The Australian Energy Market Commission (AEMC) believes between $2–6 billion in savings are on offer over the next 15 years if pricing reforms are implemented across the electricity network.
Under its Pricing Review, the AEMC detailed six recommendations across three themes in December, examining how electricity pricing can better support consumer needs as the energy transition evolves, analysing the role of DNSPs, retailers and other service providers in the process.
Following a consultation process, where AEMC received “strong views both for and against” the proposed network pricing reforms, the regulator has released in-depth analysis into the impact of network pricing reforms.
The analysis explores the impacts of one of the six recommendations detailed in the December report, with the AEMC to release a final report in June that considers more than 2700 submissions from organisations and community, and details its final recommendations.
So how would reforms unlock up to $6 billion in savings?
“Reforms to network pricing would reduce the need for network investment by avoiding costly network augmentation by lowering peak demand,” the AEMC said in its report.
“We estimated the benefits using three approaches.”
The first approach, which is expected to unlock $2 billion in savings, explores what benefits reduced augmentation expenditure would provide. This hinges on the Federal Government’s 2030 target of two million home battery installations, and “projecting the proportion of the network where dynamic prices could delay the need for augmentation”.
The AEMC said 3 per cent of augmentation investment could be avoided in the beginning, increasing over time as battery uptake increases.
Secondly, which could unlock just short of $4 billion in savings, the AEMC proposes what greater CER (consumer energy resources) co-ordination could look like, citing a study completed by Energia.
“Energia’s recent study on the benefits of CER found that a single 10kWh battery in NSW could save the electricity system over $800 in wholesale, network, and ancillary service costs in a year,” the report stated.
“This benefit could be spread among all consumers, with battery owners likely to benefit more through rewards for their contributions to lowering costs.”
Thirdly, which could save $6 billion in network costs, the AEMC cites trial results from Project Edith being carried out by Ausgrid in New South Wales, which tests dynamic network prices that change depending on forecasted local network conditions.
“Unlike traditional network tariffs, dynamic network prices better reflect the cost of using the network at different times and locations, providing price signals that can incentivise CER to support the local network,” Ausgrid said of the inspiration behind Project Edith.
Project Edith suggests dynamic prices could not only help in lowering network costs but also increase consumer participation in wholesale markets.
“The dynamic tariff gives customers the opportunity to earn more revenue in the wholesale market than if the customers had been on a time-of-use tariff,” Ausgrid said.
The AEMC said if reforms under the Pricing Review were implemented, it would lower costs for most households, with or without rooftop solar or batteries, with some families saving up to $740 per year on electricity bills by 2040.
“Around two-thirds of households who are currently unable to have solar or batteries are projected to be better off,” the AEMC said.
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