Tariffs and Electricity Prices - Retail Tariffs
- Standing Offer: mainly archaic from pre-privatisation phase (comply with specific laws)
- Market Offer: usually include discounts (also comply with specific laws)
- Both deregulated (NSW, VIC, SA) and regulated (everywhere else)
Tariffs and Electricity Prices - Components of electricity bill
- Wholesale: spot market costs (purchase, hedging contracts, FCAS etc.)
- Network: dist and trans costs (based on regulated return on asset base (RAB))
- Retail: retailing and marketing costs (managing risk, business overheads etc.)
Tariffs and Electricity Prices - Tariff Objectives (theoretical)
- Recover cost of supply elec efficiently and equitably (conflict between 2)
- Provide price signal to incentivise efficient demand-side behaviour in short-term (use) and long-term (investment)
FiTs and Metering Schemes
Sets a fixed price over over a stated period for electricity export (and usually guarantees grid access to RE generators). Aims to encourage deployment by bridging price gap
- Metering: gross (all export) and net
- Challenges
- Setting correct price (tech price can change quicker than expected eg NSW)
- Boom-bust cycle
FiTs and Metering Schemes - Design considerations
- Net or gross FiT
- Fixed premium (on top of elec rate) or fixed price
- Capped or uncapped - no cap better
- Who pays (retailer, NSP or gov)
- Regional price variation to support tech deployment where needed
- Stepped FiT (reduced over time) - very important
FIT: Pros and Cons
Pros:
- Provides market signal based on output/generation (rewards efficiency)
- Flexible (depending on uptake and cost)
- Encourages steady growth and certainty (when well designed)
- Can target specific technologies and locations
- Low transactions costs (good for small scale)
Cons:
- Costly
- Can disincentivise innovation (as price is fixed)
- Hard to represent temporal and locational value of electricity accurately
- Can have distributional/equity issues
- Can increase network barriers to RE (no incentive for networks)
FIT - Good Design
- Flexible stepped tariffs, uncapped
- Differentiated tariffs for diff techs and resource areas
- Need for complementary policies (standards and grid access)
- Optimal/correct price to attract investment but not overly costly
Tariff Cross-Subsidies
Households with PV receive a greater saving on the network component of their bills than the value of the PV provided to the network, hence households without PV are forced to pay (cross-subsidise) for them
Tariff Cross-Subsidies - Value of PV to network (see DE topic)
- Reduce long-term network investment/augmentation
- Voltage and reactive power support possible
- Improve resilience
Tariff Cross-Subsidies -Cost of PV on network
- Managing a wider range of voltages
- Related issues of potential reverse power flow, flicker, phase imbalance
- Protection complexity
- Residual harmonics and power factor caused by loads
Tariff Cross-Subsidies - Locational and Temporal Aspects
- Large variations between different substation, feeder and customer load profiles
- Subsidisation to regional consumers and consumers using large loads (eg aircon) during peak times
Cost Reflective Network Tariffs - Network Tariffs
Challenges
- Overspending/gold plating by networks in capacity (sunk costs)
- Price signals are not efficient
Components/Costs
- Fixed (daily charge)
- Variable (volumetric charge) - very small
- Marginal (peak demand charge) - to meet an incremental increase in demand
- Sunk (how to recover?) - already incurred and not recoverable
Tariff design principles
- Efficient, equitable, simple, stable, recovery revenue
Cost Reflective Network Tariffs - Cost-Reflective Tariffs (CRT)
- Encourage efficient use of the network assets
- Provide an efficient price signal for network investment
Cost Reflective Network Tariffs - Metering Technology
Accumulation meter - measures cumulative energy through it only
Interval meter - measures how much energy flows per interval and data can be downloaded
Smart meter - collects time stamped data on multiple channels and can communicate/interface in real time with utility, customer and individual appliances
Cost Reflective Network Tariffs - Challenges
- Aus CRTs are levied on consumer peak not on network peak
- Fixed prices increasing (inefficient price signal)
- Demand charge windows too wide
- Retailers don’t have to pass on CRTs
