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ELECTRICITY prices would rise 700 per cent from one day to the next, with households only warned on TV weather reports the evening before.

And power companies would be able to remotely switch off airconditioners during hot weather in areas of where the grid typically strains, such as the fringes of major cities.

These radical proposals — which aim to lower bills in the long run — have emerged in response to a reform paper published today by the influential Grattan Institute. The paper not only argues electricity prices are too high but that they are unfair, because some people pay more than they should.

The paper says that instead of charging households for total energy used, they should pay based on the “maximum load they put on the network”.

Had such a system been in place over the past five years, $7.8 billion of network investment made to meet “peak demand” could have been avoided. Power companies were allowed to recoup that investment via price rises.

One of the paper authors, Grattan energy program director Tony Wood, told News Corp “peak demand” could also be curbed by adopting a pricing structure used in France since 1995.

Under that system, at 5.30pm each evening the country’s main electricity provider and the network operator announce whether the following day will be “red”, “white” or “blue”.

Three hundred days a year are blue and prices are low. Forty-three days are white and costs double. On the remaining 22 red days, prices skyrocket to nine times the price on blue days.

Mr Wood said he favoured price increases of four to eight times (300 per cent to 700 per cent) made public via TV evening news weather reports.

“I think that would be quite powerful,” said Mr Wood, a former executive of Origin Energy and adviser on the Garnaut climate change review.

In France, on red days consumption drops by 45 per cent compared to blue days. Overall bills have fallen 10 per cent, according to the European Commission.

This tricolour tariff idea is not mentioned in the Grattan paper.

Nor is letting power distributors flick the switch on household air conditioners for a brief period when the grid is at maximum capacity. This can be done by sending an FM signal to a “peak breaker’’ attached to the aircon. The signal switches off the condenser for no more than five minutes but leaves the fan on. By the time the room temperature begins to rise, the condenser is back on.

“You wouldn’t even notice the difference,” Mr Wood said. The idea has been trialled in locations including Glenelg, South Australia. In the trial, peak demand was slashed by up to 37 per cent.

The Grattan paper says new aircons added up to $1550 to the cost of an electricity network to provide the additional load. But the aircon’s owner only paid $53 a year towards that.

Mr Wood said: “If people want to have air-conditioning that’s fine, they should just pay for the load they put on.” Or be willing to cede control of their unit to the power company.

New tariff structures weren’t needed everywhere, Mr Wood said, just places such as urban fringes, areas where industrial warehouses had been converted into housing, and inner-city suburbs where big apartment complexes had been added.

The Grattan Institute was set up in 2008 using funding mainly from the Federal Government, Victorian Government and BHP.

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