Power prices are coming down, but competition confuses consumers

As Australian Competition and Consumer Commission chairman Rod Sims prepares to hand down a year-long review into the national electricity market, against a backdrop of the Australian Energy Market Commission (AEMC) reporting low levels of consumer trust in energy companies, there is a growing chorus suggesting major intervention in the energy market is required.

Frank Calabria, CEO


While we would not argue there are clear challenges for the sector, our energy market has served us pretty well up to this point. We must be mindful not to throw the baby out with the bathwater.

The National Energy Market – just like energy markets around the world – is undergoing its biggest transition in more than 150 years driven by new technology and the shift to a much cleaner energy supply, which has created reliability and affordability challenges. A transition of this magnitude was never going to occur without impacts.

2017 was undeniably a tough year, with rising energy prices putting many households and businesses under pressure. But the good news is that 2018 is already painting a brighter picture.

The forward curve for wholesale electricity prices has come down significantly, and this is now starting to flow through to customers. All three major energy companies – Origin, AGL and EnergyAustralia – have now announced their July 1 pricing, with rates flat or falling after double-digit increases last year.

This is not a blip. We believe it is a turning point with further downwards pressure on wholesale prices as significantly more wind and solar is built and renewables expected to reach 11,000 megawatts of capacity 2020. Agreement on the National Energy Guarantee will provide the policy certainty we need for ongoing investment to keep a further lid on prices.

Benefits of competition

This is a good start, but there are other signs things are improving, with the AEMC acknowledging in its review that customers are starting to see the benefits of competition if they actively participate in the market.

Although full energy price deregulation is still relatively new in NSW and south-east Queensland, the awareness and uptake of discounts continues to grow. This year, hundreds of thousands of Australians have saved on their energy bills by asking their retailer for a better deal, and testing this against other offers in the market.

We are also starting to see more product innovation, as retailers come up with new ways to appeal to customers. This includes fixed price offerings, loyalty schemes and energy products bundled with other services such as the NBN, Amazon and Google.

Then we have market churn – the rate at which customers switch between energy retailers in the hunt for a better deal – which by March this year was 22.5 per cent.

At Origin, we’re acutely aware of churn because in the first half of this financial year, 46,000 customers decided to leave us. We take great pride in Australians choosing to buy their energy from Origin, so it’s fair to say this loss hurt. We’ve since won back 31,000 customers with our new discounts and low rates for concession holders. Of course, this has come at an extra cost to our business, but we are clear we must rise to meet the competition.

Rising market churn and customers switching between retailers is a clear sign of competition. But as the AEMC also noted, the wide range of offers and different discounts now in the market has added to confusion, with a general view that pricing is complex and lacks transparency. This in turn has contributed to falling levels of satisfaction and a fundamental lack of trust in energy companies.

We see no competitive or commercial benefit in having confused or disengaged customers, and will continue to work hard to win back their trust with energy that’s easy to understand – so more Australians feel comfortable in engaging in the market.

This was an opinion piece published in The Australian Financial Review on 25 June 2018.

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