Paying for a power price distraction?

A new study finds the carbon price impact on business power bills is largely in line with forecasts. But have network owners taken advantage of the focus on carbon to distract consumers from other pricing changes?

An overall power price rise of 18.6 per cent has been seen in the wake of changes to electricity network charges and the introduction of the carbon tax, according to a Big Switch Projects analysis of electricity bills from a sample of 66 sites. The carbon tax impact was broadly in line with Treasury forecasts of around a 10 per cent lift.

While the average overall price rise in cents per kilowatt-hour for the bills reviewed was 18.6 per cent, the increases ranged from 53 per cent down to an actual fall of 5 per cent. Network peak demand charges rose by as much as 75 per cent in the Ausgrid network in NSW and 46 per cent in the Brisbane CBD which is supplied by the Energex network.

The Real Energy Price study was carried out using actual electricity bills for June and July 2012 for 66 large business consumers, mainly office buildings but including a hotel, a large club, a hospital, two factories and a shopping centre.

Of the 66 businesses, 20 were in NSW, 18 in Victoria, 20 in Queensland, six in South Australia and one each in the ACT and Northern Territory.

Of sites reviewed, the overall increase in the average price actually paid per kilowatt-hour was 18.6 per cent, although the increases ranged as high as 53 per cent and as low as a fall of 5 per cent. Average kWh price was calculated by taking the total bill excluding GST and dividing that by the kilowatt-hours used.

While the average price increase for the entire bill was 18.6 per cent, there was quite a range in the increases:

-- A 53 per cent increase for a large office building in the Brisbane CBD;

-- A 41 per cent increase for a large suburban shopping centre in Sydney; 

-- A 36 per cent increase for a mid-sized office building in Bowen Hills, Brisbane;

-- A 40 per cent increase for a large office building in North Sydney;

-- A 26 per cent increase for a five-star Adelaide hotel; and

-- A 23 per cent increase for a large office building in the Melbourne CBD.

There was a huge variation in the average price being paid since July 1, from 13.6 cents/kilowatt-hour to 31.4 cents/kilowatt-hour.

Impact of the carbon price

The impact of the carbon price was modest. On average, it added 11 per cent to the average cost per kWh for each customer. The impact on bills from the stated line item “carbon charge” ranged from 5 per cent to 16 per cent.

All electricity company bills reviewed listed the carbon price as a “carbon charge” line item on the bill except Origin Energy who listed carbon charge on 14 bills but not on three others that were part of the study.

The carbon price since July 1 has added an extra 5-16 per cent to the bill. The average impact of the carbon price is 2.1 cents/kWh.

Increased network charges

The real surprise in our study was the extent of the hike in the peak network demand charges paid by many business consumers – the charge based on the maximum demand for electricity for the customer that month. Demand charges rose by as much as 75 per cent, with the average increase over 30 per cent.

For many businesses, the demand charge alone now comprises 20 per cent of their winter monthly bill.

In the Ausgrid network in NSW, which supplies the Sydney CBD, North Sydney, the NSW Central Coast and Hunter regions, all sites reviewed had increases in network peak demand charges of between 69 and 75 per cent. Across the Energex network, which supplies Brisbane and south-east Queensland, the increase was between 29 and 46 per cent.

In Victoria, the highest increase in demand charges in this sample was 12 per cent.

Twelve sites in the study had demand charge increases of over 50 per cent, 18 had increases of between 20 and 50 per cent, 17 had increases from zero to 20 per cent, and 11 had no increase. The remaining eight sites had no line item for demand charge in their invoice.

The method of charging for peak demand varied in this sample. Some bills have a peak demand charge and some have a contract or capacity demand charge. Other demand charges are based on the highest demand recorded during the previous 12 months.

But while there were significant increases in demand charges, at the same time some networks cut their volume charges (that is, the price per additional unit of electricity consumed) while others increased them too. The Energex volume charges are down 25 to 46 per cent while at the other extreme South Australia’s network volume charges rose in this sample by 25 per cent.

While we all knew the carbon price was coming, and most businesses knew network prices were going to rise, very few businesses would have expected the jump in peak demand charges we’re seeing now in some networks. In the debate about what’s causing power price rises, here’s the evidence from real bills. It seems many in the electricity industry have taken the opportunity to adjust a variety of charges at the time the carbon price was introduced.

We wonder: have they taken advantage of the focus on carbon prices to distract consumers from changes in both price and structure of pricing?

We believe there is a market failure in evidence here. If the electricity networks feel there’s merit in lifting peak demand charges so much, to curb peak demand, it would be a good idea to tell business this is happening.

While every business would benefit from improved energy management, this report shows that, given the recent behaviour of the electricity supply industry, we need to refine the way we manage energy.

We need to cut energy use overall and also put more focus on cutting peak demand. And if networks are going to hit business consumers with these sorts of price rises, it would help if governments and networks promoted this goal more clearly so business understands what it should do to cut energy costs.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles