Two-thirds of vulnerable customers were financially better off under an alternative energy pricing product trialled in regional Western Australia by Horizon Power during the 2016-17 summer period, the latest Bankwest Curtin Economics Centre research shows.
The new product also has the potential to reduce the incidence of high summer bills, a major concern for vulnerable customers, 80 per cent of whom reported feeling anxious about their bills during the warmer months.
The BCEC report, Power plans for electricity: The impact of tariff structure changes on energy vulnerable households, examined the experiences of vulnerable households, including larger families and those with lower incomes or receiving concessions, who participated in the pricing research pilot.
The research was a collaboration between the Bankwest Curtin Economics Centre, Western Australian Council of Social Service (WACOSS) and Horizon Power, using data from a pilot study collected through meter readings, questionnaires and face-to-face interviews with regional Western Australian households during the 2016-17 summer period.
Horizon Power trialled the key features of the alternate pricing product with 407 Port Hedland customers and has taken those learnings to develop the MyPower product, which is currently being demonstrated in Broome and Port Hedland.
Report author Dr Tom Houghton, from the School of Economics, Finance and Property at Curtin University, said power plans, where customers are charged partly for their peak capacity, had the potential to smooth energy costs over the course of a year by charging in a similar way to mobile phone plans.
“Some households in northern Western Australia reported spending in excess of $7,000 every year on energy, for a variety of reasons including inefficient air conditioning systems, inadequate housing insulation or a lack of information about efficient use of energy and appliances,” Dr Houghton said.
The pricing plan is one option to help ensure the price of electricity is cost-reflective – a challenge energy utilities all over the world are grappling with amid increasing demand on electricity systems during peak periods and the rapid growth of renewables, including solar.
In the Power Ahead trial, each participant was allocated a peak energy target to be used during peak periods, with customers being offered incentives to reduce their energy use during these peak times. No customer was worse off as they were still on their normal tariff but received incentives for changing usage.
“Once study participants were informed about the ways they could reduce their energy use during peak usage times, 25 per cent of participants were able to drop their peak usage by around 15 per cent, mostly due to adjusting or limiting the use of air conditioning,” Dr Houghton said.
“Some customers reported having to make trade-offs around which appliances to use during peak periods, with half of vulnerable customers indicating they turned off air conditioners when notified that their energy use was too high. This raises the risk of customers facing undue discomfort in their efforts to stay within their plan.”
BCEC Director Professor Alan Duncan said it was essential any changes to electricity pricing should leave no customers behind.
“When developing new electricity pricing structures, utilities must explore options to ensure vulnerable households do not become further disadvantaged,” Professor Duncan said.
“The use of subsidies or rebates to compensate the most vulnerable in our society could be a place to start, but I’d encourage utilities to examine further the reasons why some vulnerable customers do fair worse from the introduction of programs aimed at reducing their financial stress, such as power plans and bill smoothing.”
WACOSS Chief Executive Officer Louise Giolitto said that for many facing hardship, “paying a utility bill can necessitate a choice between purchasing food for the family and avoiding homelessness, or keeping the lights on, fridge running, or heating or cooling their home”.
“Low-income earners may sacrifice water or electricity services, which are essential to maintaining a reasonable standard of living, in order to feed themselves and keep a roof over their head,” Ms Giolitto said.
Horizon Power acting Chief Executive Officer Mike Houlahan said the research demonstrated that alternative pricing options being developed by Horizon Power benefited most customers.
He said Horizon Power is undertaking a lot of work to determine how it can reduce the impact on the most vulnerable customers and this research will assist in identifying different options.
Key findings from the report include:
Energy costs in northern Western Australia
- Some individuals interviewed for the pilot study had yearly bills greater than $7,000, mostly due to inefficient air-conditioning systems, uninsulated houses or a lack of information about efficient usage or appliances.
- Over 80 per cent of vulnerable customers feel very or somewhat anxious about high summer bills.
- 80 per cent of vulnerable customers feel frustrated by the current lack of visibility on the impact of changes to their electricity usage.
Power plans may ease the pain of bill shock
- Power plans help to smooth annual costs and are a way to provide greater visibility of behaviour change.
- About 63 per cent of vulnerable customers kept all incentives until the end of the pilot (due to a reduction in energy use) and a further 18 per cent lost only one.
- A study of actual usage suggests that 25 per cent of participants would be able to drop their peak demand by around 15 per cent.
- Turning off air-conditioning units was a high priority change action among all participants to decrease consumption during peak periods, or after receiving an alert.
- Two-thirds of respondents reported turning air-conditioning units off to stay within the allowance, and half of them changed the temperature settings.
- A third of vulnerable customers suggested they would struggle to maintain any changes to consumption they made during the pilot – this compares to 15 per cent for the whole group of pilot participants.
- A number of households interviewed reported feeling anxiety, especially when they received alerts about a possible breach of their peak allowance.
- In order to remain within their allowances, customers reported they had to make choices between which appliances they could run, eg choosing between using the oven to prepare a cooked meal or turning on the air conditioner.
Not all customers benefit from power plans
- Two-thirds of vulnerable customers could expect to be better off under power plans, while the remaining third of this customer group would be worse off.
- It is necessary to obtain a better understanding why this customer group would be worse off, in order to devise effective responses.
- Customers already consider power prices to be high so the potential for bills to rise further is of significant concern.
- Solutions to combat rising costs could include exempting specific at-risk customer groups, providing subsidies or rebates, improving energy efficiency in rental properties, offering financial support for solar installation or allowing specific communities to opt out.
- Vulnerable customers consistently report reacting less readily to alerts than non-vulnerable customers. 61 per cent of vulnerable customers reported reacting to alerts often or sometimes compared with 69 per cent among non-vulnerable consumers.
- Similarly, the share of vulnerable customers reported switching air-conditioning off or increasing temperature in response to alerts was 10 percentage points lower than non-vulnerable customers.
The full report can be viewed here: http://bcec.edu.au/assets/BCEC-Impact-of-tariff-structure-changes-on-energy-vulnerable-households-feature-report-FINAL.pdf