Victorians benefit from the most developed energy market in the country, meaning there are boundless opportunities to save on electricity. That said of course, if you want to save money, you need to know what to look for. In this article, Canstar Blue explains electricity tariffs and walks you through your options to help you find the best electricity tariff for your needs.
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What is an electricity tariff?
Before we go in to detail about tariffs, it’s important to understand the types of charges. There are supply charges and usage charges.
- Supply charge: A daily fee that applies regardless of how much or how little electricity is used.
- Usage charge: A charge applied for each kWh of electricity supplied to the property.
A ‘tariff’ in the context of electricity, referring to the way your energy company charges you for electricity usage. You may pay the same rate for electricity at all times, or you may be charged different rates depending on the time of day you use power – these are examples of tariffs. There are only a few residential tariffs that Victorians need to be aware of, though keep in mind that some tariffs may be unavailable on some networks or through certain retailers. Energy companies might also use different names or have variations on the tariff structure itself.
Single rate tariffs are less common these days, but it was the ‘go-to’ prior to the mandated rollout of smart meters across Victoria. As the name implies, a single rate for electricity usage is charged regardless of when or how the electricity is used. It is also sometimes referred to as a ‘peak’, ‘anytime’ or ‘flat rate’ tariff.
Usage rates on this tariff in Melbourne are generally between 21c/kWh and 28c/kWh depending on the network and retailer. A single rate tariff might be the most affordable option for households which use a lot of electricity during peak demand periods in the afternoon and evening. Households with smart meters may have automatically been switched to a flexible price tariff, however if you would prefer a single rate, simply contact your retailer to organise a reconfiguration of your meter.
Block rate tariff
Customers on this tariff are charged one rate for their first ‘block’ of electricity usage, and a lower rate for all remaining usage. The usage block might be a set amount per day or month, usually around 6.5kWh/day or 590kWh/month. Rates for the first block of usage will generally sit around 25c/kWh to 31c/kWh, but will fall to around 20c/kWh to 28c/kWh for remaining usage.
While most households will exceed the usage block and benefit from the slightly cheaper rates on remaining usage, the savings on a block rate tariff compared to a single rate tariff may be relatively small.
The rollout of smart meters in Victoria was accompanied by this new ‘flexible pricing’ tariff. This tariff applies a different electricity usage rate depending on what time that electricity is used. There are three periods: Peak, off-peak and shoulder.
- Peak: Electricity is in high demand at these times, so retailers charge higher rates. Peak usage rates are generally between 36c/kWh and 45c/kWh.
- Off-peak: Electricity is in low demand at these times, so the lowest rate is charged. Off-peak rates are generally between 15c/kWh and 24c/kWh.
- Shoulder: This is between peak and off-peak periods. Electricity is in mild demand, and a medium price is charged. Shoulder rates are generally between 24c/kWh to 33c/kWh.
There are no peak periods on the weekend. Instead, a shoulder rate is charged for most of the day (pictured). Some retailers, such as AGL, may also charge different rates across winter and summer months.
While the flexible pricing tariff is a popular choice, it might not be the most affordable option for households and businesses that use a lot of electricity in peak demand periods. If you’re on a flexible pricing tariff, try maximising your electricity use between 10pm and 7am. Use appliance timers or hold off using large appliances like dishwashers and washing machines until the off-peak period kicks in.
Time of use
The time of use tariff is similar to flexible pricing in that different rates are charged depending on the time of day. Unlike the flexible pricing tariff however, a time of use tariff doesn’t include a ‘shoulder’ period – only peak and off-peak. There are also different time brackets, as a time of use tariff has a much wider peak demand period, albeit at a slightly lower rate than a flexible pricing tariff.
- Peak: Higher peak demand rates apply from 7am to 11pm on weekdays. These rates vary considerably across networks and retailers, usually between 32c/kWh and 41c/kWh.
- Off-peak: Lower rates apply all weekend, as well as between 11pm and 7am weekdays. Off-peak rates are generally between 14c/kWh to 18c/kWh.
Whether a time of use tariff can save you more than a flexible pricing tariff is not entirely clear. While peak demand with time of use tariffs is slightly cheaper, it is more expensive than shoulder periods under flexible pricing. If you believe your property uses a ridiculous amount of electricity between the hours of 3pm and 9pm, then a time of use tariff might save you slightly more than flexible pricing. That said, unless you take advantage of the low off-peak rates, you might be better suited to a single rate or block tariff.
Demand tariffs are relatively new to the residential market and are a little trickier to wrap your head around. Essentially, you are charged a lower rate through either a single or block rate structure in exchange for a ‘demand charge’, in addition to standard usage and supply rates.
A demand charge is a daily or monthly fixed fee that is calculated using the maximum half-hourly interval kW demand occurring on a weekday between 3pm and 9pm in that month. This means that if you’re running multiple high energy appliances at once on a one-off occasion, a higher demand charge is applied for the entire month. Base demand charges are also considerably higher around the summer months (Dec-Mar).
While the reduced usage rates can help you save, you might end up paying a lot more if you’re electricity usage gets out of hand for even a moment. It’s a risky tariff and it’s for that reason that customers must approach their retailer directly to opt in to this arrangement.
Under a two-rate tariff (also known as a controlled load or dedicated circuit), customers can nominate one or more appliances to have metered separately and charged at a cheaper rate than the rest of the property. The catch is that energy is only supplied to nominated appliances during off-peak hours (11pm – 7am), meaning it’s not ideal for most appliances.
Two-rate tariffs are most commonly used with electric storage hot water systems, heat slabs, pool pumps, or any appliance that doesn’t need to run through the day. Only the nominated appliance will receive a lower usage rate, while the rest of the property’s electricity usage is metered on one of the previously mentioned tariffs.
Households with solar panels can receive what is called a ‘feed-in tariff’ or FiT. When your solar panels are producing electricity and no one is home to use it, that electricity is fed on to the electricity grid for another property to use. In exchange, your electricity retailer will give you a small FiT credit for each kWh of energy your solar system exported, usually between 5c/kWh and 10c/kWh.