the prices that people pay for using electricity. Confusingly, it will often be used to describe different types of prices.

At its simplest, when you sign up with an electricity retailer, they’ll offer you a pricing plan or tariffs. These tariffs will cover how much you pay for using the network, for the generation you consume from the grid, and how much you’ll be paid for exporting your generation back into the grid.

 

 

What is a network tariff?

A network tariff refers to the part of your electricity bill that goes towards paying for the distribution and transmission network.

The network tariff is charged by electricity distributors for the infrastructure they use to provide you with electricity. It includes the network distributors’ substations, poles, wires and transmission towers, and the costs of maintaining, operating and upgrading the grid.

What is an electricity distributor?

Electricity distributors are responsible for owning and maintaining Australia’s distribution networks.

There are several distributors throughout the NEM, and some states have multiple distributors each serving a different part of the state. You can find your energy distributor here, or by checking your last electricity bill.

How are network tariffs determined?

The Australian Energy Regulator (AER) is responsible for overseeing network tariffs and ensuring compliance with the National Electricity Rules (NER).

Electricity distributors submit pricing proposals annually which outline the proposed network tariffs they intend to charge, based on general consumption patterns in the area they service.

The AER then reviews these proposals to confirm their compliance with the NER and each distributor’s 5-year regulatory revenue determination.

Network tariffs are designed to ensure network businesses can earn a guaranteed rate of return on their assets and are typically stable over each 5-year determination period. If a lot of new network investment is needed, or if interest rates rise substantially, this can lead to a significant network price increase during a 5-year price review.

 

Bundled vs unbundled tariffs – what’s the difference?

A ‘bundled tariff’ presents all the components of an electricity bill, like energy usage, network charges, and environmental fees, combined as a single price, whereas an ‘unbundled tariff’ breaks down each of these components separately on the bill, providing greater transparency and detail about individual costs involved.

Bundled tariffs are generally simpler to understand as they’re shown as a single price, but unbundled tariffs offer more transparency into the cost of each element of the bill.

Typically, residential customers and some SMEs will receive bundled tariffs, while larger commercial and industrial businesses can opt for unbundled tariffs to better understand and manage their energy costs.

What are some examples of network tariffs?

There are many types of network tariffs, including single rate, controlled load, demand and time-of-use tariffs. We’ll explain these in more detail below.

What is a single rate tariff?

On a single rate (also known as a ‘flat rate’ or ‘peak rate’) tariff, you’ll always pay the same rate for your electricity, regardless of the time of use. With single rate tariffs, there are no off peak or peak pricing periods.

What is a time-of-use tariff?

As the name suggests, on a time-of-use tariff, your charges will be determined by when you use electricity. Time of use tariffs are also known as ‘peak’ and ‘off-peak’.

Peak and off-peak times vary between electricity retailers, but could look like:

  • Off-peak:
  • Peak: Monday to Friday, 7am to 9am and 3pm to 9pm

Put simply, if you use electricity in off-peak times, it’s cheaper. Use it in peak times, and it’s more expensive.

What is a controlled load tariff?

A controlled load tariff (also known as a ‘dedicated circuit charge’) applies to a specific appliance. This is generally for large, energy-intensive systems such as underfloor heating or electric hot water systems.

On this tariff, you pay a dedicated rate for the energy consumed by this single appliance or system, and these typically have their own meters too. Controlled load tariffs are usually billed at a lower rate than general electricity rates because distributors limit the times when these appliances can draw energy from the grid, helping reduce demand strain during peak periods.

Controlled load tariffs are usually paired with a single rate or time of use tariffs for the remainder of the electricity load, but controlled load tariffs vary depending on the network region and your electricity retailer.

What is a demand tariff?

Demand tariffs have been designed by energy distributors to encourage businesses and households to reduce their electricity usage during peak demand periods.

Demand tariffs will often levy a high price on customers based on your highest demand in a peak window, so it’s best to reduce or fully avoid using energy during these windows where possible. Your peak demand measured during these periods may occur for a short amount of time – 30 minutes or less – but can affect your demand charge for the entire month, or even the year, depending which tariff you are on.

The peak demand windows vary between retailers but will have a specific time period (e.g 2pm-8pm). They can also vary between seasons, meaning you may pay a higher demand charge during summer than winter.

If you can’t shift your demand outside of the peak window, you can use behind-the-meter solar or battery storage (BESS) to decrease your demand charges, by reducing the amount of energy you use from the grid.

What is network tariff reform?

Network tariffs have been slowly reformed over time, with the intention of having network tariffs more accurately reflect the costs of serving electricity customers.

For example, single rate tariffs (where a single price for using the network is applied at all times) are being transitioned to tariffs like time-of-use tariffs that have different peak and off-peak times. Network tariff reform is intended to encourage more efficient use of networks, which would help with reducing:

  • the need for additional investment and/or
  • the amount of network infrastructure that needs to be maintained.

As energy customers ultimately pay for these upgrades, it can be good for all customers if we can have more efficient use of the network.

What is a solar feed-in tariff?

Solar feed-in tariffs differ from many other tariffs. On a fixed feed-in tariff, it will appear as a credit on your bill.

If your business or home has installed solar, there may be instances where it produces more electricity than you need.

When this happens, you can ‘sell’ that extra electricity back to the grid – and depending on the cost of electricity on the wholesale electricity market, could result in a credit on your electricity bill.

How much that tariff is – and your eligibility to claim it – depends on:

  • Where you live
  • When you installed your solar panels
  • The amount of electricity you supply to the grid

How can I choose the right tariff for my business?

Your tariff will initially be set by your electricity distributor. In some cases, changing to a different tariff can reduce the amount you pay for electricity, but this is dependent on your meter and other conditions.

Your tariff may change if you upgrade your meter, move your existing meter, install solar panels or batteries, or add appliances that require a controlled load tariff, such as pumps or heating systems.

If you’re an Energy Ready customer, an annual network tariff review is included in the service, to ensure you’re getting the best deal.

Unsure whether you’re on the right tariff? Speak to a specialist about a tariff review today.

Questions about tariffs?

We’re here to help.

Reach out to our electricity specialists today to learn more.