Consultation is now officially closed on the Australian Energy Market Commission’s draft review of electricity pricing reforms. But a last-minute submission has given an unexpected take on debate over the review’s most contentious topic, asking “what if the AEMC is… kinda right” about raising fixed network tariffs.
This exact question was posed on LinkedIn last week by Francis Vierboom, the CEO of electrification advocacy group and consumer energy champion Rewiring Australia, in a post linking to Rewiring Australia’s official submission to the AEMC review.
The pricing review, as Renew Economy has reported, is proposing a series of reforms – many of them much needed and eminently sensible.
But one of the draft reforms, which proposes to raise the fixed charge component of network that are passed through to consumers, has attracted the most attention – much of it strongly worded criticism and stark warnings of perverse and harmful outcomes.
By its reasoning, the AEMC argues this would spread the cost of the grid more fairly among all consumers, rather than favouring households with the means and nous to be energy efficient and independent, through investment in solar and battery storage.
But a flurry of industry and consumer groups including the Smart Energy Council and Solar Citizens say boosting fixed network charges would create a whole new dynamic of winners and losers, the biggest losers being solar and battery owners and low-income or low energy use households. The winners, meanwhile, would be high energy users and networks.
Rewiring Australia, however, is taking a rather different view.
“Rewiring Australia applauds the approach of the AEMC to proactively seek out better solutions that continue to align pricing fairness and incentivise a fairer and faster transition,” its submission says.
Essentially, the group founded by electrification champion Saul Griffith argues that the system for recovering electricity network costs in Australia needs to change, and that change might indeed involve higher fixed charges.
“The problem is complicated,” Vierboom writes on LinkedIn. “But basically, before we had tonnes of solar and battery, ‘volumetric’ (per kwh) charges for using the grid used to be roughly fair. Bigger house, more appliances, higher bill, bigger contribution to the grid
“That assumption is breaking down. The households reducing their grid consumption fastest are the ones with the capital to invest in solar and batteries. Great for savings for those homes, and great for reducing emissions for everyone. But – those homes will still rely on the network after a couple of cloudy days and join the peak winter demand for a couple of days a year.
“The households left paying the same overall cost for our poles and wires? Renters. Apartment dwellers. People who can’t access electrification upgrades. That’s not a sustainable foundation for the electrification transition we’re trying to build.”
This argument, which is prosecuted in more detail in its submission, aligns roughly with what the AEMC has been arguing.
But, as Vierboom has noted, it’s complicated, and “flat fixed charges probably aren’t the answer either. A low-income renter shouldn’t pay the same fixed charge as a five-bedroom house.”
So what is the answer? Well, we suppose this is what reviews such as this one hope to find out. And happily, the wealth of submissions from industry and consumer stakeholders offer some valuable insights and suggestions, alongside the shouts of “you cannot be serious!”
Vierboom says Rewiring Australia’s recommendation is to make property-value-scaled fixed charges a higher share of network recovery (levied on owners, not renters), while also ensuring “strong dynamic network pricing so batteries earn returns by actually reducing peaks – not just avoiding costs.”
“Lowering volumetric rates is a tiny step towards the energy abundance our renewable-powered system could offer: instead of a relentless scarcity mindset, people can heat and cool their homes as they need and face the real marginal cost of energy that choice entails,” he says.
“And if dynamic pricing is done right, it makes the investment case for solar and battery on our community rooftops stronger, not weaker. A battery responding to network price signals is substituting for poles and wires. That’s a real service, and households providing it should share in the savings.”
Limited analysis, insufficient evidence
In another late submission, IEEFA Australia analysts Johanna Bowyer and Jay Gordon are not convinced by the AEMC’s reasoning and say potential designs for a fixed boosted charge “all have significant challenges” that they believe have not been properly considered by the market rule maker.
“If more electricity charges are moved from the volumetric to the fixed component of tariffs, households will see reduced rewards for investing in solar, batteries and energy efficiency upgrades,” the submission says.
“This could decelerate the uptake of those technologies, which are important to help reduce emissions and large-scale system costs. Customers who have already invested in these technologies would also see a reduction in their returns, which risks damaging consumer trust in solutions critical for the energy transition.
“Reducing volumetric or demand charges and increasing fixed, unavoidable charges could reduce the signal to households to reduce demand in peak periods. This, in turn, could increase peak demand and the need for additional network investment.”
IEEFA wants an independent first-principles review of the economic regulation of electricity networks, before any network tariff changes are implemented.
“Such a review would examine the nature and drivers of network costs and benefits, how they are incurred, and how they are allocated across different stakeholders, including households, businesses, large industrial loads, generators and network service providers,” the submission says.
“[It] would ensure all stakeholders who receive benefits from, and bear the costs of, network assets are considered. It could clarify how network costs should be sized and allocated, and identify the right signals to minimise costs, encourage efficient investment, and support efficient consumer and technological behaviours.”
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Sophie Vorrath
Sophie is editor of Renew Economy and editor of its sister site, One Step Off The Grid . She is the co-host of the Solar Insiders Podcast. Sophie has been writing about clean energy for more than a decade.
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