How electricity tariffs work

Your tariff(s) determines how you’re charged for electricity usage. Generally, your electricity tariff is determined by the wiring of your home and meter type. The Australian Energy Regulator (AER) or the Essential Services Commission in Victoria will review and approve tariffs each year to ensure that customers aren’t paying excessive electricity prices.

Here are four common types of electricity tariffs in Australia:

• Single rate tariff. Also known as a peak only or standard rate, a single rate tariff is a flat rate with no off-peak periods and includes a daily supply charge. Typically, this is the most common tariff where customers are charged the same rate regardless of whether it’s day or night or day of the week.
• Time of use tariff. This tariff is where peak, off-peak and shoulder times (in most states) are applicable. Energy usage rates are higher during peak demand times, and so lower usage charges apply during off-peak and shoulder periods to encourage usage during this low demand times. Electricity distributors set days and times that constitute these periods.
• Controlled load tariff. Also known as a dedicated circuit, this tariff is designed for large electrical appliances like electric hot water systems, floor heating or pool pumps. Controlled load tariffs are usually cheaper because the appliances can run at off-peak times. To access this tariff, your appliances need to be wired to enable controlled load so they can receive electricity on their own circuit and may require a separate electricity meter. This may result in a separate daily supply charge in addition to the main property meter.
• Demand tariffs. An extra charge on top of usage and supply charges, a demand tariff accounts for how intensely you use electricity in a high demand period. This tariff encourages people to use their appliances during off-peak times. Retailers calculate demand charges differently; for example, some charge based on the highest usage in a period of time, while others charge an average of peak usage over a set timeframe.

If you have solar panels, there is also the solar feed-in tariff, where the excess electricity your system generates and feeds back into the grid is credited to your bill. However, feed-in tariffs are decided by individual retailers and rates can vary, except in Victoria (VIC) where the Essential Services Commission sets an annual minimum tariff, effective from 1 July. Keep in mind, some retailers may also have a daily solar metering charge.

In the energy sector, peak, off-peak and shoulder periods refer to the time of day, or days of the week, where energy consumption varies based on demand. Peak and off-peak electricity is only relevant for time of use or flexible pricing tariffs.

In peak periods, electricity retailers charge a higher rate. In off-peak periods, they charge a lower rate. The shoulder period typically sits somewhere in the middle.

• Peak: Usually during the mornings and evenings on weekdays when nine-to-fivers are home.
• Off-peak: Generally late at night and early in the morning, or on weekends, when businesses are shut, most people are asleep and the electricity network usage is lower than usual.
• Shoulder: The times between peak and off-peak.

If you’re on a time of use tariff, the cost of your usage will depend on the time of your electricity use. You could even be charged different rates depending on the season; winter and summer are considered peak by some distributors and retailers, while spring and autumn may be off-peak. Your retailer bills you on your electricity use in cents per kilowatt hour (kWh), as seen on your electricity bill.

Learn more about how to read your electricity or gas bill with our handy explainer.

A smart meter is a power-monitoring device that replaces traditional electricity meters and provides you (and your energy retailer) with detailed insight into your energy usage. In certain circumstances, your retailer may offer you an energy plan that requires a meter to be installed.

Smart meters record and send energy usage data in half-hourly blocks to your energy retailer to measure the amount of electricity you use.

If you have a smart meter, off-peak periods offer the cheapest rates. However, you can only access these rates on a time of use tariff, so this generally suits people who predominately use electricity during the day or very late at night.

You’ll need to check your peak and off-peak times as it changes between distribution zones and even states. If you’re on a single rate tariff, it doesn’t matter what time you use electricity because you pay the same rate 24/7.

Provided you have a smart meter and your electricity retailer offers a time of use tariff, you can switch over if you want to take advantage of cheaper, off-peak rates. If you don’t have a smart meter, installation costs may be included, although there are instances where the government or retailer may foot the bill.

In Australia, we have a combination of regulated and deregulated states for electricity. Most states have deregulated energy markets to some degree. In Western Australia (WA), the Northern Territory (NT) and regional and north Queensland (QLD), electricity tariffs are still regulated, meaning the government controls and manages the tariff prices.

In South Australia (SA), South East QLD, New South Wales (NSW) and the ACT, electricity tariffs are all deregulated, meaning you’re able to compare plans and retailers! However, these states do have a government-regulated Default Market Offer (DMO), which is the maximum price energy retailers can charge residents and small businesses on a default plan or standing offer. Tasmania (TAS) is also a deregulated state, but choices for retailers are extremely limited.

Victorian electricity tariffs are unique by having their own type of standing offer, known as the Victorian Default Offer (VDO). This safeguards VIC residential customers and small businesses by providing a reasonably priced option for those who don’t want to delve into the energy market. Similarly, the Essential Services Commission sets an annual minimum solar feed-in tariff for customers. VIC also has two types of time of use tariffs (known as peak and off-peak and the flexible pricing tariff) that can be offered by electricity retailers.

No matter the type of tariff you have, there are still things you can do to try and reduce your energy bill. Here are three simple ways:

1. Reduce usage. Learn more about how to save electricity.
2. Track usage. Make a conscious effort to track your energy usage and alter your consumption behaviours.
3. Compare retailers. The price you pay for electricity varies between retailers; that’s why we help you compare.