Empowered consumers and an increasing number of new and “energetic” retail electricity providers are loosening the market hold of incumbents and driving down power prices, the Australian Energy Market Commission has found in its latest annual review of competition the sector.
The trend, highlighted in the AEMC’s 2019 Retail Competition Review, is that the emergence of a new market structure is, finally, chipping away the concentration of power with the so-called Big Three gen-tailers – Origin Energy, AGL Energy and EnergyAustralia.
The report shows that in the 12 months from June 2018 to June 2019, the market share of big three has fallen to 65 per cent, while five new retail brands have entered the market, and five existing brands have expanded into new jurisdictions.
This shift in power to tier 2 retailers the likes of Powershop, GloBird Energy, and Momentum Energy, is reflected in record customer switching rates to a NEM-wide average of 24.4 per cent.
And while customer switching was, last year, criticised for having the unintended consequence of driving up the retail component of power bills, this does not appear to be the case this past 12 months.
The AEMC report shows electricity bills down by between 2-7 per cent ($19 to $131), except for AusNet Service customers, where prices stayed much the same. Business electricity bills fell between 1-8 per cent ($27 to $531), except on Powercor’s network, where they stayed the same.
“Increased competition led to decreases in prices and reductions in market concentration in all markets except Tasmania,” the report says.
“New and emerging retailers are driving lower prices and the market is starting to shift towards simpler and more comparable pricing structures, and greater product innovation.”
AEMC chief John Pierce credits at least some of this change to the Commission’s directive to retailers last year – after new lows on pricing and customer satisfaction – to take immediate action to win back confidence lost through “dodgy discounts” and confusing and inconsistent pricing.
“Now there are signs of change,” Pierce says. “Consumers are using competition and new technology to get simpler and usually cheaper energy plans or more innovative products and services if they want them.
“Customer inertia is finally starting to be breached with one in three customers leaving the big 3 retailers, Origin, AGL and EnergyAustralia, to sign up with energetic smaller players.”
But this gradual shift in market power – and awakening of consumer interest – could soon transform into a major disruption when behind the meter battery technology starts to really make its mark.
According to the report, the uptake of batteries by Australian households and small businesses will deliver the next major shake-up to Australia’s retail market. And at this stage, it is those more “energetic” newcomers that are likely to come out on top.
“The prevalence of behind the meter residential batteries in the retail market is growing with the declining cost of battery technology and the introduction of government subsidy schemes,” the report notes.
“This is likely to disrupt the retail market and provides both an opportunity and a challenge similar to the rise of residential solar PV installations in the early 2000s.
And that’s a good thing, particularly considering the vital role behind the meter resourced like solar and battery storage are expected to play in the high renewables grids of the future.
“This analysis indicates that contestable retail markets are facilitating innovation and are likely to result in (battery storage) offers that meet consumers preferences.
“Of particular note is that the wide variety of retailer sizes, strategies and skills within the NEM is facilitating innovation in the behind the meter battery storage space.
“This is important because it demonstrates that while smaller retailers often find it difficult to compete on a purely cost basis, they are providing a crucial role in product innovation in NEM retail energy markets.”
Of course, the report goes on to note that – given the importance of new and emerging retailers to innovation – the consideration and implementation of regulatory changes will also be vital, to remove barriers and continue to evolve the retail market.
For example, the AEMC notes that interviews with retailers and battery service providers revealed concerns that price regulation – through mechanisms like the federal government’s direct market offer, and the Victorian default offer – was is likely to increase barriers and restrict innovation.
In contrast, it says, there are also regulatory reforms currently being implemented and considered – such as the five-minute settlement rule and wholesale demand response mechanism rule changes – that are are expected to allow the efficient realisation of the value that batteries can provide.