Fair pricing for Western Australia’s electricity - Grattan Institute

Fair pricing for Western Australia’s electricity

by Tony Wood, David Blowers

23.11.2015 report

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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 transporting electricity.

Analysis of individual customer records shows that new demand tariffs combined with targeted subsidies for low-income households could also reduce annual electricity bills for most vulnerable consumers in remote areas by an average of $275 a year.

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 yet the cost of the network is shaped by its use as 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. Lowering demand at system-wide peaks reduces the need to build more costly network infrastructure that is hardly ever used.

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 tariff changes create winners and losers, and can be hard for governments to explain.

A firm commitment to tariff reform must be combined with a clear explanation of the benefits. It might be politically difficult, but fairer and cheaper power prices will be worth it.

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