More than half of consumers in and around Perth could pay $120 less a year for power – and some could pay $500 less – under a tariff scheme that better reflects the cost of delivering electricity, according to a new Grattan Institute report. The report analysed individual customer records to understand the impact of reform.
Fair pricing for Western Australia’s electricity shows that new demand tariffs combined with targeted subsidies for low-income households could also reduce annual electricity bills for the most vulnerable consumers in remote areas by an average of $275 a year.
The report finds that reforming network tariffs so that Western Australians’ power bills reflect the true cost of their electricity will lead to fairer prices immediately and cheaper electricity for all in the long run.
At present customers pay to use the network based on their total electricity use over a given period. But the cost of the network is shaped by its use at peak times, usually in summer. Charging customers for their use at peak times – not total use – will reduce unfair cross-subsidies among customers and reduce future costs.
Demand tariffs can provide price signals that encourage customers to use less power at peak times. “They are the best way to encourage people to use power more efficiently, and so reduce the need to build expensive infrastructure that is hardly ever used,” says Grattan Energy Program Director Tony Wood.
Getting the design right is crucial. Electricity pricing in WA faces particular challenges, including complex subsidies, and high costs to supply remote areas.
Better designed network pricing can encourage consumers to adopt new and clean technologies, such as solar PV with batteries, further reducing costs.
Yet reform is stalling because pricing changes create winners and losers, and can be hard for governments to explain.
“A firm commitment to pricing reform must be combined with a clear explanation of the benefits,” Mr Wood says. “It might be politically difficult, but fairer and cheaper power prices will be worth it.”
For further enquiries: Tony Wood, Energy Program Director
T. +61 (0)3 8344 3637 E. media@grattan.edu.au