Electricity Tariffs in Australia Explained

Electricity tariffs are how electricity suppliers charge you for their services. When it comes to the charges on your energy bill, many people remain confused about what different tariffs are available.

Understanding tariffs and how they work can save you some money in the long run. You can better understand your electricity consumption and how to choose the tariff that offers you good value.

Electricity usage charge

This is the bill for the amount of electricity your household actually consumes, and is sometimes called a variable charge or consumption charge. It is charged in cents per kilowatt hour (c/kWh). If you have a plan that breaks usage down into peak and controlled load times, you may have multiple sections of usage on your bill.

You can expect to see the following on your bill: type of charge, previous meter reading, current meter reading, and usage in kWh. If there is an 'A' next to the current reading then the number represents an actual reading. Either a meter reader visited your home or the reading was transmitted via smart meter.

If there is an 'E' next to the current reading then your charges are based on an estimated reading. This happens if a meter reader isn't able to visit your household or access the meter. Estimations are based on previous electricity usage in the household.

Electricity supply charge

Each household is charged for receiving access to electricity, regardless of how much is used. This is known as the supply charge or service charge. Think of this as an administrative fee charged by your electricity supplier to cover general maintenance to the infrastructure, including poles and wires.

It appears on your bill charged in cents per day or as the total charge for the billing period. The amount of electricity you use in a billing period will have no effect on the supply charge.

Additional fees

Occasionally you may see other fees on your bill besides the standard charges.

These may include:

• A payment processing fee (usually when paying by credit card)

• An exit fee

• An establishment fee for new customers

• Late payment fee

What are Supply and Variable Charges?

No matter which tariff structure you select, your bill is usually divided into supply and variable charges. The supply charge is unaffected by your energy consumption. It is listed on your bill as a "supply charge" or "service charge," and refers to a daily charge you receive regardless of how much energy you use.

The supply charge is the charge you receive for being connected to the energy grid. Some suppliers offer discounts on the supply charge, which benefits households that don't use very much energy.

The second charge on your bill is a variable charge. Most of the time this appears as a "usage charge" on your bill. For electricity, suppliers charge based on cents per kilowatt hour (kWh). Most suppliers offer discounts on usage charges, which are usually the largest portion of your bill.

What does peak and controlled load usage mean?

Peak and controlled load peak usage hours are two of the terms you'll see a lot when looking at electricity consumption. They may appear on your bill whether or not your plan even includes peak and controlled load hours for billing purposes.

Not all plans use peak and controlled load rates. Most suppliers allow you to select a single-rate tariff or a time of use tariff. The latter option takes peak usage into account.

Single Rate Tariff

A single rate tariff charges you the same amount for your energy consumption, regardless of the time of day you use the most energy. These plans are good for those who use the bulk of their electricity during peak hours.

In contrast, a time of use plan charges higher rates during peak hours, so you'll pay more for the energy you use during these times. Your electricity bill may still say 'general usage' even if you have a single rate tariff. In this case you're not being charged more, it's simply how the energy supplier categorises your energy use.

Time of Use Tariff

The time of use tariff divides the day into peak hours and controlled load hours. Peak hours vary depending on your supplier and your plan, but tend to be during times when more people are using electricity. For example, weekday afternoons and early evenings are likely to be peak times.

Electricity usage is cheaper during controlled load hours and more expensive during peak times. Time of use plans tend to be better for those who use most of their energy in the morning or at night. If it's feasible to do so, you could save money by waiting to use more electricity during controlled load hours.

What is block pricing?

Your electricity supplier may charge you using block pricing. In this tariff type, your usage is broken into two or more blocks of kilowatt hours. Your supplier charges the first energy block at one rate.

After you exceed the specified limit, you move into the second block and are charged a different rate. Some suppliers charge a lower rate for the first block and increase the rate for subsequent blocks, while other suppliers do the opposite. The majority of energy suppliers use two blocks for pricing, but some go as high as five. Block pricing can save you money if you can access a pricing model that suits your usage.

Smaller households that don't use much electricity may be able to stay within the first block and pay a lower rate. Larger households that use high amounts of electricity could benefit from block pricing that starts at a higher rate and decreases as usage goes up.

Block Pricing Example

Energy Australia flexisaver plan

What is a Controlled Load?

A controlled load tariff is one of the more obscure tariffs you can find through electricity suppliers. It's worth considering controlled load tariffs, because they could save you money. With a controlled load tariff, you are charged separately for the electricity used to power a specific appliance such as hot water or slab heating.

The controlled load appliance runs on a separate circuit than the rest of your home, and may have its own meter. The supplier charges one rate for your normal electricity usage, and a different rate for the controlled load. The catch to controlled load tariffs is that the appliance can only be used during a specified time frame.

In New South Wales and Queensland you can choose between controlled load one and controlled load 2: the first option is cheaper, but the second operates under a longer time frame. Controlled load tariffs are designed for appliances that don't need to run continuously, which is why they work well for hot water systems.

Can a Controlled Load Tariff Save You Money?

• Sharon lives in Adelaide, South Australia with her husband and daughter. She uses average of 14.2 kWh of electricity per day

• She decided to add her hot water system to a controlled load, which is 4 kWh of her energy usage. The rest of her house now uses 10.2 kWh per day. Sharon's standard contract - with a single-rate tariff - had her paying $1,965 a quarter on her energy bill.

• Now, Sharon only pays $1,873 a quarter with her controlled load tariff. She pays 25.95 c/kWh for her standard electricity and 21.94 c/kWh for her controlled load.

• Sharon saves almost $300 a year after deciding to add her water heater to a controlled load and only use it during off-peak hours.

What is a solar feed-in tariff?

A solar feed-in tariff offers an opportunity for further savings if you have solar panels on your home. Your solar system generates energy, which can be sold back to the grid at a rate per kilowatt hour. Rates are set by your supplier, though some states also offer solar feed-in tariffs.

Sources

^Energy and Water Ombudsman, Ways to save on your bills, accessed 31st March 2022.

Paul Coughran is the General Manager of Emerging Verticals at Compare Club. Paul has over 20 years of experience across a wide range of industries including Banking and Finance, Telecommunications and Energy. Paul leads a team of trusted experts dedicated to helping individuals make informed decisions about their insurance and utilities needs.

Meet our energy expert, Paul Coughran

Paul's top energy tips

• 1

  Australia’s top three energy companies still hold 64% of the total Australian market, even though competition was deregulated in 2017.

• 2

  If you don't shop around for energy providers, you’re probably leaving your savings on the table by failing to compare better value options.

• 3

  Most energy providers offer discounted rates for new customers, which is a strong incentive to switch.

• 4

  There should be no interruption when you switch energy providers. You'll need to pay a new company for your energy, but there won't be a disruption to your power supply.