How energy is priced

At AGL, we’re experts at all things energy. If you want to learn more about how energy is priced or the recent pricing changes – let us break it down for you.

The costs explained

There are many factors that affect the cost of getting electricity and gas to you. Our business activities include buying wholesale energy and providing network services to deliver that energy to you. In addition, we arrange connections, metering and billing.

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Wholesale market costs

The wholesale market cost is the amount we pay to buy enough gas and electricity to supply to our customers. Electricity can be bought directly from the wholesale electricity market where generator companies sell their output. Of course, it’s not like a Sunday market with stalls and crafts, it’s all done electronically, and prices fluctuate depending on availability and demand.

Gas can be bought directly from gas extraction or production plant operators, or through indirect energy trading markets.

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Network costs

Network costs are the costs that a distributor incurs to send energy to homes via poles, wires, pipes and meters. AGL will pay distributors for the cost of delivering this energy to you.

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Government and regulatory costs

There are also a number of federal and state government schemes that can add costs. This may include renewable energy targets and energy efficiency schemes.

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Retailer costs

AGL also has direct and indirect costs in arranging the supply of wholesale energy and network services, complying with regulation and in providing customer service. This cost is calculated into our energy rates.

Recent changes to electricity prices

The industry has just gone through some changes

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What does the reference price mean?

The reference price is a benchmark electricity price set by the government that makes it easier to compare prices between energy retailers.

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What does DMO mean?

DMO stands for Default Market Offer and is a price cap set by the Australian Energy Regulator on most ‘standing offers’. The caps differ depending on the distribution areas and tariff types.


What are the different types of energy charges on a bill?

There are two types of energy charges that appear on most customers' energy bills:

Supply charges

Supply charges are generally calculated as a contract term amount charged for each day of the time period covered by a bill. They are not related to the amount of energy used during the billing period.

Supply charges cover some of the costs of maintaining and operating the Distribution and Transmission networks (see explanation of Network Costs), and some of the operational costs of supplying our customers.

Usage charges (variable charges)

Usage charges are generally calculated per kilowatt hour (kWh) for electricity, and per megajoule (MJ) or Unit for gas, for the amount of gas or electricity used at a home or business during the time period covered by a bill. Usage charges also cover some of the costs of maintaining and operating the Distribution and Transmission networks (see explanation of Network Costs), and some of the operational costs of supplying our customers.

The majority of costs associated with Government green schemes (see explanation of Government Green Scheme Costs) are generally recovered through the usage charges.

The actual amount of the variable usage charges that appear on an individual customer's bill depends on how much energy they use, as measured by their meter and multiplied by the usage rates that apply under their energy contract.

Why can neighbours have different sized bills?

It is possible that two similarly sized houses right next to each other, that are billed for the same time period and pay the same energy rates under identical energy plans, might have very different amounts on their energy bills.

This can be due to a number of physical factors about the property, the number of occupants or the way the occupants use energy.

For example, one home may have double glazed windows, or more insulation and weather proofing, making it more energy efficient. One house may have a solar power system that generates electricity.

One home may use energy efficient lighting, and the other may have a large number of inefficient down lights installed. A heated and filtered backyard pool can add significant cost to a household electricity bill.

One home may have more energy hungry appliances, such as plasma screen televisions, or mobile devices that require recharging every day. A second fridge can also add considerable cost to a household electricity bill.

The household occupants may use their appliances at different times of the day, which matters if different rates apply to usage that occurs during Peak, Off-peak or Shoulder times of the day.

One home may have more efficient heating, or cooling, or the heating or cooling might be set to different temperatures. One occupant might do more loads of washing. One occupant may line dry their clothes, while the other uses a tumble dryer.

All of these factors will combine uniquely for every household, which may result in quite different amounts when the energy bill arrives. That's why AGL developed My Account, an online tool available to AGL customers to help them understand more about the circumstances of their own energy use.

How do solar power systems impact electricity bills?

Installing a solar power system can result in a significant reduction of overall bill amounts.

A solar power system harnesses energy from sunlight via solar panels on the roof and converts it into electricity. Generating electricity in this way is considered environmentally friendly as it produces no direct greenhouse gas emissions.

With a net metered solar power system, the electricity that is generated is used by the home or business, and any excess electricity (where the solar power system is generating more than is being used in the home or business at any point in time) is fed back into the electricity grid.

With a gross metered solar power system, all the electricity that is generated is fed back into the electricity grid.

Customers with either a net or gross metered solar power system are paid for the excess electricity that is fed back into the grid in the form of Solar Feed-in credit on their electricity bills.

So a net metered solar power system reduces the amount of electricity that homes and businesses need to buy for use during the day. Plus, the Feed-in Credits for solar electricity not used by the home or business and fed into the grid helps off-set the cost of electricity that is purchased from the grid.

With a gross metered solar power system all the solar electricity generated is fed into the grid, for which the home or business will receive Feed-in Credits, but all the electricity used by the home or business is drawn from the grid and paid for under the customer's energy plan.

Solar Feed-in tariffs, which are used to calculate Solar Feed-in bill credits, differ from State to State and may depend on when a Solar Feed-in agreement was entered into and the type of metering that is set up.

The amount of any solar Feed-in Credits received will depend on geographical location, the size of the solar power system installed and, in the case of net metered systems, the energy usage of the home or business at the time the solar power system is generating electricity.

Installing a solar power system reduces the size of electricity bills, and can significantly do so depending on size of the particular system installed. For more information about solar power systems, please visit AGL Solar or call the AGL Solar team on 1300 274 165.

Why has electricity infrastructure required so much investment in recent years?

The Network Costs associated with transporting electricity and gas from their generation or production source to homes and businesses make up the largest part of customers' energy bills (see explanations of Network Costs, "Why electricity costs what it does" and "Why gas costs what it does" above).

Increased Network Costs have been a major factor increasing the costs to retail business in supplying gas and electricity to their customers.

In particular, the electricity Distribution infrastructure, including the poles and wires, sub-stations and meters has required investment for both maintenance and upgrading. The investment is necessary for a variety of reasons, including updating ageing infrastructure to maintain reliability and to keep pace with growing Peak time electricity demand.

Many of today's appliances and lifestyle choices involve the use of large amounts of electricity. Widespread use of large flat-screen TVs, gaming consoles, personal computers, mobile devices, air conditioners, dish washers, clothes dryers, brilliant down lights and heated pools in modern homes in expanding cities has required this increased investment.

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