Retail energy competition review 2019 final report

By AEMC Chairman John Pierce

Good news is starting to emerge for household electricity consumers. 

This year’s Australian Energy Market Commission annual report on retail energy competition shows bill reductions in most jurisdictions across the national electricity market.

The big three energy retailers are losing market share. A year ago we reported a significant decline in consumer confidence in energy retailers. I asked retailers to address consumer concerns and take immediate action to win back the confidence they had lost through dodgy discounts, confusing and inconsistent pricing.

This year’s report shows signs of change. Consumers are using competition and new technology to get simpler and usually cheaper energy plans or more innovative products and services if they want them.

The wall of customer inertia is finally starting to be breached with one in three customers leaving the big 3 retailers, Origin, AGL and EnergyAustralia, to sign up with energetic smaller players. For the first time, the big three were toppled from having the dominant market share in South Australia and south-east Queensland.

Consumers are forging ahead – taking all the emerging opportunities that are available and  leading the transformation of the way we generate, store, transport and consume energy.  They are doing this while too many players in the energy sector are talking their own book, twisting arguments to support their own interests in relation to what needs to be done.

Meanwhile, it’s consumers who are directing the industry towards the kind of structural change that will improve innovation and productivity – not only in the energy sector but across the Australian economy more broadly.

The momentum of this change is accelerating. The potential of battery storage means the average household could soon be able to have a solar PV and battery storage system for the same price per kWh as buying energy from the grid. The way  the economics are going this so-called ‘socket-parity’ will put consumers more in charge of their energy future, and their energy bills. 

At the AEMC, we are working on new rules right now to help consumers benefit from the structural reform that’s so badly needed.

That includes: improving access to the grid so consumers get wind and solar power at lowest cost as the power system shifts; integrating solar PV units on millions of properties; increasing opportunities for people to use smart technologies to self-manage their energy and bills;  providing the right financial incentives for investment; and in the face of all that – fixing system security challenges that come with new technologies. 

While all of this is happening under our noses, there remains a large part of the energy industry seemingly paralysed by uncertainty.

Risk is something that can be assessed, managed, priced and controlled. Uncertainty can’t. It’s a frightening reality for many that stifles investment and puts a brake on the economy.

In this uncertain environment it can be tempting to call for greater centralisation of decision-making under the illusion this will bring about order and control.

But centralising control also centralises risk. Rather than enabling people to choose what they want as new technology emerges, decisions are made for them and incentives for business to innovate are removed. 

And when bad decisions are made, the consequences are more extreme, the impacts greater and consumers tend to foot the bill..

There is a lot of uncertainty around energy policy right now.

But what this report shows is that uncertainty isn’t a barrier to reform. 

If we keep on putting the right frameworks and safeguards in place we can harness the power of transformation to benefit consumers and cut costs.

There’s no point in questioning whether disruption within the electricity sector means a fundamental rethink of the national electricity market (NEM) is required. That horse has bolted. We’ve been redesigning the NEM for years, it’s already becoming a whole new power system.

It has never been more important for policy makers and industry to embrace the original policy intent of the structural reforms that led to the NEM’s creation. And that’s empowerment of consumers by ensuring market participants, rather than customers, bear the risks of investments in new generation, technologies and business models. 

As the limitations of monetary and fiscal policy are becoming more apparent, it’s worth recalling the value of effective structural reform – and getting on with it. 

Above all keeping a strong focus on what's best for consumers and how that can be delivered at the lowest cost to families and businesses.