How the electricity system works

The light switches in your home are a long way from the power-generating plant. By understanding who does what in delivering power to your home or business, you can better understand your rights and negotiate the contract that is best for you.

How does my power get to me?

There are three distinct businesses involved in delivering power to you: generators, distributors and retailers. Smart Meters help this whole system to operate more efficiently.

Generators

Generators produce electricity from coal and other sources, such as the sun or wind. They sell electricity at wholesale rates to retailers. Generators are responsible for the investment and operating costs to build and run electricity power stations. They have to comply with government policies and regulation.

Distributors

Distributors own power infrastructure and networks – the poles and wires that deliver electricity to your home or business. They also own your Smart Meter. Distributors fix faults outside your property such as blackouts and damaged electricity lines.

If you have a power outage, call your distributor. Find your distributor at Energy and Earth Resources or call 136 186.

Retailers

Retailers buy the electricity from generators and sell it to you. Retailers typically offer a number of different deals. Changing retailer has no effect on the reliability or quality of your supply.

Retailers operate customer service centres and provide direct services to households. They have to comply with government legislation including minimum service provisions.

For contacts see: Energy retail companies

Who pays the costs for the generators, poles and wires?

The money you pay for your electricity service is allocated towards the costs of generators, distributor's networks and retailers.

This is how your electricity bill is split:

How the average customer's bill payment is allocated to cover costs for their electricity service.

Sources: Australian Energy Market Commission 2012–13 forecasts, Australian Federal Treasury Modelling Report 2011

Who sets the price for electricity?

In Victoria there are no regulated tariffs, which means that retailers set their own prices.

How is electricity measured?

The standard measure of electricity consumption is the amount of energy used over an hour: the watt hour (Wh). A thousand watt hours is one kilowatt hour (kWh). Your Smart Meter measures your consumption every 30 minutes.

Your electricity bill records the total number of kilowatt hours consumed over a set period, which is usually three months.

Here's an example of appliance usage:

Appliance Energy Use in one hour

40 watt light bulb

 40 Wh or 0.04 kWh&
1000 watt blow heater 1000 Wh or 1 kWh
4,000 watt air-conditioner 4000 Wh or 4 kWh

* Small-scale Renewable Energy Scheme (SRES): This is a federal government scheme that legislates demand for Small-scale Technology Certificates (STCs). These certificates are created for eligible small-scale renewable energy installations, such as solar water heaters, heat pumps, solar panel systems, small-scale wind systems and small-scale hydroelectricity systems, according to the amount of electricity they produce or displace. Renewable Energy Target (RET) liable entities (usually electricity retailers) have a legal requirement to buy STCs and surrender them to the Clean Energy Regulator on a quarterly basis.

Large-scale Renewable Energy Target (LRET): This is a federal government scheme that legislates demand for Large-scale Generation Certificates (LGCs). LGCs are created based on the amount of eligible renewable electricity produced by power stations. LGCs can be sold or traded to liable entities, in addition to the power station's sale of electricity to the grid. RET-liable entities (usually electricity retailers) have a legal obligation to buy LGCs and surrender them to the Clean Energy Regulator on an annual basis.

The Victorian Energy Efficiency Target (VEET): This is a Victorian government initiative to promote energy-efficient activities and marketed as the Energy Saver Incentive (ESI). The scheme was designed to make energy-efficient improvements more affordable for the consumer. Accredited businesses can offer discounts on selected energy-saving products and appliances, which can be installed at homes, businesses or other non-residential premises. The bigger the greenhouse gas reduction, the bigger the potential saving. This initiative will end in December 2015.

Distributor's network costs:

Premium Feed-in Tariff: This is a Victorian scheme that offers eligible households, businesses and community organisations with small-scale solar systems of 5 kW or less, a credit of at least 60 cents per kilowatt hour for excess electricity fed back into the grid. This scheme is now closed to new applicants.

Transitional Feed-in Tariff: This is a Victorian scheme that offers eligible households, businesses and community organisations with small-scale solar systems of 5 kW or less, a credit of at least 25 cents per kilowatt hour for excess electricity fed back into the grid. This scheme is now closed to new applicants.