For many businesses, “demand” is an extra line on the electricity bill that adds thousands to annual spend.  Knowing more about how demand is calculated and when it is applied is critical to keeping your electricity charge as low as possible and preventing costs from blowing out.

Demand is the maximum amount of electricity, measured in either kW or kVA, required at your business premises at one time.  It reflects the capacity requirement that the distributor has on standby should your business need it.  Imagine that you are paying for the use of a large cup.  You may not need to fill the cup often, but you continue to pay for the use of the cup.  You could save a lot of money by simply switching to a small cup.

Demand is charged in different ways by different distributors.  Commonly, charges are set to make electricity more expensive during peak network periods, encouraging lower use during periods of network system stress.

Most distributors charge for the maximum demand value reached during the last months’ electricity use.  This is typically recorded during peak periods, Monday to Friday, excluding public holidays.  It is important to understand this chargeable demand period, so that you can change behavior; either using less electricity during these demand charge periods or shifting your use outside of these periods.

Ausgrid in New South Wales have a unique method for charging for demand.  Instead of looking at the last month, Ausgrid charge what’s called a 12-month rolling demand for the maximum demand value that is recorded between 2pm and 8pm on working days.  Yes, this maximum value is used as a basis for demand charges for a whole year.  

Empower recently worked with a bakery in Chatswood, NSW, where ovens are switched on every working day from 1:30am to 10:30am.  However, on one particular day in April, during Easter, the business was busy with orders so decided to run one oven for an additional hour in the afternoon to increase production.  This decision cost the business over $3,000 in additional demand charges over the next 12-months.  Now that the business owner is aware of this, next Easter he will run the oven before 2pm so that he does not incur this additional charge.

Feel free to contact us if you would like help unravelling demand charges on your bill.

The University of Melbourne, ACCC chair Rod Sims, Grattan Institute’s Tony Wood and Dr Leslie Martin from The University of Melbourne’s Department of Economics and the Centre for Market Design presented to an audience of energy enthusiasts and professionals the state of National Electricity Market; problems and potential solutions. The discussion included:

·  ACCC report and its recommendation to government on solutions.

·  Grattan institute Report on causes for current high wholesale prices.

·  Retail price and influencing factors

Electricity prices have increased by 56% in the last 10 years and today customers are paying more than they should due to excessive regulated network asset base; one proposed solution on ACCC’s report is to write down the excessive regulatory asset bases in Queensland, NSW, Tasmania and remove the network tax in Victoria.

Excessively generous solar feed-in tariffs have resulted in customers without solar panels subsidizing  excessive benefits for those with solar panels. ACCC’s report recommends government to take the cost of feed-in tariffs in its budget. However, this cost will ultimately will come from tax payer’s money. So, a balance in equation would be required.

Considerable  market power in generation has led to higher wholesale prices. ACCC recommends limiting the future generation market share to 20% for any entity, creating an environment for a competitive market in electricity generation and government to provide price support for generation by small players.

To meet the Renewable Energy Targets (RETs), providing high subsidies for generation assets which may not be able to provide energy when the markets need it, has added to the increase in wholesale prices. A properly designed National Energy Guarantee (NEG) scheme can do the job.

Tony Wood discussed the Grattan Institute’s report on the causes for increase in wholesale prices and concluded that:

·  Increase in gas prices has resulted in increase in the price of all generation.

·  The closure of Hazelwood and Northern power plants added to the impact in supply, increasing the prices.

·  Gaming: Generators can create artificial scarcity resulting in market to respond on spot pricing through rebidding. Gaming is against the intent of the market which creates profitable outcomes for some players.

Dr. Leslie with her team of PhD students carried out a survey where they hired actors to call  to switch retailers. The study concluded that:

·  Retailers offered cheaper rates when customers said they want to switch retailers rather than when they said they are moving to a new house.

·  Large variation in prices

·  Complex bills

·  Marketing based on discounts

Simpler and easy to understand bills should be provided by retailers to customers and  default tariff should be set by AER to not let the retailers market based on discounts.