Electricity Prices Explained


Tariff Price
excluding GST including GST

Peak Step 1

(First 16.45 kWh/day)

16.3000 c/kWh 17.9300 c/kWh
Peak Step 2 17.0000 c/kWh 18.7000 c/kWh
Service to Property 106.0000 c/day 116.6000 c/day
GreenPower 5.3000 c/kWh 5.8300 c/kWh

This is the electricity price breakdown for the area I live in. All prices are in Australian dollar. GST refers to the Goods and Services Tax which is a 10% tax levied by the government.

Lets analyse the different sections. Since I cannot claim back GST like a business, I will only focus on the prices inclusive of GST. The first Tariff, Peak Step 1, shows the price I will pay as long as my daily usage is less than 16.45kWh. This stepped tariff system aims to incentivise people to use less electricity. So for every “unit” or kWh of electricity that I use under the Peak Step 1 tariff I get charged $0.1793. Every unit after the 16.45kWh threshold is charged at the Peak Step 2 rate, costing me $0.187 per unit, 4.3% more.

The “Service to Property” charge is a daily flat rate charge that covers the cost of maintaining the infrastructure to provide electricity to where I live. This charge is paid irrespective of how much you use and even applies to people who have solar energy that they sell back to the electricity company. In some places this is not a separate fee and the charge is incorporated in the electricity unit price.

The last cost, GreenPower, is the premium I choose to pay voluntarily to ensure that my electricity is supplied by renewable energy sources. In the case of this supplier the power is generated using the Snowy Hydro power generation scheme.

So all inclusive I pay $1.166 per day as my connection fee and then $0.2376 per kWh as long as my usage is less than 16.45kWh per day.

Energy & power measurement


How is energy measured? There are various units energy is measured in but they all fall into two categories when applied to energy consumption. The units either describe the total energy used to achieve something or the energy use per unit of time. Lets consider speed and distance. When I travel home in my car I might need to travel 10km. To keep to the speed limit I might need to travel no faster than 60km/h.
The 10km I need to travel is the total distance I need to travel in order to achieve my goal of getting home. The 60km per hour that I am traveling describes the rate of movement per hour.

These two units are related but they are not the same thing. With the information I can calculate that if my speed does not change it will take me 10 minutes to get home. If you knew how long you traveled and the speed you could determine how far you moved.

Lets translate this to energy. The unit that energy is measured in is the joule. One joule is roughly the energy required to lift a small apple 1m off the ground. This is not a scientific definition but makes for a good illustration.  Joule is our distance – the total amount of energy required to do something without any consideration for time.


What would be the speed equivalent? Measuring the rate of change of energy is called power. It is measured in the unit watt. Watt is the same as joule per second. So if you had a basket of small apples and were picking them up one by one, and one per second, the power involved would be 1 watt.

So in the same way as the speed/distance example energy/power and joule/watt are related but they are not the same thing. What gets confusing is that the majority of energy measurements are denoted in watt-hours. This is the same as giving distance in the unit of km/h.h or kilometer per hour hours. These are all the different ways of denoting the same thing. So when people talk about watt-hours remember that they are actually taking about joule, the unit of energy measurement.

Example: If I have a toaster rated at 700W and it takes 2 minutes to toast my bread I can determine that running the toaster for 2 minutes requires 84 000 joules of energy.

It is due to the fact the numbers get big so quickly that a different unit was devised but that still describes the same thing. The standard unit for describing electrical energy consumed is watt-hour or kilowatt-hour (a thousand watt-hours). This is the same as 3.6MJ or 3 600 000 joule.

That is a lot of apples.


Sorted Coins

What is energy? In essence energy is the ability to do work. It is the thing you need to do something useful.  The picture above illustrates this principle. If you have a box filled with a random assortment of coins it will take energy to sort them and neatly stack them on top of each other.

There are two main laws that govern energy. The first law states that Energy cannot be created or destroyed but it can changed from one type to another.
The second law states that “in all energy exchanges, if no energy enters or leaves the system, the potential energy of the state will always be less than that of the initial state.”

These laws sound complicated but they basically encapsulate that you can’t get energy for free (First law) and that in a closed system energy moves from being concentrated to being dispersed (Second law). The second law also describes another aspect known as entropy (chaos, disorder), and says that entropy will increase over time in a closed system.

To illustrate. A mug of heated tea is standing on a desk. After a few hours the tea is colder and the desk below the mug is a little bit warmer. The mug cooling down has to transfer its heat somewhere (First law) – this heat is transferred to the surrounding air and the desktop. The heat moving from the tea and the mug to the surroundings illustrate the Second law. The heat energy moves from being concentrated in the water to being dispersed in the water, mug, air and desk.

So energy is everywhere and it is more useful to us if it is concentrated than when it is dispersed. Also these laws are laws – so when somebody talks about free energy or things sucking energy from their surroundings to heat up, a mistake is usually being made or something is not being considered. Sadly you cannot get something for nothing.


Brain in Box

There is this strange quirk regarding humans, they have an issue with limits. People don’t like having limits. They don’t want to die, they don’t to want keep to a certain speed on the roads, they don’t want to be told they cannot study neurosurgery because they don’t qualify. How many movies glorify someone overcoming limits and limitations – inspiring all of us to reach higher and further.

I need to highlight here that there are good limits and bad limits. Limiting the use of lead in children’s toys is an example of a good limit, limiting political positions to only men is a bad limit. By their nature limits restrict some aspect of something and accordingly some cost is required. If you mandate lead free paint in toys they might be more expensive. If you set speed limits it takes longer to travel.

I want to give an example that it is not always a good idea to live just within limits. If you receive a credit card with a $1000 limit, you can view this amount as the upper limit to your spending and then you will constantly be in debt. Somehow people assume that since the bank assigned them this limit it is perfectly fine for them to constantly sit with this amount of debt to their name.  And yet this limit just denotes the maximum amount of debt you are allowed to accrue. If you were to limit your debt to $100 you would have a much more manageable amount of debt and you would have some reserves left for emergencies.

This trade-off has many aspects, efficiency vs. resiliency, short term vs. long term, sufficiency vs. maximization.  I would like to propose here that in most cases it is better to stay as far away from the limits as possible since this grants the greatest amount of freedom. This is an idea that is applicable to various scales in life. From the innocuous example of leaving room for dessert after a meal to overpopulation or financial management.

This is a lesson that I only learned recently but it is a valuable one. Limits are real and should not always be viewed as a barrier but rather as a safety rail. The further you are from limits the more flexibility you have.