ACCC report highlights challenges and opportunities for retail electricity market

Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on facebook
Facebook

In December 2023, the Australian Competition and Consumer Commission (ACCC) released its latest report on the National Electricity Market (NEM), covering the period from August 2022 to July 2023. The report examines the state of competition and consumer outcomes in the retail electricity market, the impact of the energy transition on the contract market and retailers’ ability to manage financial risk, and the need for reforms to improve the conditions for competition and deliver better outcomes for consumers.

Key findings and recommendations

The ACCC report reveals that the market volatility and high prices experienced in mid-2022 have continued to affect retailers’ costs and pricing strategies, as well as consumers’ engagement and satisfaction. The report also finds that the contract market is undergoing significant transformation as the NEM shifts to more renewable energy generation, creating new challenges and opportunities for retailers, especially small and new entrant retailers.

Some of the key findings and recommendations of the report are:

  • Wholesale costs rose by 25% per residential customer and 28% per small business customer across the NEM, as the effects of spot price spikes, elevated contract prices, and higher generation fuel costs flowed through to retailers’ costs. Wholesale costs now represent 33% of an average retailer’s annual costs to supply electricity to a residential customer.
  • Retail margin results were mixed between regions and customer groups, with increases in most regions for both residential and small business customers. For residential customers across the NEM, retail margins declined from last year, driven largely by reductions in New South Wales. Retail margins in the NEM have now declined from making up 8.9% of an average retailer’s residential cost stack in 2016–17 to 2.3% in 2022–23.
  • For the first time in this inquiry, the ACCC collected retail prices to understand how retailers are changing prices for their existing customers on market retail contracts. The ACCC found that 47% of residential customers and 42% of concession customers were on plans with a calculated annual cost equal to or higher than the default offer, and 79% of residential customers could achieve a better offer by switching to a competitive acquisition offer on government comparison websites. The ACCC also found that 96% of residential customers on plans with an unconditional price more than 25% above the default offer had a conditional discount, with an average discount of 29%, indicating they have not changed plan or retailer in the last 3 years.
  • The ACCC considers that reform is needed to reduce the number of customers on legacy plans with large conditional discounts, as a matter of priority, and to ensure consumers remain protected and are supported to engage in the market. The ACCC also recommends that the next review of the Electricity Retail Code, scheduled to commence in November 2024, should focus on consumer disengagement and barriers to consumer engagement, the increasing complexity of retail tariff structures, and interactions with other reforms made after the communication requirements in the Electricity Retail Code were introduced.
  • The ACCC also analysed the contract market and retailers’ ability to access hedging contracts to manage their spot market price risk. The ACCC found that market participants were able to meet their minimum risk management needs from August 2022 to July 2023, predominantly relying on traditional hedging products. However, the ACCC also found that some small retailers experienced difficulties executing their target hedging strategies, with most still unable to access Australian Securities Exchange (ASX) hedges. The ACCC also found that the energy transition will transform the contract market, changing the economic incentives of hedging, the sources of contracts and the demand for new types of contracts.
  • The ACCC considers that the contract market needs to evolve to support the changing risk profile of retailers and generators, and to facilitate access to contracts for standalone and new entrant retailers who play an important role in driving competition in the retail market. The ACCC recommends that the Government should investigate, in consultation with the ASX and market participants, whether there are ways to support new hedging products being listed on the ASX in a timelier manner. The ACCC also recommends that governments can increase liquidity in the contract market during the transition by making more contracts available from government-supported renewable energy and storage projects.

Conclusion

The ACCC report provides a comprehensive and independent assessment of the current and future challenges and opportunities facing the retail electricity market in the NEM. The report highlights the need for ongoing monitoring and reform to ensure that the market delivers competitive and efficient outcomes for consumers, especially as the energy transition progresses. The ACCC will continue to use its information gathering powers and analytical capabilities to provide evidence-based insights and recommendations to the Government and the public.

More to explorer

electricity poles by the road

How to comply with the life support equipment registration rules

Introduction If you are a retailer selling energy to customers who require life support equipment, you need to be aware of your obligations under the National Energy Retail Rules (NERR). Life support equipment is any equipment that is needed to sustain or support the life of a person, such as oxygen concentrators, kidney dialysis machines, ventilators, and so on.  The NERR provides a definition of life support equipment. Customers who rely on such equipment are entitled to certain protections under

Free people walking image

Understanding Part 3 of the National Energy Retail Rules: Customer Hardship

Introduction The National Energy Retail Rules (NERR) are a set of rules that regulate the retail sale of electricity and gas to customers in those states that have adopted the national framework within the National Energy Market (NEM). The NERR aim to protect the interests of customers and promote efficient and competitive retail markets. The NERR cover various aspects of the retail relationship, such as contracts, billing, payment, disconnection, connection, metering and customer information. One of the key components of

aerial view of buildigns

AER’s Comprehensive Review of the Exemptions Framework for Embedded Networks

AER’s Comprehensive Review of the Exemptions Framework for Embedded NetworksThe Australian Energy Regulator (AER) is undertaking an extensive review of the exemptions framework for embedded networks, as revealed in their recent issues paper dated November 2023. The review comes in the wake of rapid growth in embedded networks and mounting concerns about customer outcomes. This article delves into the details of the AER’s review, presenting the key issues and proposed changes that could reshape the future of embedded networks in

Leave a Reply

Your email address will not be published. Required fields are marked *