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Chapter 2

Understanding your electricity bill

Introduction

Understanding how you are charged for your electricity is key to taking control of your energy bills. Knowing how to read your bill will ensure that you are able to track progress towards your energy efficiency and moneysaving goals.

This section provides an overview of how homes are billed for electricity.

Who bills you for electricity

You may think of the company that sells you electricity as a public utility, but these days many public utilities have been broken up into separate, private entities. In either case, there are essentially three elements to the electricity industry: generation (the power plants that produce the energy), distribution/transmission (the ‘poles and wires’ that deliver it from power plants to users), and retail (metering and billing).

If your electricity company is a public utility, all three of these components are probably bundled into one package. Public utilities are a ‘natural monopoly’, which means you cannot choose to switch away to another provider. The rates they charge you are usually set by a government body - a regulator or public utilities commission - to ensure that everyone pays a fair price. In effect, installing solar (see section 7), batteries (see section 8) or other types of on-site generation are a form of competition for a public utility, as they allow you to source your electricity from elsewhere.

In privatised, ‘disputable’ electricity markets on the other hand, the wholesale and retail arms of the electricity company can be opened up to market competition. The stated aim here is maximising system efficiency and minimising cost to end users by delivering greater choice to electricity consumers; the most cost-effective generators will charge the least for the energy they generate, and the retailers that manage to cut their overheads and innovate on their offerings will theoretically be able to deliver the lowestcost (or best value) packages to end users - and win the most customers.

Because of the physical nature of the transmission/distribution aspect, however, networks tend to remain regulated monopolies. As with public utilities, solar & batteries offer another way for consumers to switch away from the mains infrastructure so meet some of their own energy needs locally - even if only partially.

Metering

Your household electricity is measured by either an older, analog meter or a newer, digital smart meter. Depending on the policies in place where you live or the decisions of the people who lived in your house before you, you may already have a smart meter in place.

The main difference between smart meters and analog meters is how they log your energy usage data.

  • Analog meters essentially ‘spin’ in one direction when electricity passes through them, making an odometer-type array of numbers tick higher; the meter reader from your electricity company will come around to take note of the change in the meter status between billing periods.
  • Smart meters log electricity usage digitally, and in the right situation can also transmit it to a central location wirelessly. This allows both the electricity company and the customer alike to access historic and current consumption data for billing and reference purposes. Note that having a smart meter does not automatically mean that you will have access to your usage data - although this should ideally be the case. Smart meters provide accurate and up-to date readings to your electricity provider, bringing an end to estimated bills; they may also be a prerequisite for signing up to certain electricity plans.

Energy management systems or services like carbonTRACK are an attractive supplement to electricity meters, as they provide monitoring functionality that breaks down household consumption further into aspects such electricity demand throughout the day, and total amount used over any period of time. In some cases, an energy management system may be more useful for households and businesses than a smart meter, as the information they collect is can be gathered for smaller time intervals and stored in the cloud for easy future reference.

An old and worn, brown and white voltmeter’s arrow points to 415 volts.
A motor bike speedo is depicted with kW(rate) and kWh(amount) written over the image to explain kW’s are like the speed you are travelling and that kWh are how far you have travelled in total.
Understanding kilowatts and kilowatt-hours

The amount of electricity you use is measured in kilowatt-hours (kWh), but the rate of electricity you use at any given time - your demand - is given in kilowatts (kW).

The difference between kilowatt and kilowatt-hour may seem confusing at first, but it’s important to understand - especially if you are on a demand tariff or have a solar PV system.

Demand is the rate of energy being used, measured in kilowatts (kW). A good analogy is the speed of a car (km/h), which is also a rate - not the actual amount of distance travelled. If you turn on energy-hungry appliances, the rate of energy required to power them (demand) increases. For example, running a blender on its own might require power at a rate of 1.5 kW - but switching on the blender, a vacuum and an air conditioner simultaneously could result in a demand spike up to 5kW.

The amount of energy you use is measured in kilowatt-hours (kWh). If you run a blender that uses power at a rate of 1 kW for 1 hour, you will have used 1 kWh.

A typical household will use roughly 15-30 kWh per day across various appliances, depending on how many people live in the house, the types of devices used and how efficient they are.

In most instances, households pay for the amount of energy that they use (kWh), but not the demand they put on the system (kW). If you’re on a demand tariff, however, you pay for both the amount of energy you consume as well as the total demand you put on the system (see more below).

Electricity Tariff Types

Understanding how you pay for your electricity gives you more awareness and control of your consumption habits. There are multiple types of electricity tariffs in Australia, consisting a supply and consumption component.

Supply charges

This cost usually appears as a ‘service’ or ‘supply’ charge on your electricity bill. This cost covers the fact that you are connected to the grid and supplied with electricity. The amount you pay covers the upkeep of the 'poles and wires' of the grid - the infrastructure that connects you. This is generally charged at a fixed rate of cents or dollars per day, and is a feature on all electricity bills.

For example - A supply charge of 50c/day over 90 days would total $45.

Consumption / Usage Charges

This variable cost is based on the amount of electricity you use. There are generally three types of consumption charges - it’s important to know which one applies to you so that you can tackle your electricity bill appropriately.

Your bill may also be made up of a combination of these types of charges. For example, you may be on a 'Block rate' and a 'Time of use' tariff. It can be very confusing, so it's good to have an understanding of all the common types of tariffs.

  • Flat rate:

    The rate you pay for electricity is fixed - no matter when you use it. This is the simplest type of consumption charge that there is.

    For example: 1 kWh of electricity purchased from the grid will cost you 25c, whether you use it at 10am, 6pm or 2am.

  • Block rate (aka 'Step Tariff'):

    The rate you pay for electricity changes as you consume more. Each price ‘block’ may be based on daily, monthly or quarterly time periods, and prices may go either up or down as you move into a new block - although they generally get higher.

    For example: you may pay 22c for the first 10 kWh of energy that you consume per day; anything in excess of 10 kWh is charged at 25c/kWh.

  • Flexible rate / Time of use:

    The rate you pay for electricity varies with the time of day. Being on this type of billing arrangement generally requires a specific metering setup or a reconfigurable smart meter. With time of use billing, there are generally three different rates during the 24-hour weekday.

    For example, your rates may look something like this:

    • Peak rate of 40c/kWh between 3pm and 9pm (when occupants come home after work and kids return from school)
    • Off-peak rate of 10c/kWh between 10pm and 7am (when occupants are normally asleep)
    • Shoulder rate of 20c/kWh between 8am and 3pm (when occupants are home and awake but not using much electricity)
A graph diagram shows the off-peak, peak and shoulder times measured in kWh. Off peak appears between 9pm - 7am. Peak occurs from 3pm to 9 pm, and shoulder sits between 7am and 3pm. Peak shows to be significantly more expensive in cost per kWh.

Note that time of use schedules may change depending on the season, as consumption habits change between summer and winter.

A graph of kVA over Billing Cycle shows mountain like peaks and troughs with a significant peak in the center. A red line marks that you are charged at the top of the peak, in the middle of the billing cycle.

Demand Charges

This component - which is an added feature on some bills - accounts for the ‘stress’ you put on the grid when you draw energy at a certain rate, in kilowatts. For example, running a blender on its own may draw 1.5 kW, while running it alongside a vacuum and air conditioner could result in total draw of 5 kW.

Previously, this type of charge usually only applies to businesses, but it is becoming increasingly common for households as well. If your bill does have a demand component it will typically be levied on top of your ordinary consumption and supply charges.

The amount of the demand charge depends both on the specific kilowatt demand and its duration.

A demand charge usually reflects the maximum demand (in kilowatts (kW)) the customer puts on the network during the peak period defined by the electricity network.

For example, if it common for the charge to be each month (or billing period). It is calculated by taking your highest energy usage over a 30-minute interval (in kilowatt-hours (kWh)). This value is then multiplied by your network’s monthly demand charge rate ($/kW/month) to calculate your demand tariff for the month.

The calculated demand charge is then added on to your electricity bill.

Alternatively, a demand charge may be applied monthly or quarterly - where it may be levied if you exceed a certain demand limit at any point during the billing period. In such cases, it clearly makes sense to minimise demand at all time as much as is practicable.

Energy management can help reduce your electricity bill

Energy management systems like carbonTRACK help anyone with an energy bill to maximise their savings - no matter what their billing arrangement is.

If you have a demand charge on your bill, with carbonTRACK you can set up an alert to tell you when you are using more energy than usual so you can cut back before your energy consumption spikes too high.

Enquire today about how carbonTRACK can help you.

In the next chapter, you’ll learn about energy efficiency rating systems and where your energy use mainly comes from.

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