Upfront charges of $2000 to hit NSW, ACT, South Australia and Queensland households
Households in parts of eastern Australia will soon have to pay more than $2000 upfront to connect to the gas network after regulators signed off on rules banning gas companies from spreading connection costs across shrinking customer bases.
From October next year, homes and businesses wishing to connect to main gas distribution networks in NSW, the ACT, South Australia and south-east Queensland will have to pay immediately for the service, which has already been carried out at no upfront cost. People in Victoria currently face a fee of around $2000 to connect to the gas grid.
Natural gas, a fossil fuel that releases climate-warming emissions when burned, remains widely used in residential cooking, heating and hot water systems, but households are increasingly turning to electric alternatives and the rate of new connections to the grid is decreasing each year. Residential gas use is on track to drop 30 percent over the next 10 years, helped by plans from state and federal governments to reduce emissions and limit rising energy bills.
Under the old rules, charges for new gas connections were effectively borne by all homes and businesses on the gas network, as they were added to gas distributors’ capital bases and recouped over time.
But the Australian Energy Market Commission insists a new approach is needed to protect remaining gas users from facing a growing share of the costs as the overall gas customer base continues to shrink. It was stated that this will be especially important for renters and low-income households who are less able to switch from gas appliances to electric appliances.
“The current approach was designed for growing networks, but is no longer fit for purpose in a context where the outlook for gas demand is uncertain and projected to decline,” said commission chair Anna Collyer.
“Our final rule protects existing customers from rising network costs while ensuring that those who benefit from new connections pay for them.”
In Victoria, where the state government has started charging upfront gas connection fees and has banned gas connections in new homes, a standard new connection costs around $2000. Officials estimate the average standard connection fee in NSW could be $2100.
Housing and small business advocacy group Energy Consumers Australia, which proposed the new rule change, said the move would help limit rising bills for existing gas customers and facilitate a “smoother” transition from gas.
Energy Consumers Australia chief executive Brendan French said fully electrified homes and businesses would benefit from lower running costs and healthier environments. But he said those facing the biggest barriers to electrification “will probably be hit the hardest” as the costs of operating and maintaining gas distributors’ networks will be shared by an increasingly smaller pool of customers.
“It is vital to ensure fair outcomes for all consumers in a future declining gas grid,” French said.
“All households and small businesses should pay a fair and affordable price for gas for as long as they use it.”
The Australian Energy Market Commission has reported a recent decline in the number of new gas connections. The number of new connections in NSW fell from 50,000 a year to around 40,000 in 2020. In South Australia, the number has fallen from 23,000 a year to less than 10,000 now.
Residential and commercial gas demand is expected to fall 30 percent in the next decade and 70 percent in 20 years, the commission said.
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Mike Foley is the climate and energy correspondent for The Age and The Sydney Morning Herald.Connect via email.
