If businesses and wealthy households dramatically reduce their use of grid electricity there will be less revenue but also less scope to raise tariffs from the poorer remaining users. That is a deeply inequitable outcome which illustrates how flawed the policy process has been: no cost implications of these decisions has ever been published.
The financially unsustainable combination of grid defection and higher tariffs creates the so-called electricity utility death spiral. Under this scenario, the government and citizens either have to take on the costs or allow the utility to fail.
Since failure would have a disastrous impact on government’s broader ability to borrow, the costs will inevitably be transferred to citizens through higher taxes and public debt levels, or reduced expenditure on public goods and services.
This is where grid connection fees come in. Wealthy households and businesses that choose to generate their own electricity and ‘defect from the grid’ often stay connected so that they can use electricity from the public supply as a backup.
Put simply, they use the grid as insurance but no longer pay their fair share of the infrastructure, maintenance and other costs of maintaining an operational grid. Such costs have traditionally been covered by energy tariffs.