Your electricity bill is usually made up of two types of charges:
- a supply charge, which is the price you pay for getting electricity to your house; and
- a usage charge, which is the price you pay for the amount of electricity (kWh) you use.
Many people are used to paying a 'flat' price for their electricity usage charge (often shown on your bill as 'peak'). This means that you pay the same price for each bit of electricity you use no matter what time of the day you use it.
Other households pay a different rate for electricity depending on the time of day. There are two main examples of this:
- controlled load (also known as dedicated circuit)
- flexible pricing
If you have controlled load, also known as 'dedicated circuit', you get cheaper off-peak electricity to run certain appliances, such as large electric hot water systems, slab heating or heat banks, usually overnight. As these appliances are large users of electricity they are usually set up to run on a separate circuit to the other appliances in your house that uses cheaper off-peak electricity (this is why it's sometimes called dedicated circuit).
The important thing to remember is that it is only appliances on this separate circuit (electric hot water systems, slab heating or heat banks) that use the cheaper off-peak electricity; the rest of your appliances always run on the normal peak rate (even if you turn them on overnight).
Unlike controlled load, if you have flexible pricing, all of your appliances run at different rates depending on the time of the day, and day of the week that you use them.
Flexible pricing has three different time periods, each with its own price:
- a peak period where electricity costs the most money
- a shoulder period when it costs a bit less
- an off-peak period when electricity is at its cheapest
Some flexible pricing offers will use the time periods in the example above, others will have different time periods but they should generally follow the pattern of being cheapest overnight and most expensive in the afternoon and evening on a weekday.
What is the reason for flexible pricing?
In September 2013, Victoria introduced the option of flexible electricity pricing as a way of trying to reduce the overall cost of the electricity system. It costs more to make and transport electricity when lots of households and businesses are all using it at the same time. When less electricity is being used, supplying it is cheaper.
Flexible pricing connects the costs of supplying electricity at different times to its price: you pay more for electrcitiy when it is more expensive to supply, and less when supply is cheaper. The different prices encourage you to move some of your electricity use from expensive to cheaper times. Over time, this should reduce the overall cost of the electricity system.
What does flexible pricing mean for you?
Flexible pricing will benefit some households by saving them money on their electricity bills. For other households, flexible pricing would cost the same or more than a flat plan. It's important that anyone considering switching to a flexible pricing plan understands what it is and how it will affect them.
Victorian Energy Compare can help you work out if a flexible or flat pricing plan is best for you. The Victorian Government's Flexible Pricing Profiler can also help people work out how they can take advantage of flexible pricing to reduce their energy costs.