Electricity can be complicated and there is often confusion about how the market works and the terminology that is being used. We would like to provide more clarity for our followers and will start with a blog post on the electricity supply chain and how the various parts are reflected in your monthly bill.
Components of your electricity bill
If your business is a large energy user, you will typically get ‘unbundled’ bills, where you can see all charges of the electricity supply chain spelt out. Looking closely at your electricity bill, you will probably see three major sections for your charges, being ‘Energy’, ‘Network’ and ‘Other’ as shown in Figure 1.
- You pay for the electricity being generated (‘Energy’),
- You pay for electricity to be delivered to you, including usage and daily access charges, and possibly peak demand (‘Network’),
- You pay for State and Commonwealth environmental legislation and market fees (‘Other’),
- You pay other fees, such as metering charges,
- You pay the retailer to bundle these charges in your bill and manage all market risks associated with the electricity supply chain (‘Other’).
Typical contribution to your electricity cost
You can see the typical contribution of the various cost components of the electricity supply chain in Figure 2 below. Depending on what state you are located in, and whether your business pays Peak Demand charges (listed under the ‘Network’ portion of your electricity bill), the proportions for each component might differ on your bill. For example, you may find that in your case, network charges are 50% of your bill.
What you can and can’t negotiate
When you go to market for your electricity rates, you can negotiate your ‘Energy’ and some of your ‘Other’ costs. However, you cannot negotiate your ‘Network’ costs, as they are regulated (though you can check to make sure you are being charged the correct tariff for your usage). The rates and fees you can negotiate are called ‘contestable’.
When someone talks about ‘retail’ rates, they usually mean the wholesale ‘Energy’ rate, plus the retail margin.
The benefits of onsite and offsite solar
We are sometimes asked why solar installed on-site saves more than buying solar from ‘off-site’. Put simply, if you install solar on your site (‘behind-the-meter’) then you reduce the amount of energy supplied from the grid. You are thus displacing all of your bundled per-kWh charges (‘Energy’ + ‘Network’ + ‘Other’), and potentially some peak demand charges. However, you can’t reduce your fixed charges.
However, if you buy renewable energy from an offsite project, you may save on your ‘Energy’ and some of your ‘Other’ costs, but electricity still has to be delivered via the network to your business, so you still pay the ‘Network’ costs. You can find out more about these differences in our next blog post.
Interested to learn more?
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