There are many factors that affect the costs of delivering gas and electricity to you. Here we break them down for you.
What costs does AGL incur in delivering energy to you?
The costs charged by distributors to transmit energy to homes via electricity poles, wires, gas pipes and meters. AGL pays distributors for the cost of delivering energy to you.
Wholesale market costs
Retailers buy wholesale energy from the wholesale energy market. The price of wholesale energy is determined by conditions in the wholesale market including supply and demand conditions.
AGL incurs other costs in supplying energy to you, such as costs of complying with a range of Federal and State government programs. Common examples of this include renewable energy targets and energy efficiency schemes.
The costs to a retailer of selling energy to homes. This includes the direct and indirect costs of running the retail business, providing customer service, complying with regulations and managing your account.
In Victoria, energy rates generally change in January of each year. This follows our annual review of our energy rates.
In supplying gas and electricity to you AGL incurs a range of different costs which can be broadly grouped into 4 categories. These categories are explained below:
Wholesale Energy Cost
Wholesale Energy Costs are the amount that we pay to purchase sufficient gas and electricity to supply our customers.
Electricity can be bought directly from a wholesale electricity market where all businesses that generate electricity sell their output, for example, coal or gas power stations, or wind farm and hydro scheme operators (Electricity Generators). The wholesale electricity market can be extremely volatile in times of short supply or high demand.
Gas can be bought directly from gas extraction and production plant operators (Gas Producers).
Gas and electricity can also be bought indirectly through energy trading markets. Participating in these trading markets helps retailers to manage the risks of high prices in the wholesale market.
Different companies are involved in the delivery of gas or electricity to homes and businesses. They are called Gas or Electricity Distributors, and Gas or Electricity Transmission businesses.
The activities performed by these businesses include building and maintaining the Transmission and Distribution networks of electricity poles and wires, or gas pipes and pipelines, to transport the energy from Electricity Generators and Gas Producers to end-users.
Electricity and Gas Distributors are also responsible, in many cases, for installing and maintaining electricity and gas meters at homes and businesses. They arrange for gas and electricity meters to be read, and for our customers’ meter readings to be supplied to us.
We have direct and indirect costs in arranging the supply of wholesale energy and network services used in supplying gas and electricity to our customers.
Government Green Scheme Costs
We have direct and indirect costs associated with a range of Federal and State Government green schemes that promote a sustainable energy industry. These schemes include renewable energy schemes and energy efficiency schemes.
Energy Retail Component
As an energy retailer, we are the face of the industry to our customers. We manage a lot behind the scenes to ensure that our customers’ homes and businesses have access to gas and electricity at competitive prices. The cost of doing so is recovered through our energy rates.
Our business activities include purchasing wholesale energy and network services, assisting customers with queries about their energy plans, usage or bills, requesting Distributor services on behalf of our customers such as connections and disconnections when moving house, and calculating and sending energy bills.
Other activities we perform include managing our compliance obligations, and sending our customers the details of their energy plans, and all of the other important information they need to know about us as their energy retailer, the industry and their supply of gas and electricity in general.
When setting our energy rates it is important for us to offer competitive gas and electricity plans, to be able to provide excellent service and value to our customers, and to ensure the continued support of our shareholder investors.
Importantly, we also reinvest in our business to ensure that we can continue to be innovative with initiatives such as developing My AGL IQ®, which enables our customers to see and understand the energy they use, and actions that they can take to reduce their energy usage.
There are two types of energy charges that appear on most customers’ energy bills:
Fixed charges (service or supply charges)
Service or supply charges are generally calculated as a fixed 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.
Fixed charges cover some of the costs of maintaining and operating the Distribution and Transmission networks (see explanation of Network Costs above), and some of the operational costs of supplying our customers.
Variable charges (usage charges)
Usage charges are calculated per kilowatt hour (kWh) for electricity, and per megajoule (MJ) for gas, for the amount of gas or electricity used at a home or business during the time period covered by a bill. Variables charges also cover some of the costs of maintaining and operating the Distribution and Transmission networks (see explanation of Network Costs above), 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 above) 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.
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 AGL IQ®, an online tool available to AGL customers to help them understand more about the circumstances of their own energy use.
Your meter type and configuration determines the electricity rates available to you.
Traditional electricity meters do not record when you use electricity, they only record how much you have used in total since the last time the meter was read. If you have a pool pump, or slab heating or storage hot water, then traditionally you might have a separate controlled load meter through which these facilities operate during Off-peak times, with Off-peak rates applying to their usage.
However, new smart meters record when electricity is used in half hourly intervals, and this is reported back to Energy Retailers on a daily basis. Because of this, smart meters also support a flexible pricing structure, in which different electricity rates can apply at different times of the day.
With a flexible pricing structure, higher amounts might apply during Peak hours, with lower rates applying during Off-peak and Shoulder times of the day. A smart meter and flexible pricing structure may enable you to lower your overall electricity usage costs by shifting some of your electricity usage outside the Peak times.
For example, running energy hungry appliances such as a dishwasher or clothes dryer during the Off-peak period will help you take advantage of lower Off-peak rates.
My AGL IQ® is an online tool available to AGL customers to help them understand more about their own energy use. With a smart meter, customers can also learn when during the day their energy use takes place, and this is helpful to understanding what you can change.
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.
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.