Blog Post Sunday 12 July 2020
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:
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
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.
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.