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

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.”