Understanding your bill

What costs go into your energy bill?

There are a number of factored costs that go into your energy bill.

Some of these factored costs include:

• Wholesale energy
  
• Network costs
  
• Environmental charges
  
• Market fees
  
• Bad debt
  
• Retail costs

We can help break down each of the potential costs on your bill by looking at the average expenditure for an individual living in Greater Melbourne.

Wholesale energy

This is the cost of the generated energy that makes its way to your property. All retailers buy their energy from the wholesale energy market which is part of the ASX (Australian Securities Exchange). As such, no retailer can make a claim as to the exact source of the energy they provide to their customers.

Each retailer, including Arcline by RACV, has different costs included for wholesale energy. This is because energy is traded in the same way that many other financial products are. Some retailers purchase energy from the spot market (where the price of power is determined by supply and demand) and have no predictability over what they’ll pay, while others seek certainty over their wholesale costs over the next two years.

In reality, most are somewhere in between. Many energy retailers also own generators, meaning they profit from two parts of a retail bill.

Using our average expenditure example, $532 of the $1609 would be for wholesale energy (33% of the total bill).

Network costs

Getting electricity into your home involves infrastructure for the electrical network to operate.

There are three separate components to network costs: transmission, distribution and metering.

Transmission costs are for the high voltage lines that transmit power from power stations to low voltage distribution lines, which in turn deliver the power to your meter. Metering costs are the capital and maintenance costs of your meter plus the cost of someone reading it.

Unfortunately, not every unit of energy generated in a power station gets put to good use. Transmission and distribution lines suffer from losses along the way. These loss factors are included in our tariff design.

Using our example, $749 would cover network costs (47% of the total bill).

This is split into $720 for transmission and distribution, and $29 for metering.

Environmental charges

There are Federal and State schemes in place with retailers required to obtain certificates to meet their various obligations. For Victorians, some relevant schemes might be the Large Scale Renewable Energy Target (LRET), Small Scale Renewable Energy Scheme (SRES) and the Energy Savings Scheme (ESS).

For the LRET scheme, we applied a 12.75% obligation and the cost is $75.

For the SRES scheme, we applied a 9.68% obligation and the cost is $22.

For the ESS, we applied a 7% obligation and the cost associated is $11.

Using our example, in total, this would cost $108 per year (7% of the total bill) for environmental charges.

Market fees

We are required to pay fees to the Australian Energy Market Operator (AEMO) for operating in the market.

Fortunately, these fees are relatively much smaller than others.

Using our example, this would amount to $0.61 per MWh of energy, which means just under $4 would be included (less than 1% of the total bill).

Bad debt

Unfortunately customers sometimes disappear before they’ve paid an outstanding balance.

We need to include an allowance for this in our pricing, so using our example, coverage for bad debt would cost $16 (1% of the total bill).

Retail costs

Retail costs are the final component of your bill. These are to cover the expense of running a retail operation and paying our Australian-based team. This includes call centres, billing systems, websites, specialist staff, risk management and compliance.

Using our example, $12 per month would cover these costs - that’s $144 per year and is (8% of the total bill).

The Grattan Institute reported that many energy retailers are earning 13% net profit. As we don’t have our own generation, our total profit from each customer is approximately 2% of your total bill.

Other retailers may include lower retail costs to lure new customers. Our approach is to be an energy retailer with nothing to hide - meaning no hidden fees or surprise changes without notifying you.

What does this mean for you?

We believe that energy should be simple, affordable and easy to understand.

That's why we're helping more Victorians get the energy they need without the hidden costs, lock-in contracts or joining and exit fees. Our flexible payment options and local support means there's even more ways to manage your energy bills.

And with carbon-offset energy and solar feed-in tariffs, there's even more ways to access affordable energy when you switch to Arcline by RACV.