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“Demand” – a new way to pay for electricity

The “Power of Choice” review, conducted by the Australian Energy Market Commission in 2012, identified a number of ways to allow electricity customers to make more informed choices about their electricity consumption. One recommendation from this review initiated more “cost-reflective” pricing, under which households and businesses that have large variations in their demand for electricity – particularly when that adds to “peak” periods of high demand for electricity – will pay more than customers that have a flatter demand pattern.

The best way to deliver “cost-reflective pricing” is still under trial, but one proposal includes a “demand tariff”. Many customers (mainly business customers) now pay for electricity in a new way – they pay a daily supply charge and a cost per kilowatt hour, as we have all done for a long time, plus they pay a cost for each kilowatt of capacity that they demand during defined peak hours – a “demand tariff”.

The government-backed comparison website energymadeeasy.gov.au is a useful tool for comparing electricity contracts – however, it cannot yet accurately calculate estimates for residential demand tariff contracts, and as a result these can appear to be cheaper, when they may not actually be. If you are considering switching to an electricity contract that includes a “demand” or “capacity” charge, do your homework and make sure that you understand how it will work for your household.

A second proposal to tackle the strain on electricity networks during times of high use is to reward electricity users for actively reducing their demand, rather than charging them more for their use. In 2017-18, $35.7 million funding has been made available for a variety of demand response trials. One of these trials offers residential customers a credit if they reduce their electricity use during a peak demand event.