Consumers in the energy market
Consumers in the energy market normally engage with an electricity or gas retailer who in turn arranges for the delivery of electricity or gas and then bills them for the supply.
A customer's electricity bill reflects a number of different costs:
- Wholesale energy costs– electricity generation
- Regulated network costs– transmission and distribution
- Environmental policy costs
- Retail costs - operating costs and margin
Wholesale energy costs – electricity generation
Wholesale energy costs for electricity generation include:
- purchases from the spot market
- financial hedging contracts
- ancillary services
- market fees
- energy losses from transmission and distribution networks.
Retailers purchase wholesale electricity via the spot market and by contracting.
Regulated network costs – transmission and distribution
Regulated network costs from transmission and distribution network include costs associated with building and operating transmission and distribution networks, including a return on capital and metering costs.
These costs are regulated by the Australian Energy Regulator (AER) in the National Electricity Market (NEM), the Economic Regulation Authority (ERA) in Western Australia, and the Utilities Commission in the Northern Territory.
Network tariffs are set annually by the regulator and are passed through to customers by retailers through retail tariffs.
Environmental policy costs
There are a number of environmental policies or programs that directly impact or integrate with the electricity market. These include the Renewable Energy Target (RET) and the various state and territory feed-in tariff and energy efficiency schemes.
Retailers pass through their environmental policy compliance costs to customers.
Retail costs - operating costs and margin
Costs that arise from retailing electricity and marketing to consumers, as well as any return to the owners of the retailer for investing in the business.
Retailers make offers to energy consumers in the retail energy market for the provision of gas or electricity. Broadly, retail offers are classified as being either market offers or standing offers.The difference is the contractual terms and conditions.
Standing offer are basic electricity contracts with terms and conditions that are regulated by law and retailers cannot change them.
In some, but not all, jurisdictions the standing offer price is also regulated by either jurisdictional regulators or governments.
Market offers are electricity contracts determined by retailers in the competitive market. They must contain a regulated set of minimum terms and conditions, such as consumer protection obligations.
There are a wide range of market offer tariff types available, including:
- Flat rate
- Single / inclining block rate
- Off-peak (controlled load) hot water
- Seasonal tariff (SA)
- Time of use
- Pay as you go
- Voluntary retailer solar feed-in tariffs
Offers are differentiated by:
- Discounting – using the standing offer as a benchmark
- Non-monetary incentives
- Tariff structure
- allow customers to obtain their electricity consumption data from their distributor in addition to their retailer, and
- allow parties authorised by customers to also obtain their customers’ electricity consumption data from retailers and distributors, and
- require retailers and distributors to comply with minimum requirements relating to the format, time frames and costs when a customer, or a party authorised by that customer, requests their electricity consumption data.
The AEMC consumer blueprint (October 2013) was based on extensive consumer research and consultation with community and small business groups, financial planners, and energy retailers. Its findings were reinforced by the 2016 competition review which showed that 50% of customers had not switched electricity retailer or plan in the five years previous. This lead to new rules in 2017 which ensure that energy retailers notify electricity and gas customers when benefits in their contract, such as a discount, are about to end or change.