A senior product manager from one of Australia’s biggest electricity suppliers has admitted an unpleasant truth that electricity market reformers have ignored for years: household customers don’t want time-of-use tariffs and won’t touch them “with a ten-foot pole”.
This is not what electricity regulators and their advisors want to hear, given they have promoted time-of-use tariffs as a way – in theory – to curb peak demand through a price signal and so reduce unnecessary supply-side investments. Under such pricing models, households pay high prices for power during peak periods, lower prices during shoulder periods and cheaper still prices the rest of the time.
Speaking at the Australian Summer Study on Energy Productivity in Sydney last Thursday, Dr Lisa McDonald, manager, products for Queensland’s Ergon Energy Retail, said Ergon had time-of-use pricing structures but they weren’t popular.
“There are no customers on it because they look at it and go, ‘I’m not touching that with a ten-foot pole,’” she said.
Ergon, unusually in Australia, is both a network and a retail electricity company. It has around 730,000 customers, of which 120,000 have solar PV.
Dr McDonald’s comments are refreshing because pricing that sends a signal to the consumer about when demand is high and therefore more expensive to supply – so-called “cost-reflective pricing” – has been promoted by market reformers as a way to better control demand during peak periods.
For some industry observers, this highlights how poorly the electricity industry and regulators understand their market.
In this correspondent’s experience as a home energy auditor, even peak prices over 55 cents a kilowatt-hour did not deter consumption, as households on such tariffs could not understand their bill, their retailer had never explained it and they found it impossible to establish when peak, shoulder and off-peak prices occurred. Households complained bitterly about their bills but even when the audit explained how to become more energy efficient and how much they’d save, they rarely took action. Most likely, the only change was adjusting their pool pump timer so the pump didn’t run on peak power rates.
Dr McDonald said a CSIRO study last year found consumers really liked flat rate tariffs even when they knew they may not be saving as much as they might on a time-of-use rate.
“I don’t know about you but I don’t really think a lot about electricity day to day. I’ve got other things to worry about. And I think that’s the majority of our customers. They don’t want life to be hard.”
She said cost-reflective tariffs could still achieve results, but networks needed to work with retailers so retailers could package them in a way that still sent the network price signal but the pricing was easy for customers.
“So our job is to make their life easier,” Dr McDonald said. ”It’s critical to making tariff reform work because of that very issue of customers just not wanting to bother with having to do too much.”
Gavin Gilchrist is a former technology writer, author, SEDA manager and clean energy entrepreneur now looking around for new opportunities.