Pricing network risk

Our electricity network risks are changing, as detailed in changing demand profiles. These changes are driving new network investments and altering our traditional investments.

Our demand management program has three primary investment goals:

  1. To defer electricity network investments
  2. To work proactively to decrease network risks
  3. To help support the value our network provides to you.

Deferring costly network investments is business as usual for our demand management program. We will continue to use this approach to provide sensible and efficient investments.

Reducing network risk is a new area of investment that will assist low cost involvement for demand management activities.

Modelling shows that the earlier we intervene on a network risk, the greater the chance for customer participation. So the higher the likelihood of success, the lower the cost, and the more opportunity for efficient network investments.

Optimal Incremental Pricing

The method we have developed to enable risk pricing is Optimal Incremental Pricing (OIP). OIP enables us to value the risk in a network based on several key criteria:

  • Network forecast growth
  • Network capacity
  • Demand management intervention expenditure.

OIP uses these criteria to put a price on demand in a specific location. This depends on the individual network location characteristics. This ensures that our programs operate early in the risk cycle and only in locations where there is a chance of network investment.

A key benefit of OIP is to allow demand side programs to be in market longer and to enable our customers more time to respond to market incentives.

This enables the demand programs to better align with customer investment cycles. This may be when a residential customer decides to buy a new air-conditioner, or when a commercial customer has plans to invest in new plant.