When you set up your electricity plan, you’ll be asked to choose a tariff.

Your tariff will determine how you are charged for your energy.

Available tariffs vary depending on the state you live in and your supplier.

It’s important to carefully consider which tariff is best for you as it can have a significant impact on your energy costs over time.


The electricity grid

You've probably heard of 'the grid,' but what does this term mean?

Well, the grid is how the energy gets from the generator to your light switch.

The largest interconnected energy grid in Australia spans 4,500 kilometres through New South Wales, Queensland, Victoria, the ACT, Tasmania, and South Australia.

The National Electricity Market (NEM) manages the supply and distribution of this grid.

Western Australia, the Northern Territory, and Queensland's Mount Isa have their own individual grids that don't interact with the larger grid.

The power station

The power station is where your electricity originates.

As you can infer from the name, the power station generates electricity before it is sent out to businesses and homes.

There are several methods a power station might use to generate electricity, such as burning coal, solar, wind, and natural gas.

The power station isn't exactly part of the grid, but it's where electricity starts.

The power station is far away from most residential locations, so the grid is essential in getting electricity to consumers.

First substation transformer

The substation transformer is the first true step on the electricity grid.

These are often located close to the power stations, and begin electricity distribution from the power station to your home.

The first substation transformer is important, as it adjusts the voltage of the energy to prepare it for transport.

Adjusting the voltage means that electricity can be transported over long distances without losing too much of it.

Power loss is inevitable whenever you transport electricity.

Adjusting the voltage can minimise the power you use, and keep an efficient system running and supplying electricity.

Transmission networks

Transmission networks take electricity from the power station and substation to the rest of the grid through overhead and underground wires.

These wires are heavily insulated since the electricity voltage is so high.

Lower insulation presents a greater risk, so these power lines are thick to prevent any accidental interaction with the ground.

Second substations transformer

The second substation transformer is where the transmission network ends, and the distribution network begins.

At this point, the voltage of the power lowers, so it becomes safe to enter your home.

The voltage lowers depending on the location and purpose of the electricity.

If the grid is dispensing energy to a large factory in a rural area, for instance, the voltage will remain higher than if it's headed to a residential neighbourhood.

Distribution power lines

Once the second substation transformer lowers the voltage of the power, it is transferred to distribution power lines.

You see these overhead power lines every day along the road, distributing electricity to where it's needed.

The voltage of electricity remains relatively high until this point.

It will lower again before it enters your home or business, which is the end destination for electricity.

Homes and businesses

Finally, the electricity enters your home through the service drop.

The electricity you use will be recorded by the meter on the outside of your home, and the switchboard distributes electricity through the different rooms in your house.

It is converted into circuits at this stage.

From there, the electricity passes through the wires behind your walls into the outlets, light sockets, and switches throughout your home.

Another noteworthy element of this process is a circuit breaker or fuse.

These are switches of a sort, making sure you get the appropriate amount of electricity without overloading the circuit.

If too much energy flows through, they switch off and require a manual reset.

Understanding electricity distribution

Many people don't think about where their energy comes from, but take it for granted that the light will come on when they flick the switch.

In reality, electricity generation and distribution is a complicated process.

We rely on fuel sources to receive our energy, and any failure in the grid can mean massive outages for entire regions of businesses and residents.

Once you know how electricity is distributed, it may help you understand how the market works and why prices fluctuate.

Location of your home, location of the power station, and technology of the electricity grid can all affect prices and efficiency.

It takes serious planning and infrastructure to get power at our fingertips, especially if you live in rural or remote areas.

The next time you turn on the lights, take a minute to marvel at how it's done!


This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.