A quick look at retail discounts – win some and lose some

Once a month we like to look at retail discounts. We take the online offer from AGL for a set of selected retail addresses in Sydney, Melbourne and Victoria. We assume 8MWh of consumption for the households, a standard pricing plan (not time of use) and back out our calculation of the network costs.

Network tariffs in Sydney changed on July 1 but on our estimates only by about 3%. Calculating the network tariffs requires working through some “mumbo jumbo” in Brisbane where Energex show the numbers before GST and make you work hard to find the metering costs. As such the numbers need to be treated with caution.

In any event, churn in Queensland is relatively low and the market is not fully deregulated. Of course, network costs are not the only costs faced by retailers. We make no allowance for any changes in the cost of buying electricity and RECs or the retailer’s own costs including the customer care system and bad debts.

The costs of buying electricity and RECs have increased so this is putting some additional pressure on RETAIL margins not captured in these graphs.

However, from AGL’s case the reduction  in retail margins is more than offset by an increase in wholesale (generation margins) and by book profits on their rapidly diminishing but still significant REC  back book.

On the numbers we look at there is still more gross profit in Victoria but the gap to NSW is diminishing and “only” $16/MWh. NSW is now fully deregulated and should be the market to watch  over the next 12 months.

It’s really the smaller retailers that will notice the pressure more,  particularly those without access to dual fuel.

The Figure below, taken directly from the AEMO site, shows that all the churn that matters is in NSW and VIC and shows a modest increase in Victoria in recent months.

David Leitch is principal of ITK. He was  formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.