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Telco, online energy retailer merge to take on coal-laden utilities

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Junior telecommunications company amaysim has agreed to pay $120 million for online energy retailer Click Energy in a move designed to challenge the dominance of the big utilities in both the telco space and the energy sector.

The potential merger of telecommunications and energy offerings has long been mooted. But, despite Telstra snapping up PowerShop’s Ben Burge last year to head the newly created Telstra Energy and promising its own line of solar and storage, little has happened to date, although combined offerings have become common in the US and Europe.

“I think it will be standard here in the next few years time,” says Dominic Drenen, who will continue his role as CEO of Click Energy. “We think we can put together a bundled product that is quite compelling. For consumers, they will be dealing with one platform, so it’s just one less hassle.”

amaysim merge

The two companies think there are significant opportunities for an “asset-light” retailer that is not burdened by legacy assets such as ageing coal-fired power stations.

“Retailing industry players are burdened with complex legacy systems and pricing structures, with most major providers also owning ageing coal-fired generating assets,” amaysim CEO Julian Ogrin said in a presentation. “Customers face large confusing bills, bill shock, no real online engagement or DIY experience and poor customer service is common.”

Ogrin sees a “once-in-a-generation” opportunity in the forced migration of around 8 million Australian homes changing their broadband service by 2020. He says the telco and energy sectors are typically “inert”, so the opportunity to increase market share in the forced migration of NBN is a unique opportunity.

It expects to have its first combined offers available in 2018, and sees major savings in “back-end” IT platforms and other synergies of around $5 million a year.

The $120 million payment, $80 million in cash and $40 million worth of shares, for Click Energy represents a huge windfall for the private equity investors who bought the company for just $11 million four years ago – California’s Angeleno Group, Zurich-based Robeco Sam, and Australia’s Cleantech Ventures and ES Link.

It also reflects a hefty $800 for each of Click Energy’s 135,000 household customers. amaysim has more than one million customers, from around 650,000 households, although the revenues of the two companies are about equal, reflecting the higher cost of energy services over mobile phones.

amaysimThe combined company is estimated to generated revenues of around $500 million, and earnings before interest, tax and depreciation of around $54 million. But this does not include around $5 million of annual synergies from the IT platforms and other merger benefits.

It is targeting around 300,000 households with multiple products – NBN, mobile and energy – within three years, delivering a potential ARPU (average revenue per households) of $200 a month.

amaysim bills itself as a significant disruptor to the telco industry. It launched in 2010, and is now the fourth biggest mobile plan provider in the country, with products including its “bring your own” mobile phone plan.

It says its vision is to become the “remote control for the smart home.”

“The retail energy sector is ripe for disruption,” Ogrin says. “Customers want greater transparency and value for money …. and we will offer no lock-in contracts and no long wait times.”

“Energy will be incorporated into amaysim’s plug-and-play platform that allows customers to buy and manage their mobile, broadband and energy plans with the touch of a button”

The emergence of such business models is one of a number to challenge the incumbent utilities, particularly the generators and retailers who have depended on a traditional dominance of the sector, but may now find themselves too inflexible to move with the times, and keep up with new technologies, including online platforms, rooftop solar and battery storage.

The telco sector has been keeping a watch on the energy sector for the last few years, highlighted by Google’s multi-billion dollar smart control business, Nest Labs, and its purchase of a wholesale power licence; and locally by Telstra’s push into the energy business.

David Crane, the former head of US utility NRG, warned a few years ago that the battleground for customers in electricity will be inside the house.

“When we think of who our competitors or partners will be, it will be the Googles, Comcasts, AT&Ts who are already inside the meter,” Crane said. “We aren’t worried about the utilities, because they have no clue how to get beyond the meter, to be inside the house.”

PwC head of utilities, Mark Coughlin, has also pointed out that telcos are often better at customer services than energy utilities, who are about to face their “Kodak” moment.

“This traditional utility model where the company controls the ‘electrons’ and the consumer has little choice is on its last legs – this model is struggling to meet customer needs,” Coughlin says.

  

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  • MrMauricio

    bring it on!!!!

  • Giles, Vocus already offer bundled electricity and telco functions. Started a few year back in the dodo brand…

  • humanitarian solar

    I think the smart device space needs to be watched carefully. There’s a big different between combining mobile, NBN and energy into one bundled platform and one bundled contract and a company such as this wanting to compete with “gentailers” directly, by designing software to remote control hardware like inverters and our energy storage. I think opening that door is a dangerous door, potentially leading to intrusive and exploitative territory. The reality is “smart networks” need their own storage and can buy storage hundreds of times cheaper than we can buy battery storage. We don’t need to give up control of the appliances in our houses in order to create the people power to challenge traditional gentailers. Traditional gentailers are already facing load defection and grid defection with potentially shrinking market share and shrinking physical grids, engaging reverse gear beginning with the last frontiers the cables were rolled out. Human freedom over our own water, food and energy is precious and we should not give it up for superficial vague promises or illusory benefits.

    • Coley

      A link that illustrates the concerns we need to have Vis a Vis this brave new world-;)
      http://www.mirror.co.uk/news/weird-news/man-leaves-abusive-review-garage-10190377

      • MaxG

        This incident confirms what I have been saying all along; retain control of all your systems; do not use a cloud, unless you can retain full control over your systems… but then, people are constantly pissing away their freedom, giving up their privacy, etc.

    • Ian

      Your point is fully taken, but for the grid to survive a future where households can easily go off grid, what then? Only subsidised pensioners and multinationals will be able to afford the death spiral of the grid unless the smart interactions happen. If few use the grid because it’s too expensive then this resource will just wither away like public transport.

      People living in cities do not collect their own water, do not grow food and certainly most would not be able to harvest energy from the sun, are city dwellers short of freedom? Are the rural dwellers in Papua New Guinea more free because they do all these things but rely on traditions, clan networks etc to survive? We live in Pax Australiana, and have an illusion of freedom. Think of that the next time you do an alcohol breath test on the road!

      • humanitarian solar

        I’m not saying we should depreciate the grid as a resource in terms of its capacity for interconnectivity. Why is it more complex than me mostly getting power from my battery, then sometimes from network storage and meters logging how much?

  • humanitarian solar

    Humanity has worked for centuries to develop basic human rights and freedoms. The “smart gridders” would give this freedom away in the blink of an eye, for their superficial short term goals to stick it up traditional gentailers. All throughout humanity’s history there are examples of replacing one form of tyranny with another. The “smart gridders” should be careful in their wish for grids to become “smart”. Human liberty and freedom is “smart” not handing away responsibility for managing our own energy. It’s already at the point we can’t easily opt out of all the bloatware occupying our mobile phone CPU speed and device memory, we don’t need that extending further into the realm of the CPU and storage of our renewable energy systems.

  • Ian

    Interesting story about a telco buying an energy retailer for far more money than the previous investors paid for it. Why would they spend $800 per customer for click’s customer base, when they have 650 000 of their own households?

    You’d want to know more about their view of this synergistic mobile, broadband, energy packaging.

    Some are paranoid about this company’s intentions and some are jubilant.

    The grid is changing from centralised dominant to a distributed dominant generation, storage and load management. It is evolving from utility plus customer to an energy marketplace. And, we need a framework for this. How do households and businesses engage in trading all the grid functions that are now technically available to them. One size no longer fits all.

    Why should utilities benefit from $14000/KWH bidding periods and not households, both feed electricity into the grid?
    Why should city electricity customers with solar and storage subsidise end of grid customers who would be better served by local mini grids instead of long and tenuous transmission lines?
    Why should a house with storage and a high tolerance for grid instability cross subsidise those fussy customers who want a smooth AC voltage with never off reliability?
    Why should frugal households need to pay for the network up grades for those with high energy needs from air conditioners etc?

    The next set of questions are regarding the incompetence of the existing grid to closely match wide swings in demand both daily and seasonally in a cost-effective way, and, why there is such a discrepancy between the cost to generate electricity behind the meter, the wholesale price of electricity vs the retail prices ?

    It’s not surprising that companies that have had some success in a similar field (Telcos) should think they could develop their business in a similar field ( energy ), there will be lots of others too. We have seen Reposit’s offering, Enphase and SMA have smart power management systems. There’s probably a lot more trying to answer these energy trading/marketplace needs.

    It’s going to be interesting to watch how this all develops. With the deployment of battery storage and EV, a lot of this to-ing and fro-ing may become entirely irrelevant as EV, the ultimate energy transmission device, is used to fetch electricity from an outlet, like a supermarket, and used to supplement and compliment the home solar-with-storage, completely ignoring home delivery of electricity. With the brute force of 60 to 90 KWH of EV battery storage many people will finally have the ability to tell all these energy pariahs to get stuffed.

    • Ron Horgan

      Nice idea, your EV as shopping trolly bringing home the groceries and power.

    • humanitarian solar

      Your becoming an ideologue. So set on a new venture to engage in markets and give consumers a new income stream, you are unwittingly going down a path to give others centralised control of your homes devices. See Coley’s comment.

      • Ian

        Your’s and Coley’s point taken. Nice illustration about the garage door. Demand management need not be by internet or third party remote control. it could be agreeing to disconnect from the grid at high risk times. This was done in the past with tariff 31 or 33. You can manage your own electrical loads in a semi off grid connection. Companies like SMA and Enphase do just that . Hardware and software allow you to orchestrate your appliances anyway you choose so that you can maximise your solar and battery resources.

        They also offer weather information, and could offer pricing information around which you could prepare your batteries for a prolonged weather event ie keep them charged or possibly make use of a high FIT time. The same sort of information could allow a person to curtail grid use when that person is on a ‘smart’ tariff which perhaps continually changes depending on the current wholesale price of electricity.

        Just like large companies may get paid for not using electricity at critical times, so too could households especially those with battery storage. There does not need to be any direct outside control of your appliances and devices, you just agree to have power supply outages. You can afford to do that if you have large enough batteries. Tariff 31 was an agreement for power supply for at least 18hrs in the day, that means for 6hrs there could be no supply, your batteries could take care of that small inconvenience. With the power of computers, the offer to supply or curtail supply could be more dynamic than that. The power company could send you an offer to participate in a curtailment event for a stipend and you could choose to accept or ignore their request, most would not be bothered about that but could still participate in some sort of automated fashion. Why not. It’s not relinquishing control of your power connection or load choices it’s finding ways to get electricity economically, by leveraging your solar and battery assets. If we are to play that sort of marketplace game , then sure, lots of safeguards need to be put in place to prevent a third party from abusing your trust.Afterall we do that with our Supers. We have virtually no control of our pension funds, a lot more serious problem then having your toaster turned on or off. Here’s another little dig. NSW labor have put in motion the sale of the land titles office. Where are you going to put your fridge and electric barbie when these people take control of your ownership rights?

        • humanitarian solar

          For money to be spent on the software or hardware to carry out the activities of a smart grid, there has to be a benefit to managing a grid. I can’t see a purpose. There isn’t a need for future demand management, as more renewable energy and storage is added to the grid. The remaining slow responding fossil fuel generators can maintain a constant speed while faster responding renewable generators like pumped hydro or batteries take care of the rapid changes in the load or peak periods of demand. What will be the need for demand management?