Origin Energy Executive General Manager, Retail Jon Briskin’s speech at Australian Energy.
Week, 8 June, 2022.
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I would like to start today by acknowledging the traditional owners of the lands on which we are meeting today, the Wurundjeri people of the Kulin nation, and recognise their elders past, present and emerging. Origin supports the Uluru Statement from the Heart as part of our commitment to reconciliation and ensuring that Aboriginal and Torres Strait Islander families and communities, the oldest surviving continuous cultures in the world, have a say in the development of policies and actions that directly affect them.
It is particularly timely to be here today to talk about the challenges and the opportunities that are facing our sector on the path of a major energy transition.
I say timely, because the past two weeks in the Retail market have been unprecedented. With the incredible rise in wholesale electricity and gas prices, more than a dozen retailers have stopped selling discounted market offers and are only offering the mandated, regulated default tariffs. Two retailers have failed. Plus you would have read that several retailers have now written to their customers encouraging them to seek alternative providers to avoid near triple digit percentage price rises.
It has reached a point now where wholesale prices are much higher than what has been factored into the regulated price caps for standing offer customers, the DMO and VDO. For many retailers, those regulated tariffs do not provide an adequate enough allowance to recover their costs.
As a provider of an essential service, the challenge Origin and all retailers face in this environment is doing the right thing by customers to help manage the burden of rising energy costs and cost of living more broadly. At the same time, we must make sure our businesses are sustainable and are able to recover the higher costs of doing business.
It is a challenge facing regulators, retailers, and governments.
As the shop front for the industry, and the bodies responsible for managing customer relationships – it is incumbent, especially on large retailers like Origin, to act responsibly, price fairly, and make sure that we protect our most vulnerable customers along the way.
We are starting to communicate our 1 July price changes to customers this week.
After the ACCC found last year that retail prices were at an 8 year low, like all retailers I suspect, we are in a position where we will be increasing our prices, which we know will be unwelcome news for customers.
To help minimise the impact of price changes for our customers who are facing higher costs of living across the board, we are absorbing some higher energy costs to make sure that the vast majority of Origin customers pay no more than the Default Market Offer on 1 July.
Additionally, we are prioritising support for our most vulnerable customers by protecting those in our Power On hardship program from the impacts of these price rises on 1 July.
Supporting customers in need is central to our thinking and our actions. We may not always get it right all the time, but we are genuine in our commitment to support our customers, and I receive many “thank-yous” from customers who feel incredibly supported by Origin as they get back on their feet.
While some will view our position as a large generator and retailer of energy as providing us with the size and scale to be able to do this more easily than smaller retailers, it is worth noting we are facing significant pressures across our generation portfolio through issues with coal supply. Origin is also a net-buyer from the wholesale power market – we only generate enough power for around half our customer load – and so we too, are impacted by the very high prices in the market today. As you would have seen, last week we reduced FY22 guidance for our Energy Markets business.
Over time, if we can bring more supply into the market, prices will ease and as we’ve done in the past, we will look to bring prices down again. And hopefully soon.
But as outlined at this event yesterday by Origin’s CEO Frank Calabria, for this to happen the immediate priority needs to be increasing output from existing coal fired power stations. To do this, we also need to look at addressing some of the coal supply issues affecting the sector, including for example, acting with urgency to prioritise rail deliveries to coal fired power stations needing supply. We are very pleased to see governments already supporting this action to increase rail prioritisation and get more supply to plants. Getting coal plants back in the market will also reduce the draw on gas-fired generation, alleviating some of the supply and price pressures in the gas market.
In the medium term, the extra volume of renewables entering the power system will put downward pressure on wholesale prices. This bodes well for customers, but we recognise this may seem a long way from what customers are experiencing today.
Origin for its part has a clear ambition to lead the transition to net zero through cleaner energy and customer solutions. We have announced we will exit coal fired power generation when Eraring closes in 2025, and we will replace it in our portfolio by rapidly scaling our investment in renewables and storage with firming from our existing fleet of gas peakers and pumped hydro.
As evidence of our commitment, we recently announced our acquisition of the large scale Yarrabee Solar Farm development project in NSW that has the potential for up to 900MW, and we received NSW government approval for a 700MW large scale battery on the site of Eraring Power Station.
And we will continue to lower our retail costs and focus on providing market leading customer service. We have already migrated half of our customers across to Octopus Energy’s market leading operating platform Kraken, with the other half due to be on this platform by the end of the calendar year.
Achievement of this milestone makes us well placed to be able to pass through lower prices in the future.
Finally, one of the most exciting developments that will underpin our ability to bring lower cost, clean energy solutions to our customers is the establishment of our Virtual Power Plant.
We already have over 100,000 devices connected to our virtual power plant, with a capacity of 250MW – equivalent to one unit of a gas fired power plant. Our ambition is to increase this to 2GW over coming years.
Our VPP uses advanced analytics and AI to virtually orchestrate of energy supply and demand across the network – including electric vehicles, home batteries, smart solar, hot water systems, as well as both small and large customer demand management.
It has huge benefits for the network and for customers. By offsetting the need for additional investment in generation and network infrastructure, value and benefits can be more easily shared with customers.
We are already well on the path to delivering the VPP at significant scale, with multiple programs.
This includes Spike – our residential demand management program which continues to go from strength to strength. We have over 71,000 customers on the platform now who have earnt over $3.1 million in reward points for reducing their energy during nominated peak demand events.
Origin customers who have their home battery connected to our VPP, and receive discounts on their energy bill for doing so, engage with our digital platforms 4 times more frequently than an average non-battery customer. While customers in our EV smart charging trial with ARENA are receiving benefits for shifting their charging behaviours in response to different demand signals.
And we continue to trial new solutions including our recent commencement of a trial with Energy Queensland to install pole mounted batteries in selected communities to test how we can share the benefits of batteries with customers.
The success of these future energy solutions will provide customers with access to cleaner, smarter, affordable energy solutions.
These are some of the reasons that, despite the challenges in the market today, we are optimistic about the medium to long term outlook for the market and for customers.
If we want a cautionary tale on how challenging things can get, and how to best support customers through a period of escalating prices, then we need only look to the UK where I have seen the impacts first hand, having recently returned from visiting our strategic partner Octopus Energy.
In the UK, the introduction of price caps on retailers in that market meant that no less than 30 retailers went to the wall when the wholesale price for energy went up last year.
These retailers, who were able to compete on low prices with minimal long term hedges or risk management, were simply not in a position to withstand the increases in the wholesale market. Without the ability to absorb these costs increases or to pass on the higher costs to customers, they had to shut up shop and around 6 million customers were displaced.
In the case of one large retailer, Bulb, they remain under ‘special administration’ until a sale or rescue of its business can be completed, as no other retailer is able to take on their customers today.
There are a few important lessons we can learn here from this UK experience.
Firstly, there is a need to ensure that all new retailers in the market are well capitalised with strong risk management practices, which can be implemented through a tightening of regulations.
Secondly, regulated tariffs need to allow for proper cost recovery but not provide incentives for poor hedging practices. In the UK, they already conduct six-monthly price reviews, and are looking at making this 3 months, to shorten the lag time for retailers to recover higher costs.
Thirdly, Supplier of Last Resort mechanisms, need to allow for incumbent retailers to recover their costs. Governments and regulators in the UK have taken action to share the risk with retailers, recovered through a levy on bills.
And finally, and most importantly, the focus should be on improving customer protections for the most vulnerable customers – we believe this can be achieved through fast-tracking the Australian Energy Regulator’s (AER) vulnerability strategy.
As people feel the impact of cost of living increases across the community, and energy prices go up, the most immediate and pressing priority is that we support customers who need right now it most through these price shocks. And hopefully you will see from what I have spoken though today that Origin is here to do that.
And at the same time, it is integral that we work together as an industry with governments and regulators to help steer a way through while minimising impact to customers. Because in the long term, if we can navigate through these immediate challenges, then the benefits to customers of a cheaper, cleaner and smarter energy future are achievable and within reach.