Understanding how you use and pay for electricity is essential if you want to reduce your energy costs.
HOW WE PAY FOR ELECTRICITY
In the last article we discussed how we use electricity and explained the difference between demand and consumption.
In this article I will attempt to explain how we pay for electricity. The two articles are very much linked as we all pay for electricity consumption, some of us pay different rates for different times of the day or different times of the year, and some of us pay for demand.
Most of this article will relate to Ergon Energy pricing and tariffs as Tropical Energy Solutions, and most of our grid connected customers, are on the Ergon network. If you aren’t with Ergon this article is still relevant. The tariff structures of other retailers will be similar, they may just have different names.
How much you pay for your electricity depends on which tariff you are on. You can think of tariffs as being a bit like a mobile phone plan. On your phone plan you will be charged for the phone calls you make (which may be charged at different rates for day/night or international calls), texts, data use and handset purchase fees. Choose the wrong plan and you can end up paying much more than you need to.
With electricity tariffs you will pay for your consumption (kWh), which can be a flat rate, time of use or seasonal basis. You will also pay a daily service fee. Some tariffs also have a charge for the highest, or “peak”, demand recorded in the billing period. There may also be some other charges (eg meter charge) but these are generally quite small and consistent across all available tariffs, so I won’t go into them any further.
Before we look at the charges that apply to different tariffs, we need to understand how customers are classified. You may be a:
- Residential Customer: Site where the primary use is residential (can include common areas of apartment blocks).
- Small Business Customer: A commercial site that uses less than 100,000kWh per year.
- Large Business Customer: A commercial site that uses more than 100,000kWh per year.
- Farming Customer: Sites that are primarily used for farming or irrigation. Ergon’s farming tariffs were made obsolete in July 2019. No new customers may access these tariffs however existing customers may continue to use them until they are scheduled to end on 1 July 2021.
- Other Customers: Eg streetlights and very small loads where there is no meter.
Understanding your classification is important because only the tariffs that apply to it will be available to you.
No matter which tariff you are on, we all pay for our electricity consumption. Consumption charges can be:
- General: A flat rate for all electricity that you use regardless of time of day or seasonality. Electricity supplied via a General Tariff is available 24 hrs/day.
- Time of Use (ToU): These tariffs have a higher rate for “peak” time usage and a lower rate for “Off-Peak” or “All Other Times” usage. Generally, the peak times will be from around 7-10am in the morning to 8-9pm Monday-Friday. Increasingly we are seeing the introduction of seasonal ToU tariffs where you pay more during certain times of the day during summer (defined as December, January, and February) than other months of the year.
- Economy: These tariffs offer a lower rate but can only be used by certain customers and for certain appliances (most commonly hot water systems). The Network Service Provider has the ability to switch off this tariff at times when demand on the grid gets too high. Economy tariffs are often referred to as “Off-Peak” tariffs.
Tariffs that include demand charges are commonly referred to as “Demand Based Tariffs”.
There are some demand based tariffs available to residential and small business customers. Our experience, though, is that they are significantly more expensive that other tariffs. For large business customers there is a shift away from general and time of use towards demand based tariffs. In fact, all Ergon large customer tariffs will be demand based after 1 July 2021.
Electricity retailers record demand every half hour. The highest recoded demand during a billing period (peak demand) is used as the basis for the demand charge. Some demand based tariffs charge for all demand. In most cases though, there is a “Demand Threshold”. This means that demand up to the threshold amount is free and you only pay for the demand that exceeds it. For example, if the demand threshold is 30kW and the peak demand recorded for your site during a billing period is 50kW, you will only pay demand charges for 20kW.
Demand based charges can also have a seasonal component whereby the charges and/or threshold may be different for summer and winter months.
DAILY SERVICE FEES
As the name suggests, daily service fees are paid for every day that your electricity account is active, whether you are using any electricity or not. Daily service fees range from less than $1/day for residential customers to over $400/day for some large business customers. Daily service fees are sometimes referred to as a “Supply Charge” or “Connection Fee”.
For some customers who may have left Ergon for an alternative retailer, how these charges are shown on your bill may be quite different. Many retailers split the charges between “Retail”, which is their cost for consumption and “Network Charges” which are passed on by the retailer from the network provider.
To see Ergon Energy’s Residential tariffs, click here.
To see Ergon Energy’s Small Business Customer tariffs, click here.
To see Ergon Energy’s Large Business Customer tariffs, click here.
SO, HOW DOES KNOWING ALL OF THIS HELP?
Once you know what is making up the majority of your electricity costs you can do something about it. Until then you are just taking a wild stab in the dark.
Over the years we have met many customers who were implementing measure that, while being more energy efficient, failed to achieve their actual purpose of reducing electricity costs. Examples include a residential customer who worked very hard to use as much electricity at night because he heard that it is cheaper than daytime. He was not very happy when we had to tell him that on his particular tariff he was paying the same rate, no matter what the time.
A more extreme example was a caravan park owner who was replacing garden lighting with more efficient alternatives. He was operating a demand based tariff so replacing very low demand and consumption devices did little to reduce costs. Addressing larger demand devices such as multiple hot water systems that operated at the same time by staggering their operating times could have saved thousands a year with a low capital expense for timers.
In many cases the cost saving opportunity is simply to change tariffs. We have seen many examples of annual savings in the order of tens of thousands of dollars achieved by tariff changes that came at no cost to the customer. Click here to see our past projects.
Sometimes the opportunity is to be reclassified from a large customer to small. This is often achieved through a mix of solar generation, energy efficiency initiatives and behaviour change.
The take home message here is: understand how you use and pay for your electricity and look at what opportunities are available for your particular circumstances.
And there is a warning as well: you must take all three factors (consumption, demand, and daily service fees) into account. Failure to do so can very easily lead to a wrong decision that could be quite costly.