Do energy consumers benefit from competition? It’s hard to see

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Data is emerging as a key issue in the electricity industry. So much data about network operations is kept secret, but if it was released it could help stop gold-plating. And it may even help consumers getter better deals from energy retailers.

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Is competition good for retail electricity bills? Are the tens of thousands of households who change retail energy service provider each year actually getting a better deal? In the energy industry, it seems that loyalty doesn’t count for much, because nearly one-quarter of customers move each year. But many of them could be wasting their time.

The energy consulting group Exigency has crunched some numbers gathered by the charity group St Vincent de Paul Society, and it concludes that, on average, people don’t get a better deal when they move. Indeed, in New South Wales, as the first graph below reveals, they are probably worse off.

Some explanation is needed. The “off patch” component added to the top of the NSW graph shows the average price paid by customers who have moved energy service providers. It is a slight premium to those that have stayed. (Take note of the high network component).

In Victoria, as the second graph shows, those that do move are better off, on average, even if the margin of difference is not huge. What is interesting about the Victorian graph is the fact that the network component of the electricity bill has not moved much (perhaps that is a benefit of the privatised transmission groups), but the energy component of the bill (the cost of generation and retail margins) has jumped sharply.

That appears to be counter-intuitive to the sharp fall in wholesale prices experienced in the NEM, a subject of considerable complaint of the major generators, if not of the retailers. Although, once again, under the “gentailer” model, some play on both sides of the street. And Bruce Macfarlane of Exigency says because the energy component of a customer’s bill in Victoria is much higher than in NSW, that gives the retailers head room to have some competition.

The biggest problem identified by Macfarlane however, is the fact that this data is not made available by Australian regulators. He had to rely on a charity to gather the information. Yet such data, which he says offers valuable insights into the level and impact of competition, is routinely provided by authorities in the UK such as Ofgem. “When will our national and state regulators start to publish this data so competition across states and policies can be benchmarked?” he asks.

The lack of access to data is emerging as a big issue in the energy industry, which benefits not just from the incumbency of depreciated assets, but also because most outside observers, analysts and potential competitors can’t see what’s actually going on in the network.

This was the subject of a huge corporate battle begun in the US just two years ago when a group of 45 US companies – including Google, GE, Intel, Whirlpool and AT&T – petition the Obama administration to force the energy industry to disclose date about the how and when consumers use energy.

These companies – specialists in information technology, smart meters and appliances – wanted access because they hoped to exploit an area that the energy industry had so far ignored, going behind the meter or inside the premises of the customer. But they needed data to hit the market.

In Australia, the “outsiders” are still frustrated by their lack of access to data. The solar industry for instance, is pushing for the release of half-hourly demand data, by connection point, and across the NEM, to be made publicly available. The Australian Photovoltaic Association says this will show exactly where extra network investment is required (or not as the case may be), and assist in planning, and benefitting from, distributed generation such as rooftop solar, and energy efficiency and demand management initiatives. The APVA says it would also help research into developing strategies for the fully interactive networks that will inevitably be the feature of modern smart grids.

It says the data would be especially important for the solar industry because it could help analyse the network value of installations at various points on the grid, and give it potentially the ammunition to counter the arguments of electricity regulators and State Governments who claim they cannot support payments higher than the energy value for PV exported to the grid, and want to treat rooftop panels as though they were centralised coal-fired generators.

This theme is taken up Exigency, which says in a submission to the Senate Inquiry into electricity prices that some of the gold-plating of networks could be avoided with better data.

“There is an inadvertent regulatory incentive toward “gold-plating” of networks,” Exigency writes. “Real-time publication of zone and distribution substation transformer loadings through network metering would assist regulatory oversight and at least indicate whether there is “too much network” as opposed to too high unit costs. “

It says large customers have access to unbundled prices and have an understanding of the components of their bill. However, small business and residential customers receive bundled bills which mask the impact of changes in the various components.

“The National Electricity Market suffers from information that is too closely held and a regulatory preoccupation with serving the needs of incumbent players in preference to new entrants and most importantly, the needs of consumers,” it writes. “There seems to be some reluctance amongst regulators to publish such insightful analysis, or indeed the source data, such that it is left to a charity to facilitate this important public service.

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3 Comments
  1. Warwick 7 years ago

    I don’t think the question has really been answered as to whether or not competition benefits consumers in this piece. This article really just tells me that switching is not worth the effort. If you don’t like competitive markets just get the government owned network businesses to run everything as your alternative solution.

  2. steve the sparky 7 years ago

    We won’t see true competition to this dodgy business model until a clear leader in distributed storage technology takes a similar cost curve like that solar pv has taken.

    Of course, we all know the other factor is rising bills in this equation… the gap is closing… …Myself and lots and lots of others are hanging out to take to remove or LNSP service fuses forever………..

  3. chet 7 years ago

    You’ve completely ignored that the contract consumers are accepting is made in a competitive context – ie their offer would be far worse if the retailer was a monopolist.

    You have also ignored the fact that there are a huge variety of potential contracts, and some consumers choose a higher priced plan to pay for green energy (something I thought you’d be in favour of). A simple average like you’ve used here is meaningless, as you’re adding up apples and oranges.

    At best you’ve shown that some consumers may not always make perfectly rational decisions. I think that’s been discovered before.

    Its easy to snipe from the sidelines, I’d have more time for the article if you actually put forward an alternative suggestion.

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