Sydney electricity prices explained

Recent changes to the electricity market in NSW presents a double edged sword to apartment buildings and businesses. In one aspect it provides an excellent opportunity for many sites to reduce electricity costs. But the growing complexity of the market poses a real barrier for sites trying to get the best deal. This fact sheet is intended to help  strata plans, businesses and managers to understand the NSW electricity market, tariff structure and options for cost savings.

Historical changes to electricity tariffs in Sydney

Before we can get into the current situation in NSW we need to take a step back and look at the recent history of Sydney’s electricity tariffs.

Prior to July 2013 the NSW electricity market was divided into:

• A regulated market for Small Retail Customers (households and businesses that used < 160 MWh pa), and
• A deregulated market for Large Retail Customers (larger businesses that consumed > 160MWh pa).

IPART regulated electricity tariffs for households and small businesses, these tariffs were relatively simple with a kWh usage charge, access charge and a demand charge for some businesses. Customers were often able to receive a % discount off the regulated tariffs by signing onto a 2 or 3 year small (simplified) market contract with an energy retailer.

Larger businesses were on contestable large market contracts. These are more complicated than small market contracts, retail rates and other charges (metering, service fee, environmental charges) are negotiated.

In July 2013 IPART changed the definition of a Small Retail Customer from one using < 160MWh pa to one using < 100MWh pa. This meant many business accounts could now access a contestable large market contract (note that in the AusGrid network area in Sydney strata common area electricity accounts ‘house light’s are classified as business accounts).

This had a big impact on many apartment buildings.

There are a lot of apartment buildings in Sydney that use between 100MWh pa and 160 MWh pa. Previously these sites would have been on the default tariff (or received a % discount off the tariff). After July 2013 these sites could now access large market contracts and achieve much greater cost savings.  In fact we helped several of clients make the switch to a large market contract and achieve cost savings > 20%!

Is your site a small or large customer? As a rough guide apartment building with < 45 apartments are typically small retail customers.

In July 2014 the NSW electricity market changed again. This time it moved to full deregulation.

This means that IPART no longer regulates electricity tariffs for households and small businesses (thought it still plays a monitoring role).

The move to full deregulation however is happening slowly:

• In 2014/15 households that were on regulated tariffs have been moved onto a ‘transitional tariff’. In July 2015 they will move off a transitional tariff onto their energy retailers standing offer.
• Similarly in 2014/15 and 2015/16 small businesses will be placed on a ‘transitional tariff’. In July 2016 they will move off a transitional tariff onto their energy retailers standing offer.

The transitional tariff was set between the NSW government and energy retailers. Note that only sites that were on regulated tariffs were moved onto a transitional tariff. If your site was already on a contract than this contract will remain and your site will not be able to access the transitional tariff.

So what does electricity market deregulation mean for strata and businesses in NSW?

At the moment its pretty much business as usual. There are still 2 ways your site can reduce energy costs:

• If your site uses < 100 MWh pa it should shop around for the best simplified small market contract.
• If your site uses > 100 MWh pa it should tender for a large market contract.

However, as we discuss below finding the best deal has become a lot more complicated.

Moving onto a small market contract (< 100 MWh pa)

One unfortunate outcome of deregulation is that is has greatly complicated the process of moving onto a small market electricity contract.

Previously energy retailers would offer a % discount off the regulated tariff. Therefore it was easy to compare offers, the bigger the % discount the better the offer.

Now things are more complicated. Without a regulated tariff energy retailers now offer a % discount off their ‘standing offer’. Each energy retailers standing offer is different. Therefore it doesn’t matter how big the % discount, what matters is what the discount is applied to. Many energy retailers may appear to offer the best deal, but when you look closely their rates are actually worse!

To properly assess offers from energy retailers you need to assess their price sheets and look at all the individual charges, retail rates and other charges. This can be complicated for lay people and involves some understanding of your electricity usage, demand and network tariff.

That’s where we can help. We offer energy brokering/procurement services. We make it easy to find the best deal and start savings. Contact us for more information or a free quote.

Moving onto a large market contract ( > 100 MWh pa)

If your site uses > 100 MWh pa it may be able to be re-classified as a Large Retail Customer and move onto a large market contract.

This could potentially achieve much higher cost savings compared to a small market contract. IPART lowered the definition of a large customer from 160MWh pa to 100MWh pa to allow more businesses access the contestable market, to drive competitiveness in the electricity market and ideally to help reduce costs.

Is there a cost advantage in moving to a large business contestable contract?

Whether or not there is a cost advantage to  moving from a small market to a contestable large market contract depends on a range of issues (e.g. retail rates offered at the time, network tariffs, retail service fees and metering charges, environmental charges).

It is important to properly assess the relative cost-benefits of a large and small market contract. This can be complicated and it is recommended to ask an energy consultant for advice. Contact us to discuss whether a large market contract is right for your site.

In order to move onto a large market contact many site’s may need to upgrade to a communications smart meter, and would have to manage the procurement process and manage ongoing account issues. This adds complexity to energy management but there may be a considerable cost advantage to moving onto a large business contract.

How do we move onto a large business contract?

Arranging a Large Business contestable market contract is considerably more involved then a small business simplified market contract. Managing your Large Business contract is also more complicated, for example if your site does not renew a contract prior to its expiry it may be changed significantly more expensive spot prices or default rates.

The only way to assess the relative cost-benefits of moving onto a small or large business market contract is to put out a tender for the site, request pricing proposals from energy retailers and assess the offers. Assessing the relative merits of a pricing proposal is a complicated process, you must take into network charges, calculate appropriate loss factors and assess a range of charges (retail rates, metering charges, service fees, AEMO market charges and environmental charges).The retail electricity rates offered by an electricity retailer vary depending on the consumption, demand and pattern of usage of a site. The electricity rates offered by retailers vary frequently in response to changes in the electricity market. A site renewing a contract in January may be offered different rates to a site renewing a contract in March therefore it is important to consider the timing of renewing contracts to take advantages of changes in the electricity market

Energy Smart Strata has helped many sites move onto small and large market contracts. We can arrange the tender and assess pricing proposals to help you get the lowest prices. We can work with strata managers to bundle multiple sites together to achieve greater savings. Contact us to discuss our energy procurement services.

Make sure you are on the right network tariff

Arranging a small or large market contract is just one part of the puzzle when it comes to managing energy costs. Retail charges can account for as little as 25% of total electricity costs.

Network charges account for 50% to 60% of electricity costs. It is important to make sure your site is on the right network tariff.

NSW electricity network areas

In NSW there are 3 electricity networks:

• AusGrid (formerly EnergyAustralia). This covers central and eastern Sydney, southern Sydney down to Waterfall, the central coast up until Port Stephens and the Hunter region. Energy Australia is the default electricity retailer for this region.
• Endeavour Energy (formerly Integral Energy). This covers western Sydney, the Blue Mountains, Southern Highlands, Illawarra and Shoalhaven regions. Origin (formerly Integral Energy) is the default electricity retailer for this region.
• Essential Energy (formerly Country Energy), which supplies the remainder of NSW. Origin (formerly Country Energy) is the default electricity retailer for this region
• You can search your electricity network by your postcode on the AusGrid website.

Your electricity tariff and charges vary depending on the network area. For example in the Endeavour network area apartment buildings are considered as residential accounts, however, in the Ausgrid network area apartment buildings are classified as business accounts. In the Endeavour network apartment buildings are either on a general supply, ‘all-time’ tariff for sites without a smart meter, or a time of use tariff for sites that have a smart meter (there are also two off peak tariffs). In the Ausgrid network area however things are more complicated.

Below we discuss the tariffs in the Ausgrid network area.

Energy Australia / Ausgrid electricity tariffs

In the AusGrid/Energy Australia network area an apartment building should be on a business tariff, not a residential tariff. Some older buildings may still be incorrectly on a residential tariff. There are 4 tariffs for small customers (usage < 100 MWh pa):

1. General supply (EA 050)

   Under this ‘all-time’ tariff electricity usage is charged at the same rate regardless of the time of day or week. Electricity rates are however stepped; the first 2,500kWh consumed per quarter is charged at a lower rate, the balance is charged at a higher rate. In addition to consumption (kWh) charges there is also a daily supply charge (Service Availability Charge). This tariff applies to all sites that do not have a time of use meter (smart meter). Or, to sites that have had time of use meter installed but who have applied to move back onto a general supply tariff.

2. Controlled Load

   These tariffs are only available with a principal tariff. Under a controlled load tariff a very low off-peak rate is offered to equipment which is controlled to only run at specific times (during cheaper off peak periods). In some apartment buildings this tariff can be successfully used to power heat pumps for swimming pools and 7am to 10pm on weekends and public holidays.

3. PowerSmart (EA 225)

   This time of use (ToU) tariff applies to sites that have a time of use meter (smart meter) and consume less than 40 MWh pa. Under a ToU tariff electricity consumption is charged at a different rate depending on the time of the day and week it is consumed. Energy Australia defines PowerSmart ToU periods as:
   - Peak: 2pm to 8pm on working weekdays;
   - Shoulder: 7am to 2pm and 8pm to 10pm working weekdays and 7am to 10pm on weekends and public holidays;
   - Off Peak: all other times.
   In addition to consumption (kWh) charges there is also a daily supply charge (Service Availability Charge).

4. LoadSmart (EA 302)

   This time of use (ToU) tariff applies to sites that have a time of use meter (smart meter) and consume more than 40MWh pa and less than 100MWh pa. Under a ToU tariff electricity consumption is charged at a different rate depending on the time of the day and week it is consumed. Energy Australia defines LoadSmart ToU periods as:
   - Peak: 2pm to 8pm on working weekdays;
   - Shoulder: 7am to 2pm and 8pm to 10pm working weekdays (not weekends);
   - Off Peak: all other times.
   Uniquely to the LoadSmart tariff there is also a peak capacity charge. Capacity charges are applied to the maximum peak period half hourly kW power reading that occurred at over the 12 months prior to a bill being calculated. This is effectively the maximum electrical demand your site places on the electricity network. Maximum demand usually occurs when all equipment is running at once; lighting, ventilation, lifts etc.
   In addition to consumption (kWh) charges there is also a daily supply charge (Service Availability Charge).

Discussion on electricity rates and issues

Now that we have an understanding of the various electricity network tariffs in Sydney we now discuss a few issues important to your apartment building.

Service Availability Charge

All electricity rates have a service availability charge. This is a charge to have your site connected to the grid. As you may expect larger sites that draw more energy from the grid have higher requirements, in terms of network infrastructure, and usually have higher service charges. Annual service availability charges for the various Energy Australia tariffs are given below for the year 2013/14:

• General tariff: $548 Ex GST
• PowerSmart: $548 Ex GST
• LoadSmart: $2,058 Ex GST

The important thing to note is that if you are on the LoadSmart tariff you are paying over $2,000 a year just to be connected to the grid (for the year 2013.14). This can be a significant proportion of total energy costs. Reducing your energy usage will not reduce this fixed cost.

In addition many energy retails offer a discount off usage charges but not the supply charge. This is important to know when comparing price offers.

All-time vs Time of Use tariff

There has been considerable discussion on the use of smart meters in NSW. A smart meter is capable of measuring the time of day electricity is consumed. Sites with a smart meter are charged a time of use tariff (ToU).

Should your apartment building be on a ToU tariff? For many sites the answer is yes.

If your site uses a lot more electricity during the expensive peak periods (2pm to 8pm Monday to Friday) then your electricity costs may higher under a ToU tariff. However, many apartment buildings have a relatively constant demand or may have a higher consumption during the night during cheaper off-peak periods. For example this may apply to sites that have a lot of lighting that only switches on during the night.

A full energy audit is the only way to assess whether your costs would be lower on a ToU tariff. Sites we have audited that were on a general all-time tariff could save up to 30% by installing a smart meter. Though our tariff and billing analysis we have seen sites that are on a ToU tariff whose electricity costs are up to 55% cheaper compared to a general all-time tariff.

Our research data clearly indicate is that electricity costs for small apartment buildings broadly fall into two tiers, those on a time of use tariff and those on an all-time tariff. The average cost of electricity for sites on a time of use tariff was $192/MWh, average electricity costs for sites on an all-time tariff where $248/MWh. Therefore, on average, apartment buildings on an all-time tariff are paying 28% more for their electricity. This is illustrated in the following figure (note the values given above are based on level-2 energy audits of 25 apartment buildings, 11 in the Endeavour network and 14 in the Ausgrid network).

PowerSmart or LoadSmart

One issue that consistently arises is the discrepancy between electricity costs under the default PowerSmart and LoadSmart tariff (note that PowerSmart and LoadSmart may also be referred to as tariff EA225 and EA302 respectively). The PowerSmart tariff applies to sites that use < 40 MWh pa. The LoadSmart tariff applies to sites that use > 40 MWh pa and <100 MWh pa.

You would think that costs would be relatively similar for a site that uses 40 MWh pa (on PowerSmart) and a site B that uses 40 MWh (on LoadSmart). However unfortunately there is a cost discrepancy that penalises sites on a LoadSmart tariff. A site consuming 40 MWh pa on the LoadSmart tariff may paying 24% more than if it were on the PowerSmart tariff.

In most cases the PowerSmart tariff is cheaper than the LoadSmart tariff. If your site uses < 40 MWh pa and  is incorrectly on the LoadSmart tariff it is important to contact you energy retailer and ask them to send a request to change network tariffs to AusGrid (AusGrid typically requires 12 months of data to prove consumption is less than 40 MWh pa).

If your site is using just over 40 MWh pa and is on the LoadSmart tariff there is a significant cost incentive to reduce your consumption < 40 MWh pa and switch onto the cheaper PowerSmart tariff.

Large business electricity tariffs: power factor

The information above deals with small business accounts that use < 100 MWh pa. It is also important for large business accounts to check they are on the correct tariff.  Businesses in the AusGrid Network that consume <160 MWh pa should be on the EA302 tariff, and business that consume > 160 MWh pa should be on the EA305 tariff (or the EA310 tariff for usage > 750 MWh pa).

Whats the difference? Under the EA302 tariff sites are charges a kW capacity charge. Under the EA305 tariff sites are charged a kVA capacity charges. Therefore there is a cost incentive to improve the power factor of the site to reduce peak kVA. This may be accomplished by installing power factor correction. However this may only be cost effective is power factor is < 0.85 and the reactive power at peak demand is > 100 kVAR.

Carbon tax repeal

The carbon tax has been repealed effective from the 1st of July 2014. The carbon price will not be payable for greenhouse gas emissions generated on and from the 1st of July 2014.

The repeal of the carbon tax is estimated to reduce strata electricity costs by 10% to 15%.

Many electricity retailers have already reduced their rates and removed the carbon tax from invoices.

For sites still being invoiced with the carbon tax, you should hear from your retailer soon:

Price reductions that may flow from the carbon tax repeal will depend on invoicing periods and whether any greenhouse gas emissions were generated during the production of the goods prior to 1 July. Legislation requires energy retailers to conduct a review and present a statement to the ACCC by the 18th August 2014. Between 18th of August and 15th of September energy retailers must then communicate with customers regarding any impact of the Carbon Tax repeal.