REWARD BASED TARIFFS TRIAL SUMMARY REPORT

MARCH 2014 0

positive energy 1. The challenge

Electricity costs have risen steadily in recent years. KEY FINDINGS A contributing factor to these increases is growth in • Participants reduced their usage during peak electricity demand at peak times, which was strong periods by an average of 19% on event days, over the period 2001 to 2006, but has stabilised with a slightly weaker response on the second in recent years. In proportional terms, demand day of consecutive events. has increased significantly more than energy consumption. This is illustrated for South East • Trial tariffs provided reductions of around Queensland in Figure 1. 0.2kW to 0.4kW per household. These reductions were in addition to those achieved Household consumption accounts for less than from load control via retail economy tariffs. one-third of total electricity use but has important implications for peak demand mainly owing to the • Participants did a range of activities to growth of residential air conditioning. respond on event days - they were generally more careful about their electricity use and commonly shifted consumption to after 8pm. Demand management is one of • Reductions came from households of the mechanisms being used to all demographics, incomes and energy address this challenge. consumption bands.

• Response to time-of-use under the Demand management involves using price and non- Consumption tariff was small - the greatest price measures to reduce customers’ use of electricity increase in proportion of night time use was during peak demand periods. Currently there are over 4% in Cairns. one million customers, both residential and business, • The majority (89%) of Participants reported an participating in Energex and Ergon Energy’s long understanding of peak demand, and a small running hot water load control programs. Other active reduction (1.8%) in peak period usage was residential demand management initiatives include observed even on non-event days. pool pump and air conditioning load control programs. • Most participants easily understood the tariffs A number of international and national studies have and favoured state-wide implementation. identified that time varying tariffs can be an effective tool in managing electricity demand at peak times. However, the question remained, were these findings applicable to the Queensland situation? Would Improving the utilisation of someone experiencing winter in Toowoomba respond network assets and the in the same way as someone living through the affordability of electricity for tropical Cairns summer? customers is the challenge ahead for distributors.

FIGURE 1: SOUTH EAST QUEENSLAND PEAK DEMAND GROWTH (ENERGEX)

60%

50%

40%

30%

20%

Percentage Growth 10%

0%

Year

Energy Sales Growth Recorded Peak Demand

1 Reward Based Tariffs Trial – Summary Report March 2014 2. The trial

To find out, Energex and Ergon 2.1 Objectives of the trial Energy conducted the most The RBT trial had five core objectives: comprehensive tariff trial 1. Create community awareness and discussion in Queensland. around alternate electricity pricing models. 2. Improve understanding of customer attitudes towards alternate electricity pricing models. Commencing in January 2011 and running for 27 months, around 3,700 households in three different 3. Understand the actions taken by participants in climate zones volunteered to be involved in the response to the alternate price signals. Reward Based Tariff (RBT) trial (refer to Figure 2). 4. Use trial findings to guide Queensland distribution network policy development regarding further network pricing models. 5. Estimate the network benefits that can be attributed to new models. This report meets the first four objectives. The analysis required to meet the last objective is outside the scope of this report.

FIGURE 2: MAP OF TRIAL AREAS

200km 1---1

•CAIRNS

l'OIJW00!.1&11. -, Si!J □ 'I' AID,

TOOWOOMBA • •BRISBANE

March 2014 Reward Based Tariffs Trial – Summary Report 2 2.2 Trial design Event days To ensure confidence in the trial findings, expert Event days were the days each year on resources were consulted for both the trial design which participants were asked to respond and statistical analysis. Queensland University of by reducing their electricity consumption Technology (QUT) was engaged to provide the between 4pm-8pm. A total of 15 event days experimental design for the project, ensuring internal were called per year and participants were and external validity of results. Deloitte was engaged notified a day in advance. Event days were

to provide advice on the appropriate statistical SUMMARY called based on temperature, with hotter analysis as well as verification of the results reported. than average days called in summer and colder than average days called in winter. At commencement, a total of 3,104 households were enrolled in the trial. Additionally 611 2.3 Consumption group households were used a The Consumption group trialled a combination time- of-use (TOU) and dynamic peak pricing (DPP) tariff Control group. that consisted of a day rate, a 20% cheaper night rate and a peak rate. The day rate was the same as the For the trial, households across the regions were default residential tariff. The peak rate only applied randomly allocated to three groups, the Consumption on event days. On event days, the peak rate applied group, the Capacity group and Control group. if their electricity usage exceeded a threshold during The trial locations were chosen to represent the the 4pm-8pm period. Three different peak rates were more extreme climate zones in Queensland and trialled. These ranged from 5 to 8 times the usual households were recruited to ensure the trial sample electricity rate. Refer to Figure 3. was representative of the general population. In The group started the year with a performance bonus this report the Consumption and Capacity group of $75 that was increased to a maximum of $125 or collectively are referred to as participants. decreased to a minimum of $25, depending on their performance against the trial tariffs.

FIGURE 3: CONSUMPTION TARIFF STRUCTURE

Event Days - Dynamic Peak Pricing

HOURLY KWH CONSUMPTION TARIFF RATES (24 HOURS) Multiplier x T11

4.5kWh

MIDDAY 4PM Multiplier x T11

Day T11 rate 2.7kWh Peak T11 rate 8AM 8PM

Night 20% discount 0 4 - 5pm 5 - 6pm 6 - 7pm 7 - 8pm 4AM MIDNIGHT

The DPP rate that applied beyond the threshold • 2 tier low – Each hour where the total hourly varied as follows: consumption exceeds 2.7kWh is charged at 5 times the Tariff 11 rate. • 2 tier high – Each hour where the total hourly consumption exceeds 2.7kWh is charged at 8 • 3 tier high – Each hour where the total hourly times the Tariff 11 rate. consumption exceeds 2.7kWh is charged at 5 times the Tariff 11 rate, or 8 times the tariff rate if hourly consumption exceeds 4.5kWh.

3 Reward Based Tariffs Trial – Summary Report March 2014 2.4 Capacity group Capacity tariff The Capacity group was asked to limit consumption In the first period after Kate entered the below a threshold between 4pm-8pm on event days. RBT trial, there was one event day. On this At all other times the default residential tariff applied. day Kate's consumption between 4pm-8pm The group started the year with a performance exceeded the threshold of 4.5kWh for two bonus of $75 that was progressively reduced (to a of the four hours. Her performance incentive minimum of $25) if they exceeded the threshold on at the end of the period is calculated as:

an event day. Refer to Figure 4. SUMMARY $75 - ($2.50 x 2 hours) = $70

FIGURE 4: CAPACITY TARIFF STRUCTURE

350 DAYS OF THE YEAR 15 MAXIMUM DEMAND DAYS PER YEAR

USAGE USAGE Unlimited demand – Threshold limit applies 4pm-8pm No restrictions on usage If customer exceeds threshold, incentive is reduced

threshold limit 4.5kWh

8am 8pm 8am 4pm 8pm

“ON PEAK DAYS WE’VE COME IN UNDER THE LIMIT BY CHANGING OUR HABITS.”

March 2014 Reward Based Tariffs Trial – Summary Report 4 2.5 Control group Analysis was only conducted on those households that completed the entire trial and for which there Control groups were enrolled in each region to was a complete demographic data set (2,228 provide a benchmark to compare the response from households).1 The trial analysed consumption on the the Consumption and Capacity groups. Following default residential retail tariff (Tariff 11) only, and did installation of the meter and payment of their sign- not look at consumption on retail controlled load tariffs on incentive no further contact was made with these (Tariff 31, 33). Households with solar photovoltaic households during the trial. (PV) systems and customers with a medical condition that required the use of life support equipment were 2.6 Trial operation excluded from the trial.

Remotely read advanced electronic meters were FIGURE 5: DATA SOURCES FOR ANALYSIS installed in all homes. These installations were required as interval meters for residential customers Electricity Participant Climate are not commonly used in the Queensland market. Consumption Data Cumulative pre-trial data Information Bureau of & interval data during Enrolment data Meteorology Participants were issued with trial performance trial by National Metering Annual survey data forecasts statements throughout the year to help them track Identifier (NMI) their usage, and a performance cheque was given at the end of each year. Refer to Image 2. The value of the performance cheque varied based on their RBT Trial performance against the trial tariffs. These were Data set issued separately to their normal electricity bill which was issued by their electricity retailer. A range of statistical tests and analytical methods A survey was conducted at the end of the first and were used to determine participants’ response and second year of the trial. The survey provided insights how this varied with weather, demographic attributes into what participants did as well as their perceptions and location. The response of trial participants was and attitudes towards the trial tariffs. A 92% response measured as the difference between the average rate was achieved for both years of the survey. participant group usage between 4pm-8pm to that of Payment of the end of year performance bonus was the Control group on event days. dependent on completion of the survey. In order to make statistically meaningful comparisons between the participant and Control groups, tests IMAGE 2: TRIAL PERFORMANCE STATEMENTS were undertaken to ensure that there were no statistically significant differences between Control and participant group pre-trial annual consumption. The average load profiles of participant and Control groups on non-event days were also compared and found to be similar. The objective during trial enrolment was to recruit Control and participant groups that were similar to the broader Queensland population. This was largely achieved, however there was a slight over- representation of detached dwellings and home owners. At the end of the trial there were some differences between participant and Control group demographics. As a result, these results should not be interpreted as being representative of the broader Queensland population. However, it should 2.7 Data analysis be noted that the trial was designed, so that if desired, the results could be extrapolated to other During the trial, to see how people responded, target populations. In such a case, this analysis the meter readings of the Control group, would need to account for differences between Consumption group and Capacity group were the participant groups and proposed target compared. Data analysis was undertaken using population demographics. interval consumption data, weather data and survey 1 During the trial, 1454 households exited the trial. 39% were due to solar PV being data. Refer to Figure 5. installed and 45% were due to change of occupants.

5 Reward Based Tariffs Trial – Summary Report March 2014 3. Key findings

Overall the trial found that TABLE 1: RESPONSE ON ALL EVENT DAYS households were willing and No. of Mean 4pm-8pm reduction# Trial group able to change their behaviour in event days (%) kWh / hour Consumption group response to the trial tariffs. Brisbane 36 20 0.24

Cairns 37 17 0.24 Both the survey responses and energy consumption Toowoomba 36 17 0.21 data show participants across all three regions Capacity group reduced their consumption during peak times on Brisbane 36 8 0.10 event days. Very few participants (15%) reported they Cairns 37 21 0.29 “did nothing differently” on event days. Toowoomba 36 23 0.28

With the exception of the Brisbane Capacity group, Notes: #when compared to the Control group 4pm-8pm usage in their region reductions of 17% to 23% were achieved when All results are statistically significant (p<0.01) unless otherwise noted comparing average energy use between 4pm-8pm on event days to that of the Control group (refer to Table 1). These findings are consistent with The majority of participants other Australian tariff trials which found average reported that there was “nothing” reductions in peak demand were between 13% and 40%.2 preventing them from responding on event days.

Of those surveyed 71% found it easy to respond on event days, 21% were neutral and 8% found it difficult. Participants engaged in a range of behaviours on event days and these actions were similar between year 1 and year 2 of the trial (refer to Figure 6).

FIGURE 6: REPORTED BEHAVIOURS ON EVENT DAYS

66% Generally are more careful about what appliances we use 67% 42% Turn off lights 49% 42% Don' t run clothes dryers during peak times 43% 43% Don' t run dishwashers during peak times 41% 36% Don' t iron or vacuum during peak times 37% 30% Switch off power at powerpoint 34% Not asked Used fans instead of air conditioning 31% 29% Didn't use air conditioning during peak times 30% 23% Avoid electric ovens / cooktop / stove during peak times 29% 23% Cook more often using a BBQ 26% Not asked Used air conditioner less often 23% 24% Set air conditioner to 24/25 degrees (for cooling) 23% 18% Prepare meals in advance 23% Not asked Used blankets instead of heaters 17% ■ Peak Days (2012) 18% Monitor our electricity consumption using an IHD 13% ■ Peak Days (2013) Not asked Used ceiling fans with air conditioning 12% 9% Turn off second fridge / freezer when not in use ~ 12% 8% Go out for a meal .;;;;;;;;;;;:.. 12% ----, 9% Do nothing differently 15% 0% 20% 40% 60% 80% 2 Futura (Futura Consulting) 2011, Power of Choice – Giving Customers Options in the Way they Use Electricity, Investigation of Existing and Plausible Future Demand Side participation in the Electricity Market, Final report commissioned by the Australian Energy Market Commission. December.

March 2014 Reward Based Tariffs Trial – Summary Report 6 Participants understood the tariffs and peak demand.

The majority of participants found the trial tariffs easy to understand (75%) and easy to implement (71%), despite minimal education and information being provided as part of the trial. Trial participants had a good understanding of peak demand, with 89% claiming to know what the term meant. The vast majority of participants (70%) supported “WE HAD A implementation of trial tariffs throughout Queensland and 20% were neutral. Only 10% of participants BBQ INSTEAD opposed the implementation of the tariffs. Perceived financial benefit was closely related to support for OF USING the tariff, with 91% of those participants who believed they would be better off, supporting implementation. THE OVEN.”

A mix of customers were able to respond.

Generally, all participants within all energy consumption and income bands responded to price signals on event days. Those participants in “I THINK THAT THE low income and low annual energy consumption groups demonstrated they were able to reduce their IMPLEMENTATION consumption during peak times. In some cases, they achieved the greatest kilowatt reductions of OF THE TARIFF all groups. WOULD CHANGE Trial tariffs have demand THE WAY management potential. QUEENSLANDERS Trial tariffs provided reductions of around 0.2kW to 0.4kW per household during times of highest USE ELECTRICITY” network demand. Participants’ responses to the tariffs remained consistent over the life of the trial. On consecutive event days there was a small fatigue effect with participants’ second day response being 7% to 8% less than their first day response. The trial tariffs were found to be complementary to load control and alternative energy sources (eg gas). While over half of participants were connected to regulated economy tariffs (Tariff 31, Tariff 33), they were still able to reduce their general usage (Tariff 11) during peak times on event days. Toowoomba participants also achieved significant reductions during peak times (19% to 26%) on winter event days compared to their Control group, despite the majority being connected to gas (an alternate heating source).

7 Reward Based Tariffs Trial – Summary Report March 2014 4. Tariff design insights

4.1 Consumption tariff FIGURE 7: BRISBANE CONSUMPTION LOAD PROFILE – EVENT DAYS AND NORMAL Consumption participants reduced their peak DAYS COMBINED period energy use by 17% to 20% on event days in response to DPP pricing. This can be seen as the Control, normal days 0.80 Consumption, normal days divergence between the ‘event days’ load profile of Control, event days Consumption, event days the Consumption group and Control group between 4pm-8pm (refer to Figures 7 to 9). The higher pricing 0.60 variations had the highest response ranging from 16% to 26%. TOU pricing had very little effect in shifting usage 0.40 with the exception of Cairns, where participants Half hourly consumption (kWh) increased their proportion of night usage by 4%. 0.20 This is consistent with other Australian studies that found that the extent of response depends on the

strength of the price signal and customers’ ability to 0.00 1:30 2:30 3:30 4:30 5:30 6:30 7:30 8:30 9:30 1:30 2:30 3:30 4:30 5:30 6:30 7:30 8:30 9:30 12:30 10:30 11:30 adapt. These studies found that ‘flatter’ TOU pricing 12:30 10:30 11:30 resulted in a quarter of the response found from FIGURE 8: CAIRNS CONSUMPTION LOAD critical peak pricing.3 PROFILE – EVENT DAYS AND NORMAL Around half of Cairns participants reported DAYS COMBINED shifting some appliances to after 8pm. The top three appliances they reported shifting were the Control, normal days 0.80 Consumption, normal days Control, event days dishwasher, dryer and washing machine. This can Consumption, event days be seen as the increase in the Cairns ‘Consumption, normal days’ load profile after 8pm (refer to Figure 8). 0.60

0.40 How to read a load profile ....., ~--.. -...- ...... :::::::::::::::~::/ . Load profiles represent the pattern of .. ,,...... ··-:::

electricity usage over a day. The profiles Half hourly consumption (kWh) 0.20 are based on ½ hourly meter reads (kWh). Energy consumed over one hour can be

0.00

determined by adding two consecutive ½ 1:30 2:30 3:30 4:30 5:30 6:30 7:30 8:30 9:30 1:30 2:30 3:30 4:30 5:30 6:30 7:30 8:30 9:30 12:30 10:30 11:30 12:30 10:30 11:30

SUMMARY hourly readings. FIGURE 9: TOOWOOMBA CONSUMPTION LOAD PROFILE – EVENT DAYS AND NORMAL DAYS COMBINED

Control, normal days 0.80 Consumption, normal days Control, event days Consumption, event days

0.60

0.40 Half hourly consumption (kWh) 0.20

3 Australian Productivity Commission, 2013, Electricity Network Regulation: Peak 0.00

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March 2014 Reward Based Tariffs Trial – Summary Report 8 9 FIGURE 12: LOAD CAPACITY FIGURE TOOWOOMBA COMBINED DAYS DAYS COMBINED COMBINED DAYS DAYS PROFILE –EVENT NORMAL AND 11:FIGURE CAPACITY LOAD CAIRNS COMBINED DAYS FIGURE 10: PROFILE – EVENT DAYS PROFILE –EVENT NORMAL AND DAYS PROFILE –EVENT NORMAL AND Half hourly consumption (kWh) Half hourly consumption (kWh) Half hourly consumption (kWh) 0.00 0.80 0.80 0.00 0.20 0.40 0.60 0.80 0.20 0.40 0.60 0.00 0.20 0.40 0.60 Reward Based Tariffs Trial – Summary Report Trial –Summary Tariffs Based Reward

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11:30 11:30 11:30 7d8f32b7-b5c0-4afe-ac62-088307ed8533-0.pdf 7d8f32b7-b5c0-4afe-ac62-088307ed8533-0.pdf http://www.aemc.gov.au/Media/docs/AGL-Presentation at available 2013, 2 October behavioural change. change. behavioural motivator for as astrong they not act did statements, performance they their read said of participants majority the While redundant. became theybut soon trial, the of start the at useful IHD the finding reported Participants response. agreater in result conclusively not did statements of performance frequency higher (IHD) and of In-Home-Displays presence The predicted. than milder of 2%to 4%. reductions found which studies other from findings to comparable is effect’ ‘conservation This of (referFigures day profiles load to7-12). normal 4pm-8pm between occurred predominantly reduction group. This days Control to of that the non-event on consumption energy participants’ average comparing 1.8% when was found reduction An electricity. aware of their more them made trial (91%) majority The believed the of participants Energy conservation 4.3 group. this from response smaller may This explain the threshold. the was below usage event on usage days their asthey their knew changed they not had reporting of particpants proportion highest the had group Capacity Brisbane The (refer 10 to Figures to 12). 4pm-8pm between group Control and group Capacity the of profiles load ‘event the between days’ divergence asthe seen be by use 8%energy to 23% event on days. can This period peak their reduced participants Capacity Capacity tariff 4.2 4 day the on was weather the sometimes and forecasts weather Event hour 48 on based days were selected was event trial day the selection. during encountered event an before dayone day. notice difficulty One with they were satisfied reported participants Most 4.4 AMEC Power of Choice Review – Public Forum| 19 April 2012 | AGL External, retrieved retrieved External, |AGL 2012 19 April Forum| –Public Review Choice of Power AMEC Simshauser, P, 2012, Dynamic Pricing and the Peak Load Problem Presentation to the the to Presentation Problem Load Peak the and Pricing P, Dynamic 2012, Simshauser,

Notification, performance statement frequency statement performance 4

In-Home-Displays

and March 2014 - 5. Conclusions

The trial provided an invaluable source of information and learning on the response, behaviours and attitudes of Queensland residents to dynamic peak pricing, Time of Use and Capacity tariffs. Overall the trial found that participants were willing and able to change their behaviour in response to trial tariffs. They engaged in a wide range of behaviours on event days to shift their electricity usage outside of peak periods. While findings were generally consistent with other trials, additional in-depth and wide ranging insights were gained. These shed light on and challenge some long held industry views. It was never intended for the trial tariffs to be rolled out. Rather Energex and Ergon Energy will use trial findings to inform the development of future electricity tariffs and will work in consultation with customers and other affected stakeholders in their implementation. Work is already underway to ensure future residential tariffs allow for the integration of peak pricing and capacity components as well as ensuring price resilient signals continue to be passed to customers. Work has also commenced on investigating network areas that would benefit from the introduction of these tariff types, provided they could be cost effectively deployed alongside the current suite of demand management products. Trial results will be shared with government and fellow distributors to help improve their understanding of customer attitudes toward alternate electricity pricing models.

ACKNOWLEDGEMENT Energex and Ergon Energy gratefully acknowledge the role of participants in the RBT trial. We wish to extend our thanks to members of the Control, Consumption and Capacity groups for their contribution to advancing research in time varying tariffs and demand management. We extend our thanks to all the people in Energex and Ergon Energy that have made this trial possible from metering installation, data management, data analysis tariff design and pricing advice and customer contact centre staff. We also acknowledge the contribution of the Queensland University of Technology and Deloitte in providing robust, independent advice on the trial design, statistical analysis and verification of results.

March 2014 Reward Based Tariffs Trial – Summary Report 10 For further information visit www.yourpowerqld.com.au/rbt

Email [email protected]

© Energex Limited and Ergon Energy 2014

This work is copyright. Material contained in this document may be reproduced for personal, in-house or non-commercial use, without formal permission or charge, provided there is due acknowledgement of Energex Limited and Ergon Energy as the source. Requests and enquiries concerning reproduction and rights for a purpose other than personal, in-house or non-commercial use, should be addressed to the Group Manager Corporate Communications, Energex, GPO Box 1461, Brisbane, Queensland, 4001.

Citations:

Energex Limited and Ergon Energy Corporation (2014), Reward Based Tariffs Trial Summary Report. Brisbane, Queensland: Energex.

Energex Limited and Ergon Energy Corporation (2014), Are Queensland Residents Willing and Able to Respond to Time-Varying Electricity Prices? Australian Economic Review, 47. doi: 10.1111/1467-8462.12063