Gillard to push for domestic time-of use tariffs
The Australian (22 November 2012, Julia Gillard pushes peak power pricing) has reported that PM Gillard will encourage states to offer critical peak tariffs to customers in a effort to reduce energy bills and peak demand. Gillard is said to take this proposal to the next meeting of Council of Australian Governments (COAG) along with an encouragement of a national smart meter roll out.
The move would see the regular domestic tariff of peak only broken up into potentially three tariff periods: a low off-peak rate during the night, a higher peak rate during the day and a higher again tariff during hot days and cold winters. Adopting a ‘time-of-use’ tariff system hinges on the installation of smart meters that can communicate with retailers the exact time a consumer is using electricity. Older meters merely state the amount of electricity consumed over a certain period without providing an interval split of the time of use. With the installation of smart meters and the establishment of time-of-use pricing, consumers will be able to have greater control over their electricity bills by enable them to shift their usage to off-peak periods and not consuming during critical peak times. The converse being that consumers using electricity during hot summer days and cold winters, known as critical peak will be hit with higher costs. The system is currently used in larger commercial and industrial energy users.
The macro reasoning behind the initiative extends past the retail price of energy and aims to combat network costs. The end-user price of electricity is made of several components; those affected by the move would cover the whole supply chain, with specific effect to generation and networks. To generate electricity during peak periods requires the construction of peaking generation. This generation, mainly gas-fired generation, is required to meet very small windows during a year, potentially less than one day. It is thought that a deterrent, in the form of higher prices, to consuming during critical peak periods will reduce the need for peaking generation. Without the need for new infrastructure, the generation component of a bill should be reduced. Next down the supply chain are the networks: transmission and distribution. Much has been said recently of ‘gold-plating’ the poles and wires of the grid so that it can withstand the high demand during critical peak periods. A deterring high price during these times should result in reduced usage which then should equal a reduced need to upgrade network assets to meet these times.
The Australian Energy Market Commission (AEMC) suggested such measures within their Power of Choice review. The introduction of time-of-use tariffs and meters capable to determining the exact time of energy use is known and Demand-Side Participation (DSP).