Electricity Bills - what you need to know and how we can help you lower them
Aussie power bills have increased over the years, making electricity costs one of the biggest concerns for many households. As a consumer, you should understand what you’re paying for and the different components that make up your electricity bill. Being well-informed helps when it comes to choosing how you purchase and consume energy.
What charges make up your electricity bill?
The five main components that make up your energy bill are:
- Wholesale Electricity
- Network Fees
- State & National Schemes
- Carbon Offset
- Renewable Initiatives
These components cover the cost of electricity generation, the poles and wires that deliver energy to your home, renewable schemes and projects, and supporting UN carbon offset. The actual cost of wholesale energy is usually less than half of your total electricity bill, while the other charges help keep our country powered up.
Now let’s look at these components in more detail.
Let’s break down your bill.
Wholesale Electricity Prices and the Spot Market
The electricity spot market is managed by the Australia Energy Market Operator (AEMO) who purchases energy from generators in 5-minute increments. Generators bid a volume and price per kWh and AEMO accepts bids until they have enough electricity to meet the demand for the next 5-minute period. The highest accepted bid becomes the wholesale rate for that period. These prices are then averaged out over 30 minutes to make the wholesale spot price. All financial settlements between retailers, generators, and AEMO are based on the spot price. Usually, the wholesale spot price of electricity fluctuates between $0.05 - $0.15 per kWh.
All retailers incur and pass on the same forecast Network Fees. These fees cover the cost of building and maintaining the poles and wires that deliver electricity to your home. Network fees include:
- A Daily Charge - for being connected to the energy network. Each Network charges different daily rates, and it varies significantly from one Network to another. The charges range from 6c to 79c per day, which can become substantial over a year.
- Metering Charges - cover the cost of reading and maintaining your electricity meter. Metering rates vary from one Network to another with charges ranging between 4c to 21c per day.
- Transmission and Distribution Costs - are the costs of transporting energy to your house. The cost of moving energy around can vary from 6c to 14c per kWh depending on the Network and where you live. Major cities generally have the lowest price due to population density while less populated regional areas attract higher prices because the energy has further to travel.
- Distribution Loss Factors (DLF) - A small amount of energy is lost as it travels from the generation source to your home. The cost varies a lot depending on how far it must travel but generally, between 5% - 10% is lost, which adds about 0.2c to 0.8c per kWh.
- Marginal Loss Factors (MLF) - are smaller losses like those in a suburb or smaller area and are typically less than 1%. Sometimes if the suburb is near a substantial generation source, the MLF can be a negative number. In this case, the Network deducts the overall losses from the more significant Distribution Loss Factors.
State & National Schemes
All retailers pay similar mandatory schemes, which may vary State by State. Schemes include:
- Federal Charges - These fees are minimal at around four-hundredths of a cent per kWh, so they have little effect on your electricity bills.
- National Renewable Schemes -These schemes are for green energy projects such as large wind and solar farms. They also support small-scale renewable energy by subsidising solar panel installations to encourage more homeowners to invest in solar energy. The national renewable scheme costs about 1.7c per kWh.
- Jurisdictional Efficiency Schemes - These cover state-based programs and vary between 0.1c to 0.4c per kWh. These schemes encourage households to become more energy efficient by fitting LED lighting and installing energy-efficient heating, cooling, and appliances.
The operational costs of each retailer vary depending on their size and overheads, but we estimate them to range between 1c to 3.5c per kWh.
Energy retailers can choose to place their operational costs into their daily supply charge or the rate per kWh. If they offer discounts on usage only, they can minimise the financial impact on the company by increasing their daily supply charge to compensate.
Retailer profit varies as well. Regulator commentary indicates that energy retailers in a competitive market should not make more than 5% profit. That said, some of the more prominent retailers have reported almost doubling their net profit during the same period that household energy bills soared.
How is Powerclub Different?
Powerclub's Founder and CEO, Stuart McPherson, grew up on a family farm with community values like not ripping off your neighbour. After examining his over-priced energy bill, he became determined to build a fairer system for everyday Aussies. "I wanted to change the energy industry by offering something that is completely open and honest. So that Members would know, for a fact, they weren't getting ripped off."
He designed Powerclub to challenge the status quo, and shake up the norm, giving Australian's a higher level of transparency that was sorely lacking in the electricity market. By giving you access to energy at wholesale rates, Powerclub can potentially save you hundreds off your annual energy bill.
We've also shrunk our operating costs well below that of other retailers. To join the Club, Members pay an annual membership fee of $45 per year (or $90 for small businesses) which gives them access to wholesale electricity rates, charges, and operational expenses at cost. To support our operational costs, Powerclub charges 27.50c in the daily Supply Charge and 1.39c per kWh used.
Here is an example of Powerclub's fee breakdown for a Member using 5,475kWh per annum on a Powerbank Home Flat Plus plan in the United Network:
To help Members keep a lid on the ups and downs of wholesale energy spot prices, Powerclub designed a buffer called Powerbank. Your Powerbank acts like a 'rainy day fund' so you can pay a forecast rate per kWh based on the predicted average wholesale cost of electricity. Your Powerbank covers the difference when wholesale spot prices are high, and tops back up when energy prices drop.
For solar owners, Powerclub pays the wholesale value of your solar exports. We pay a competitive solar feed-in-tariff (FiT), and at the end of the year, we’ll review your actual wholesale export value. If it’s higher, which we expect it to be, we’ll pay you the difference.
How can you make wholesale energy work for you?
Many of the charges that make up your electricity bills are mandatory and go towards keeping our country powered up. However, if you’re prepared to respond to price alerts and control your energy use, you may be better off by going wholesale.
Here are our top 5 tips to make wholesale energy work for you:
- Choose the right retailer – Powerclub is the only energy retailer that is limited by guarantee, which means we don't profit from your energy use. We're also Australia’s only Member-owned electricity retailer, giving you access to wholesale energy spot prices with bill smoothing technology from Powerbank. Through our no-profit approach, Powerclub has more freedom to think outside the box to create the most competitive pricing for our Members. We use the latest technology, a lean approach, and low overheads to be more efficient than many other retailers.
- Get the tech – We have developed a nifty (and free) app called Powerwatch, which is designed to alert you when wholesale spot prices are high and advise you of ways to reduce your energy usage at that time. A price spike typically doesn't last long, and very few circumstances could have a significant impact on your Powerbank balance. However, by taking control of your usage, and minimising during price spikes, you won't deplete your Powerbank by paying too much for power.
- Monitor your usage – You can use the Powerclub Portal to check your daily energy use, track wholesale spot energy prices against Powerclub's forecast rate, and monitor your Powerbank balance. If you have solar, your Portal records when you’re using your generation and any solar exports against the wholesale spot price.
- Upgrade your meter – Most of Powerclub’s plans are suitable for any meter type. However, a Smart Meter allows you to manage your energy costs as it records the amount of energy you use at the time you use it. By making decisions to reduce electricity consumption when prices are high and taking advantage of cheap power when prices are low, Members can get more value. Powerclub can arrange a Smart Meter upgrade once you’re a Member.
- Invest in energy-efficient appliances – Determine how much energy you use within a billing period and find ways how you can lower your usage. You can do this by using LED lights which are more durable and are the most energy-efficient using 75% less power than incandescent bulbs.