1 Professor Paul Simshauser Chief Economist On the Inequity Flat Rate Tariffs December 2014

2 Residential tariffs 1955 – 2015 (Qld example) Tariffs have increased substantially since 2007 > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Source: Simshauser, Nelson and Doan (2011), Electricity Journal.

3 Two-part tariffs are structured with a low fixed charge, high variable rate and a deemed periodic demand > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Source: Simshauser, (2014), Aust Economic Review

4 > Presentation title > Author > Date (Verdana 10pt) Household load shapes - VIC Compare 5 household variations based on demographic characteristics with the overall average

5 1. Working couple; no kids Very little daytime electricity use; delayed evening ramp up > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

6 2. Working parents with kids Larger morning and evening peaks; earlier afternoon ramp up > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

7 3. Family with one parent at home Very different load shape; large consumption during the day > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

8 4. Hardship households Higher than average consumption, highest off-peak usage > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

9 5. Concessions / pensioners: Low energy users with low peak time usage > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

10 > Presentation title > Author > Date (Verdana 10pt) Tariff equalisation model: Analysis of wealth transfers between and within customer groups using Smart Meter Data from 160,000 Households in Victoria (2.8 billion meter reads)

11 Distribution of annual electricity consumption by cohort > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

12 Distribution of annual electricity bill (flat rate tariff) by cohort > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

13 Existing tariff inequities – structural winners and losers from TOU > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

14 Structural Winners & Losers before demand response, before tariff rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

15 Winners & Losers after Demand Response before Network Tariff Rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

16 Winners & Losers after Demand Response, after Network Tariff Rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

17 Household wealth transfers after Demand Response, after Network Tariff Rebalancing > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

18 > Presentation title > Author > Date (Verdana 10pt) Tariff equalisation model & Solar PV: Analysis of wealth transfers between and within customer groups in Southeast Queensland arising from Solar PV – Customer switchboard circuit level data and Demand Tariffs

19 Southeast Queensland solar PV installations (Take-up rates continuing after FiT abandoned) > On the Inequity of Tariffs > Prof Paul Simshauser > December , , , , , , , , ,000 Solar PV Capacity (kW) Solar PV (non 44c) Solar PV (44c FiT) 44c FiT Scheme closes to newinstallations 44c FiT Installations Completed

20 Network element (Sunshine Coast) - 37% > On the Inequity of Tariffs > Prof Paul Simshauser > December AM4 AM6 AM8 AM10 AM12 PM2 PM4 PM6 PM 8 PM10 PM12 AM Off-PeakShoulderPeakShoulder Off Peak Feeder Load (Amps) Load Factor: 64% Load Factor: 64% Load Factor: 57% Load Factor: 53% Load Factor: 51% Load Factor: 51% Peak +2.8% Energy -22.9%

21 Network tariffs & the ‘instability component’ > On the Inequity of Tariffs > Prof Paul Simshauser > December /102010–112011–122012–132013–142014–15Tariff Structure Average Unit Cost (c/kWh) Policy Subsidy & Instability Component Capex Component CPI Component Base 2009/10 Network Tariff 8.7% 15.4% Two-Part Tariff- Variable Charge: 80% Two-Part Tariff- Fixed Charge: 20% Instability component 26.7% 56.3% Capex Component 42.7% Inflation Component 13.8%

22 Household annual average weekday load (at the customer switchboard circuit level) > On the Inequity of Tariffs > Prof Paul Simshauser > December Household Load (kW) Time of Day Oven: 3% Lights: 10% Hot Water: 18% Aircon: 17% Power: 52% Max Demand: 2.14 kW EnergyDemand: kWh

23 Average household load – summer weekdays > On the Inequity of Tariffs > Prof Paul Simshauser > December Household Load (kW) Time of Day Oven 3% Lights 10% Hot Water 6 % Aircon 54% Power 27% Solar

24 ‘Critical Event’ summer weekday > On the Inequity of Tariffs > Prof Paul Simshauser > December Household Load (kW) Time of Day Oven: 3% Lights: 6% Hot Water: 10% Aircon: 48% Power: 33% Network Peak Period Max Demand: 2.15 kW EnergyDemand: kWh Summer Peak

25 Critical Event ‘net load’ – summer > On the Inequity of Tariffs > Prof Paul Simshauser > December Household Load (kW) Time of Day Oven: 3% Lights: 6% Hot Water: 10% Aircon: 48% Power: 33% Solar Network Peak Period Max Demand: 2.04 kW vs 2.14 kW EnergyDemand: kWh vs 7500 kWh

26 Average household load – winter weekdays > On the Inequity of Tariffs > Prof Paul Simshauser > December Household Load (kW) Time of Day Oven 3% Lights 9% Hot Water 25% Aircon 15% Power 49% Solar

27 ‘Critical Event’ winter days > On the Inequity of Tariffs > Prof Paul Simshauser > December Household Load (kW) Time of Day Oven: 3% Lights: 7% Hot Water: 26% Aircon: 23% Power: 40% Max Demand: 2.14 kW EnergyDemand: kWh Network Peak Period Winter Peak

28 Critical Event ‘net load’ – winter Household Load (kW) Time of Day Oven: 3% Lights: 7% Hot Water: 26% Aircon: 23% Power: 40% Solar Max Demand: 2.14 kW vs 2.14 kW Network Peak Period > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

29 Tariff design > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Tariff Structure Fixed Costs 20% Sunk Costs 60% Variable Costs 20% Two-Part Tariff59.1c/day-- Uniform Variable Rate 12.64c/kWh -- Time-of-Use Tariff59.1c/day -- Peak Rate 26.94c/kWh Shoulder Rate 11.38c/kWh Off-Peak Rate 6.95c/kWh -- Three-Part Demand Tariff 61.7c/dayDemand $ /kWCritical 11.59c/kWh Peak 6.41c/kWh Shoulder 2.71c/kWh Off-Peak 1.66c/kWh *LRMC ca.$185 will under-recover annual revenue requirements

30 Household A: no air-con, no solar PV Wealth transfer (net cost): -$ (-15.2%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

31 Household B: + air-con, no solar PV Wealth transfer (net cost): -$44.74 (-3.8%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

32 Household C: no air-con, + solar PV Wealth transfer (hidden subsidy): +$89.50 (+12.8%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Efficient level of avoided network charges from installing Solar PV

33 Household D: + aircon, + solar PV Wealth transfer (hidden subsidy): +$ (+27.8%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Efficient level of avoided network charges from installing Solar PV

34 The anatomy of hidden wealth transfers > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Household Type Customer Numbers X Air-Con. Wealth Transfers Y Solar PV Wealth Transfers Z Air-Con. Wealth Transfers (X x Y) Solar PV Wealth Transfers (X x Z) Net Wealth Transfers (Y + Z).X A. No Aircon, No PV283,849-$78.12-$74.37-$22,173,702-$21,110,749-$43,284,451 B. + Aircon, No PV694,643$26.04-$70.78$18,088,029-$49,165,287-$31,077,259 C. No Aircon, + PV26,151-$78.12$ $2,042,862$4,383,358$2,340,496 D. + Aircon, + PV235,357$26.04$199.23$6,128,535$46,889,440$53,017,975 Network Rev Loss*----$19,003,238 Total/Net1,240,000 $0 Gross Hidden Wealth Transfers $24,216,564$70,276,036$94,492,600 *Variable rate tariff avoided by households due to Solar PV output

35 Aggregate wealth transfers > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014 Subsidy SourceGross Amount Hidden Solar$70,276,036 State Solar FiT$175,100,894 Federal Solar Subsidy$47,349,339 Total Hidden & Explicit$292,726,269 Network Revenues$1,133,247,688 % of Turnover25.8% $ per household

36 Household A: no air-con, no solar PV Deviation from optimum: +$ (+39.5%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

37 Household D: + aircon, + solar PV Deviation from optimum: -$60.10 (-8.5%) > On the Inequity of Tariffs > Prof Paul Simshauser > December 2014

38 Tariff Stability (Household A: no air-con or solar PV) Household A’s (23% of households) are most exposed > On the Inequity of Tariffs > Prof Paul Simshauser > December %5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%50.0% Average Network Charge (c/kWh) Solar PV Take-up Rate Two-Part Tariff % Time-of-Use - 38% Demand Tariff % Two-Part Tariff (ex subsidy costs) % Demand Tariff (ex subsidy costs) - 1.3% Max Demand:1.41 kW Energy Demand: kWh pa Demand Tariff Demand Tariff (excl. subsidy costs)