FY17 sustainability report: energy prices and affordability

AGL’s FY17 Sustainability Report covers a range of matters of particular interest to our customers. One of these is energy prices and affordability.

A number of components make up a customer’s energy bill, including wholesale, network and retail costs. Whereas the last few years have seen network costs as a key contributor to energy price rises, the increasing energy prices currently being experienced largely relate to conditions in the wholesale market. These conditions include high gas prices and limited gas availability, and the renewal of an aging generation fleet within an uncertain policy environment impacting on confidence to undertake necessary new investment.

AGL continues to be a strong supporter of price deregulation because competition delivers innovation and improved consumer outcomes, including by enhancing the ability of retailers to effectively manage wholesale risk in a volatile market environment on behalf of their customers. However we appreciate that sustainable energy market deregulation is only possible if customer affordability issues are properly addressed. We have been a proactive industry leader in this area, launching our comprehensive Affordability Initiative in December 2014. Our Affordability Initiative is a program of work through which we aim to better understand the issues associated with customers facing financial hardship, and provide targeted and effective support. We built on this with the launch of A Fairer Way in 2017.

Network pricing reform also remains an important issue for the achievement of an equitable transition to a low-emissions energy system. Average cost volumetric pricing results in consumer inequity and economic inefficiencies as customers pay the same ‘average’ tariff for all energy use throughout the year, while system costs are primarily driven by demand during peak times.  Customers with air conditioning (which increases peak demand) and solar PV (which reduces average energy use supplied by the network, although typically not during peak times) are therefore cross-subsidised by those customers without access to these technologies. For more information, see research by our economists on the inequity of flat-rate electricity tariffs.

Demand tariffs at a network level price electricity more efficiently, and provide customers with the opportunity to manage costs or receive benefits through different energy choices. They also encourage technology and product innovation, such as battery storage and demand response programs, to manage demand peaks.

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