Electricity retail changes and the energy landscape today

Blog Post Sunday 12 July 2020

National Electricity Rules: The Energy Sector Landscape as it is Today

National Electricity Rules: The Energy Sector Landscape as it is Today

The July 2019 changes to energy-pricing laws have been in effect for over a year, so how has the sector been impacted by the changes? Here, we’ll look at the changes to the Retail Laws that took effect and consider how these might have changed consumer sentiment and how consumers shop for energy, in the context of the energy market. We’ll also take a quick look at the major trends and look to the future of the energy sector in Australia.

The Australian energy market: a quick snapshot

Currently, Australians are getting their energy from the following sources:

  • Non-renewables - Coal accounts for around 75% and gas for around 16% of our electricity generation. We draw on coal for around 40%, oil for 34%, and gas for 22% of our total energy consumption.
  • Renewables - Hydro and wind supply around 5% and 2% respectively for our total electricity generation, and combined with solar, these account for 15% of our electricity supply. Clean energy should account for around 35% of total electricity usage within two years.

How the energy market works

Australia’s energy market features at its core the National Electricity Market (NEM), in which the interconnected grid supplies electricity to around nine million customers in Queensland, New South Wales, the ACT, Victoria, and South Australia. WA and the NT are not physically connected to the grid. The market for gas works differently, but the NEM states remain interconnected through a series of pipelines

Wholesale generation is transported via transmission lines from generators to large industrial energy users and to local electricity distributors in each region. In turn, these distributors, who manage the power lines and poles, deliver energy to homes and businesses. Your retailer buys electricity at a wholesale price on the NEM and then sells it on to you.

Customer classifications and charges

Customers are either small or large customers, which is defined according to how much electricity you use. If you’re a small customer (usually residential and SME customers), it’s usually easy to compare electricity deals, as you’ll only have three or four variables to consider, such as peak rate, off-peak rate, daily supply charge, and a metering agreement charge.

Large customers (usually commercial and industrial customers), energy charges are much more complicated, with around a dozen variables encompassing electricity charges, network charges, and market charges.

What were the July 2019 changes to energy-pricing rules?

The July 2019 changes were introduced to provide for clarity in energy pricing for consumers and to introduce a fair benchmark price set by the government. Since there are multiple governing bodies, there were slightly differing changes between Victoria and NSW, SA and South East QLD.

NSW, South-Eastern Queensland, and South Australia

Victoria

  • Victorian Default Offer (VDO) - Victorians on standing offers were rolled over to the VDO, a default electricity offer set by the state’s Essential Services Commission (ESC).
  • Best Offer - The changes also required retailers to display the best offer for a customer based on their historical usage. It must be provided once every 3 months for electricity and once every 4 months for gas. The best offer is published on the front page of the bill.
  • Victoria’s ESC introduced further rules in July 2020 limiting gas and electricity price rises to once a year, limiting conditional discounts, and incorporating obligations to maintain discounts, credits or rebates for the entire contract length.

The default prices would encourage competition among retailers to offer deals below the benchmarked price points. The change would also protect consumers who don’t actively shop around for deals. However, it’s important to note that most market offers would be lower than the DMO or VDO, so these default prices would likely help only those on standing offers and those who don’t shop around for their energy. The VDO and DMO also act a reference point in which consumers can compare offers across retailers.

How the rules have changed how energy is sold and bought

The rules mandate retailers provide more comparison information for consumers, and so they’re likely to encourage greater transparency in how energy is being sold or marketed. For consumers, comparison metrics like best price available and discount offers encourage them to shop around and review their current plans, rather than staying on the same plan. Importantly the changes have allowed consumers to actively compare plans in a meaningful way, moving the industry away from headline discounting and conditional discounts that are sometimes difficult to meet.

So how do the changes help consumers choose the right provider? In Victoria, displaying the best offer available on each bill can help consumers switch to a better offer where available. In the other states, the consistent manner in how prices are promoted will support consumers in better understanding different offers, whether they’re displayed on a website, ad, or elsewhere.

The changing energy landscape

The sector has seen some shifts since the new pricing rules were introduced, though not all trends relate to the 2019 rule changes.

  • Lower bills - By September 2019, the new price rules had already helped NSW households save an average of $130 a year on their bills. In Victoria, some customers saved as much as $310 to $430 a year on their bills.
  • Consumer sentiment - One December 2019 energy consumer survey found household and business confidence and satisfaction to be at their highest levels since June 2016.
  • Long-term trends - Long-term trends like climate change and environmental social governance (ESG) reflect consumer sentiment and will continue shaping the sector. Consumers and key stakeholders might increasingly seek out energy companies with good ESG and sustainability ratings.

Understanding changes to the electricity market

The DMO likely helped a lot of consumers on standing offers save on their electricity bills. Additionally, the rule changes relating to the best price available and discount offers likely added transparency for consumers shopping for energy.