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Energy retailer greed backfires, as consumers switch to solar, batteries

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Confusion is profit. As we wrote here almost a year go, it is one of the unwritten laws of Australia’s retail electricity businesses.

And now it has come home to roost – the confusion, lack of clarity, and soaring prices means that Australian consumer are even less satisfied with energy retailers even less than they do banks and insurers, and have decided to take matters into their own hands, a consumer led revolt to solar and storage.

Let’s remember what we wrote a year ago, even before the extraordinary rises inflicted on consumers as the big “get-tailers” flexed their muscles and pushed up wholesale electricity prices.

“Overwhelm the consumer with a bewildering set of options for their billing arrangements; some will find their way through to a good deal, but most will give up – delivering bumper profit margins from consumers possibly paying 50 per cent more than they should be for the service.”

The result, as Giles Parkinson so aptly put it, is “a merry-go round of money that the consumer is never invited to ride.” And not even the introduction of more market competition, or a serious “eyeballing” from the PM, or efforts to promote and simplify the process of retailer “switching”, have managed to effect much change.

But the latest Retail Competition Review, delivered on Friday by the Australian Energy Market Commission, suggests the carnival could be coming to an end for the retail electricity sector.

The review is carried out annually by the AEMC to assess whether the energy market is operating effectively – and with a particular eye to whether competition is creating beneficial outcomes for consumers.

Spoiler alert: it is not. Certainly not according to consumers, anyway.

“Complex pricing plans, conditional offers, discounts from bases that vary by retailer, and an increasing trend towards discretionary win-back marketing have created consumer confusion and dissatisfaction,” says AEMC chairman John Pierce.

“Retailer inertia and a lack of transparency have emerged as significant barriers preventing consumers gaining the maximum benefits possible in terms of prices and services.”

The result of that is plain to see. Households are pushing increasing amounts of their load to their own solar PV, and looking to store excess output in batteries. Small and big business customers are starting to do the same thing, and retailers are under a major threat. 

Surveys conducted for the 2018 review have revealed a decrease in overall satisfaction with electricity providers, to the lowest point observed since the review’s inception in 2014.

Over the past year, the report shows, consumer trust in the sector fell from 50 per cent in 2017 to 39 per cent in 2018.

Confidence that the market was working in the long-term interest of consumers fell by 10 per cent to 25 per cent; while confidence in there being information available to make good decisions fell by 7 per cent to 50 per cent.

Satisfaction with the level of competition fell by 6 per cent to 43 per cent, while satisfaction in value for money fell by 4 per cent to 44 per cent.

That last statistic is actually surprisingly upbeat, considering what consumers have been through on the price front.

According to the AEMC report, annual electricity bills for the representative residential consumer increased across regions by $110 to $316 (9% to 22%), except in south-east Queensland, where bills decreased by $70 (5%).

Among businesses, 36 per cent reported having experienced bill shock over the last few years – in 2017, that meant a bill averaging $320 higher than normal; in 2018, an average of $491 higher.

The AEMC report notes that in 2017, the major factor driving retail electricity price rises was a substantial increase in wholesale power costs, in turn driven by the closure of major coal plants, including Hazelwood in Victoria.

It noted that while energy retailers cannot directly control wholesale or regulated network costs, they can participate in network pricing regulatory processes, and they do control their own retail pricing and marketing strategies.

None of this is really news, of course.

Everyone from Malcolm Turnbull to the ACCC now seems to be awake to the fact that Australian households and businesses have been on electricity plans that were costing them hundreds of dollars – and potentially thousands – a year more than they needed to pay, due to a combination of customer confusion and inertia.

But what is new is that technology has come into play: Rooftop solar, super-smart inverters, the internet of things, battery storage.

And for consumers, increasingly these increasingly affordable technologies offer not just a pathway to cheaper, cleaner energy, but an opportunity to “stick it” to the retailer on the way past.

The AEMC finds consumers in 2018 are even more motivated to change the way they use and access energy, to take control of their bills. “And they have the tools to do it.”

The report found between 41 per cent and 62 per cent of consumers across the NEM either had already installed, or were considering investment in solar panels.

“The number of households with solar energy has risen again during the year under review, and more energy consumers are considering investments in batteries and other options to be more energy efficient in line with their family needs,” the report says.

2017 saw 154,877 residential solar installations, an increase of 25 per cent from 2016, the report confirms, with 1.8 million Australian households now featuring solar panels.

And unlike with their retail experience, consumers who have installed solar are reporting high levels of satisfaction.

The report notes that between 2014 and 2016, 85 per cent of consumers were satisfied with the installation process, and in 2016, 80 per cent thought their system offered good value for money.

Battery storage uptake, meanwhile, increased from a low base by around 275 per cent in 2017. And this year, between 24-46 per cent of customers across the national electricity market said they were considering installing batteries.

“In the 12 months since our last report we have seen retail electricity prices rise following the closure of Northern and Hazelwood generators and higher gas commodity costs,” said AEMC chairman John Pierce in comments on Friday.

“While prices are now flatter or falling we are disappointed to see retailers are still not doing enough to help their customers.

“Reforms are on foot to enable and support innovation in both technology and pricing. There is nothing preventing retailers from being more innovative and cost competitive, but they have been slow to act with only marginal price and tariff changes happening. ”

And while the increasing number of cobsumers opting for “do-it-yourself” rooftop solar was a good news story for some, it is not fixing the problem, at its core.

At the same time, Pierce added, “it risks increasing costs for those who are unable to make those changes and have to stay on the traditional energy supply model.”

  

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  • Chris Drongers

    The likely outcome is greater concentration of retailer power, even more so if the winning retailers own generation as well.
    The current confusion of pricing options means the larger retailers with their psychologists, game theory mathematicians, data sets, but crucially their bigger cash reserves, can play the confusion game along with everyone else but underbid to stay in the game if (heaven forbid) revenue margins ever dropped.
    The tendency to monopoly is something inherent in capitalism and discussion of this is avoided by regulators and governments, along with what happens when an exponentially growing economy meets a finite resource world.

    • Chris Drongers

      Major, extremely fast disruption through new technology is the only thing that might change the electricity pricing outcome. If PV and batteries with power traded peer-to-peer becomes the automatic go to quicker than large retailers can rejig their legacy pricing systems the consumers might get the cheapest power.
      A slower change to new systems, even those involving blockchain peer-to-peer, will let existing cash rich retailers dominate the outcome.

  • Tom

    Highest dissatisfaction with govt. owned distribution.

  • BeePee2U

    I see that WA, which takes up 30% of the land mass and 10% of the population, is not mentioned or recorded. It also has the 3rd largest uptake of residential solar installations (mentioned in another review). Therefore, this report has to be termed as biased, as it is not representative of the whole country.

    • Steven Gannon

      The WA State government promised to set a target for renewables during the last election campaign but have done nothing yet.

  • Leigh Jones

    Solar+Battery=utilities are screwed.
    As soon as battery prices drop the floodgates will open and people will tell the utilities where to go. Those not on battery will suffer ever increasing prices as the utilities try to maintain profits… watch it happen.

    • Mike Shackleton

      I disagree. Very few people have the roofspace to have enough panels to go completely off-grid, so there will always be a need for utilities. Heavy users will still need to have a grid to get the electricity from the solar and wind farms that they are getting their power from on a PPA. The utilities that survive will be the ones that treat their customers best as both a generator AND consumer. I think AGL is onto something with their shared solar farm proposal. Paying for units of electricity may become a thing of the past, we may end up on fixed price plans that underwrite the finance of new renewables and storage facilities.

      • mick

        doesnt have to be roof space knock up a frame in the backyard,paddock

        • solarguy

          If you at least have that option great. Some don’t and if I were them I’d move.

      • Joe

        I think you may be right about there not being a mass defection of households from the Grid. Not every home has the roofspace to pile on the panels or a roof not impacted by shading issues that enables them going completely off Grid. Excess solar can be exported to the grid as long as you are connected. The batteries are coming which will help many households take some control of their energy bills but I still see many staying grid connected with with their solar panels and batteries.

      • PLDD

        I agree Mike. Add to that the average consumer is not using electricity efficiently.

        Lots of TV’s, computers, devices on stand-by, large fridges, larger older fridges for the beer, etc etc.

        I am energy conscious and try not to waste it but I like to live comfortably. So my summer consumption is 15KWh and my winter shoots up to 30KWh a day (heat pump heating). Before I installed solar my bills/consumption was far lower than similarity sized houses with 2 residents, and a lot cheaper than family homes.

        My roof has 8.4KW of panels and it would be tricky to fit more on. In the summer I can get 50KWh out of the system, but in the winter some days drop to 5KWh and I average closer to 15KWh – I have shading in the east and west and flat panels for aesthetic reasons.

        If I had a average size battery (12KWh) it would be OK for some days but there are a few periods of low generation which would see the battery depleted for four of five days. So I need to stay connected…..as probably 90% of users will.

        Going off grid works for a few very low electricity users, or those with big properties who can install lots of panels. For those families densely packed into houses in the burbs it’s trickier.

        • Phil NSW

          I also support this position. As much as I would love to tell the energy companies where to go I would have problems.
          In summer my 5.6kW system produces an excess of ~20kWh per day. I can only charge a battery so many times and after that the excess would be wasted if I couldn’t sell it on the grid.
          Over the first 2 weeks of June I am 35.6kWh in deficit. Given the losses on the charge/discharge cycles of the battery I would need to import some power or have self imposed blackouts.

          • Hettie

            So much depends on geography.
            Here in the NSW Northern Tablelands, my 5.3 kW system has averaged 22.9kWh over the last 5 days. Rather less last week, with heavy overcast. Sadly, very little rain. But the lowest ever was 8.7, and in fact I think only 2 or 3 days ever in single figures, all in the last 4 weeks.
            ATM, a battery is out of the question, but a 4.5kWh one is attractive, when prices come down,
            Even if fit stays at 12.8c.
            Powershop hadn’t decided what they were going to do when I asked a week ago.

      • Hettie

        Mike, look at it another way.
        A 5.3 kW system, financed at 8%, purchased last year, is saving me MORE than the repayments. And I am on very good rates from Powershop. Yes, the FiT is relatively high, 12.8 c including GST, and cost is low, 26.21c, all day.
        Zero payments TO Powershop, $450 FROM Powershop.
        Finance repayments $80.70 per fortnight.
        For someone with higher usage, and/or a higher charge, the saving would be greater.
        Effectively, the asset is costing nothing, and in four years will be saving substantial $$.
        No battery. The grid is my battery.
        Grid connection is essential to receive FiTs. It costs me $511 per year. A Powerwall installed costs more than $10,000. That would take 22 years to pay off on connection savings, and would still not guarantee supply for extended periods of dark weather.
        Panels gave 25 kWh yesterday, 27+ the day before, and the shortest day is in 5 days.
        A 4 or 5 kWh battery might be worthwhile in the future, but not yet. The sums just don’t work. Grid connection stays.

  • RobertO

    Hi All, About this time last year I wrote to my bosses about electrical pricing and I even made a prediction to so that the price of electricity would be $20 Mwhr (That is going to be the whole sale price in 4 to 5 years time) and that my bosses should expect a 10% rise years on year. Given that transmission are relatively fixed in price there is only one place where prices will rise that much (Retailers are making a killing on energy sales or short falls required in LGC’s ERM is one company and there will be others). Even when transmission gets written down retailers will only partly lower prices (we have no hope of getting the full amount of the write downs). The write down in NSW will occur in 2022 otherwise the NSW Gov will need to compensate the owners of Transmission. Any new interconnects need to be seperated from this write downs.

  • Phil NSW

    I agree the retailers have behaved badly. Sophie, I think there is an aspect of this topic you brief did not touch on.
    I think they have actually leveraged our current federal LNP government to ensure business as usual. Both in the rules by which the electricity retail sector is governed and the blocking of the advance of the RE industry.
    Surprisingly, on the later topic I believe there is evidence they are actually kicking an own goal. You and Giles touched on that topic with:
    https://reneweconomy.com.au/solar-2-0-pv-and-storage-deals-show-signs-of-rapid-energy-transition-27507/