Opportunities missed in botched time of use tariff rollout

Australia’s world leading rooftop solar rollout – set to pass 25 GW across 4 million households and small firms by year’s end* – is the envy of the world. It’s a victim of its own success too, flooding the grid with surplus solar power during daylight hours, undermining utility wind and solar farms and ageing coal plants, and provoking distribution networks, retailers and regulators to respond.

Pity they’re not all singing from the same song sheet.

For years policymakers have looked to “cost-reflective” or “time of use” tariffs for relief from the grid indigestion inflicted by frequent daytime solar “floods”. But now that time of use network tariffs are being introduced by distribution networks, and passed onto customers by energy retailers, they’re not having the intended effect of better balancing supply and demand.

Instead, they’ve been met with a backlash from unsuspecting households whose bills have sharply increased. It doesn’t help that it’s come after a spike in energy bills amid a cost-of-living crisis.

“The industry itself has not really lent into what consumer preferences are in the transition,” says Gavin Dufty, National Director Energy Policy and Research at St Vincent de Paul Society.

“Retailers have dropped the ball [and] networks probably came late to the party.”

Squandered

Consumer advocates say retailers have just passed the new tariffs on without explaining them, in some cases without customers’ prior consent, and made little or no effort to come up with easy to understand retail products. Retailers in turn blame distribution network operators for expecting them to turn complex time of use network tariffs into simple retail energy service products and explain how they work to disengaged customers.

The upshot is the implementation of a good idea has been botched, and an opportunity for retailers to enlist their customers in the battle to better balance supply and demand in a rapidly transitioning grid squandered, along with customers’ trust.

The Australian Energy Market Commission pressed pause mid-year on the rollout of time of use tariffs and the smart meters that enable them. “This does not mean we are stepping away from smart meters, or away from the importance of accelerating the rollout,” AEMC chair Anna Collyer said in June.

“It does mean that we are aware of the fears arising from some customers’ early experiences and that we do not want to blindly push ahead without considering what more we can do to address concerns and avoid a multiplier effect.”

In August the AEMC proposed new rules requiring prior informed consent for time of use tariffs for a three-year term, and a mandatory flat tariff option for all customers. A final decision is expected in November.

AGL and Origin both say choice comes first, bills should be fair and easy to understand, and they try to keep customers on a flat tariff prior to smart meter installation on a similar same tariff. “We do this to avoid bill shock,” says an AGL spokeswoman.

The problem

Time of use tariffs are an elegant solution to solar grid indigestion. In theory, you can reduce the demand for something that is in short supply – such as electricity in the evening – by increasing its price, which should also increase its supply. And you can increase demand for something that’s in surplus – such as solar power in the middle of sunny days – by cutting the price, which should also reduce supply.

In practice, the vast majority of retail customers aren’t paying attention. “Consumers are not very well equipped to respond to different time of use tariffs,” says Jess Padman, director of energy products at National Renewables Network, a startup that arranges finance for solar and battery. She is still on a fixed tariff. “I'm a massive energy nerd, but I can't even convince my husband to change the timer on the dishwasher.”

It's not that there’s no visible benefit. Home and small business battery installations have accelerated from around 3,500 to 5000 per month a year ago to 5700 to 7200 in recent months, or about a quarter of monthly rooftop solar installations, says Sunwiz. This looks like a response to lower solar feed-in tariffs and higher peak usage charges (falling battery prices have also helped). Batteries help solar households by storing surplus energy for use when prices are higher.

Figure: Cumulative battery sales, quarterly

Going begging

Yet time of use pricing isn’t fulfilling its potential. A St Vincent de Paul Society report** says presentation of time of use tariffs on the federal government’s Energy Made Easy website is confusing; retailers’ time of use tariffs offer customers scant savings (customers can save more by changing retailers). The discounts on offer during the sunny hours pale beside the premiums charged during the evening peak under AGL, EnergyAustralia and Origin’s under time of use tariffs. They offer cheap electric vehicle charging and rewards for cutting energy use during supply squeezes, but innovation is scarce, and opportunities go begging.

Dufty suggests some ways to make tariffs more efficient:

• a flat monthly rate for household hot water, cooking and heating;
• a flat, low 9am to 5pm rate for small firms that would boost jobs and investment when it’s needed;
• matchmaking for customers with solar surpluses and those with large “loads”;
• or a cheap daytime solar peak rate that would benefit non-solar households.

Upstart retailers like Amber offer exposure to the ups and downs of the wholesale market, but that appeals to a small minority of engaged customers with solar panels, batteries and EVs. No-one is stepping into the middle, says Dufty. “There’s abundance here that we're missing out on.”

Cheap daytime “solar soaker” tariffs would reduce relative savings for solar households, says David Prins, Director of Etrog Consulting. But they could also spur battery purchases and VPP usage, which Padman says should be a condition of the consumer energy subsidies the major parties look set to fight over at next year’s election. “It’s in the common interest to allow that to happen,” she says.

*Data from Clean Energy Council and Sunwiz

**New South Wales Energy Prices 2024 (September 2024)