When you look at your electricity bill, you might see a few different charges. Two important terms you'll often come across are "network tariffs" and "retail tariffs." Understanding the difference between these can help you grasp where your money is going and potentially make smarter energy choices.

Think of your electricity bill as having two main components: the cost of getting the electricity to your house, and the cost of the electricity itself, plus the services provided by the company you pay your bill to. Network tariffs cover the first part, while retail tariffs cover the second.

Network Tariffs: The Cost of Delivering Power to You

Imagine the vast network of poles, wires, substations, and other infrastructure that brings electricity from power generators to your home. "Network tariffs" are the charges that cover the costs of building, maintaining, and operating this essential infrastructure. 

Who sets them?

Network tariffs are set by the companies that own and manage these local electricity networks (the Distribution Network Service Providers or DNSPs). These tariffs are reviewed and approved by the Australian Energy Regulator (AER) to ensure they are fair.  

What do they cover?

These tariffs cover the expenses of transporting electricity to your property, including the upkeep of power lines, dealing with faults, and investing in upgrades to the network. 

How are they charged?

Network tariffs can be structured in various ways, and you might see these reflected on your bill through different types of charges:

Fixed charges (Supply charges):

A daily fee just for being connected to the network, regardless of how much electricity you use.

Variable charges (Usage charges):

A cost based on the amount of electricity you consume (e.g., cents per kilowatt-hour or c/kWh). These might also vary depending on the time of day (peak vs. off-peak) or the amount of demand you place on the network at certain times.

Demand charges:

For some larger users or those on specific tariffs, there might be a charge based on their highest electricity usage at any point during a billing period.  

Controlled load tariffs:

A separate, often cheaper rate for specific appliances like hot water systems that the network can control the usage times of.  

Think of network tariffs as the toll you pay for using the electricity highway to get power to your home.

Retail Tariffs: The Cost of the Electricity and the Retailer's Services

"Retail tariffs" are what your electricity company (the retailer) charges you for the actual electricity you use, along with their costs for things like customer service, billing, and any government schemes or environmental charges.  

Who sets them?

Retail tariffs are set by the electricity retailers, who buy electricity from generators and then sell it to you. While network tariffs are regulated, retailers have more flexibility in setting their prices, although the AER does set a "Default Market Offer" (DMO) in some regions as a benchmark price.  

What do they cover?

Retail tariffs cover the cost of the wholesale electricity itself, the retailer's operational costs, their profit margin, and any fees they need to pass on, such as environmental levies or the network charges they pay.

How are they structured?

Retail tariffs can also come in different forms:

Single rate or Flat rate:

You pay the same price for every unit of electricity you use, regardless of the time.

Time-of-use tariffs:

You pay different rates depending on when you use electricity (e.g., higher prices during peak demand times and lower prices during off-peak times).  

Block tariffs:

The price per unit of electricity changes based on how much you've used within a set period (usually you will pay a lower rate for the first *kWh per day, and more thereafter).

Solar feed-in tariffs:

If you have solar panels, this is the rate your retailer pays you for any excess electricity you send back to the grid. Solar feed-in tariffs might also follow a “time-of-use” structure, only it relates to grid feed-in, rather than grid draw.

Think of retail tariffs as the price of the actual fuel (electricity) plus the service fee from the company that sells it to you.

The Relationship Between Network and Retail Tariffs:

It's important to understand that retailers pay the network tariffs to the DNSPs, and these costs are then factored into the retail tariffs they charge you. Your retailer essentially acts as an intermediary, bundling the cost of the electricity itself with the cost of getting it to you.  

Why Does This Matter?

Understanding the difference can help you:

Scrutinise your bill:

You can see how much of your bill goes towards the network costs and how much is for the actual energy and retail services.

Make informed choices:

Knowing about time-of-use network tariffs (which are increasingly being passed on by retailers) might encourage you to shift your energy usage to off-peak times to save money.

Understand solar feed-in tariffs:

These interact with both the energy you use (retail) and the energy you export (which affects network flow).

By breaking down your electricity bill into network and retail components, you can gain a clearer picture of the costs involved in powering your home and potentially identify ways to manage your energy expenses more effectively.

We’ve crosschecked our information with the AER and DCCEEW.