Part 3: Why our tariffs need to change

Please watch the video below to gain an understanding of why Essential Energy's pricing needs to change.

Reducing the growth of peak demand

Electricity networks are built to manage peak demand. Just like roads experience peak hour traffic, the electricity network experiences the same problem when lots of people want to use electricity at the same time.

This is known as peak demand. The network is built to manage this peak demand but, just like our roads, outside of peak demand there is spare capacity. Similar to adding a new lane to a roadway to alleviate peak hour congestion, we can also build or upgrade our infrastructure to cope with more households connecting to our network and more appliances being used at peak times. But this costs millions of dollars, and all customers end up paying for this through their electricity bills.

Hold-ups at Batemans Bay: Graham Tidy , The Sydney Morning Herald, January 2 2015

To reduce peak demand, we can use prices to:

• encourage customers to reduce their demand at peak times;
• encourage customers to shift some of their electricity usage to the times of the day when the network is under less pressure;
• make customers whose electricity use increases our network costs, pay a bit more than those who do not.

Aligning the prices our customers pay with the relative costs they impose on the network will improve fairness for everyone.

The picture below shows the average and maximum demand days on our network over winter 2019 and summer 2019-20.

Whilst we build the network to manage the handful of peak demand days each year, for most days of the year, there is spare capacity.

Peak demand tends to grow, though it is heavily impacted by seasonal temperatures. We can use prices to help slow the pace of growth in peak demand, which will reduce cost increases for customers.

Accommodating changes in electricity generation and use

Our electricity network was originally built on a centralised model where power was transported from a few major generators such as coal and hydro to homes and businesses. Power always flowed in just one direction.

Although the increasing investment in decentralised sources of power generation (known as distributed energy resources or DER) such as solar panels, batteries, electric vehicles and other new energy technologies by households and business can help us rely less on non-renewable energy, these devices mean our network is having to adapt to a new way of working. One where we need to increasingly manage two-way power flows.

As a result of these changes, it is becoming increasingly difficult to maintain a stable distribution network:

• We have to either invest money to stabilise the network (at a cost to customers) or restrict the amount of energy that customers can export to the grid from their solar panels, to ensure we maintain voltage levels.
• Similar to water pipes, adequate ‘pressure’ is required to ensure the homes and businesses at the far ends of our network receive the power they need. As more and more solar panels are added, managing this ‘pressure’ becomes more difficult and can lead to power quality issues which can damage our network and even trigger blackouts for customers.
• There is a solar energy production and demand misalignment – the main period for solar energy production is between 10am and 3pm, which does not align with the time of the day when demand for electricity is at its peak. And at night it is still the traditional generation sources (coal, hydro) that are kicking in to cater for these peak times.

As a network, we want to avoid the possibility of having to limit solar panel connections or exports which could undermine the payback period of customers’ investments and prolong our reliance on non-renewable energy sources. We also want to defer or prevent the need for continual investment that would result in electricity price increases.

Click this link to move on to the next section Part 4: Simplifying behavioural change & improving fairness