Houses running airconditioners on hot summer days are being subsidised by other users.

7 July 2014 — If you live in an energy-guzzling, airconditioned McMansion and think your electricity bills are expensive now, they could soon get a lot steeper if the Grattan Institute has any sway.

The think tank has just released a new report on the electricity sector arguing that some people aren’t paying their fair share of electricity costs, though overall we are all paying too much.

The report, Fair pricing for power, is recommending changes to how electricity is charged, so those putting strain on the grid – such as running airconditioners at full speed on hot days – are charged for the burden they put on the network, which leads to additional costs for all.

Currently close to 50 per cent of an electricity bill’s cost goes towards funding the network of poles and wires that delivers the resource to homes and businesses. The Grattan Institute’s idea is that this contribution towards funding the network should be a capacity-based charge – based on the maximum energy a household uses in a year – rather than simply charging a household based on total energy use.

Grattan Institute Energy program director Tony Wood said that in the five years to 2013 the average bill had shot up by 70 per cent, mainly due to the $17.6 billion spent on expanding power networks.

“Some of that burden is unfair, and it’s falling especially heavily on some consumers, whose bills are subsidising others,” he said.

Airconditioners were singled out as one of the major culprits, and those using them on hot summers days were causing more need for infrastructure investment to cope with the increased demand. An airconditioner with a capacity of five kilowatts could add between $1200 and $1550 to the cost of the network. However, its owner would only pay an additional $53.40 a year in network charges.

Those without the luxury of an airconditioner were paying $150 a year too much, the report found.

Savings could have been huge

The report found that if this alternative method of electricity pricing were adopted it could have saved network businesses close to $8 billion in reduced investment over the five years to 2013, with the savings passed onto consumers as lower bills.

“Calculating bills based on a household’s maximum load far better reflects the real cost of running the network,” Mr Wood said. “If we can get this cost down, we can get consumer prices down.”

The report also proposed a second tariff for households in areas where the network is under greatest strain and where additional infrastructure will have to be built unless peak demand can be managed.

The new tariffs seek to create a price signal to change consumer behaviour that currently does not exist. Making electricity expensive at peak times should lead to reduced use, resulting in less infrastructure needed, and ultimately cheaper bills.

“In the short term the total consumer bill would stay the same, but in the long run, as unnecessary infrastructure is no longer built, prices across the board will fall,” Mr Wood said.

“Australians are tired of paying too much for power. If politicians decide this reform is too hard, they will miss an opportunity to make prices fairer and cheaper for everyone.”

Read the full report