The effects of COVID-19 have impacted the retail energy space heavily in the last 12 months. This has caused underlying costs of electricity production to decrease significantly. It is expected that costs will remain low for the next 6 to 12 months.
As the Australian economy begins to rebuild itself in the next 6 to 12 months, it is expected that costs will remain low. Following the impact of COVID-19, came price changes with the introduction of the Default Market Offer (DMO) and Victorian Default Offer (VDO).
The DMO outlines the annual maximum total bill amount that an energy company can charge to eligible residential and small business customers in New South Wales, South Australia, and South East Queensland. Energy retailers use the DMO as a reference price, to guide how they structure their charges. However, retailers can set their own supply and usage charges provided they are equal to or less than the DMO price. The VDO is like the DMO, however is applicable to eligible Victorian customers only.
High electricity offers have now reduced significantly. This reduction means end users who choose to switch offers will still save money but not as much as prior years. The difference between the highest standing offer and lowest market offer has decreased by 10%. Although there has been a decrease in the overall offer price, Victoria has actually seen a 10% increase. The average market offer price is still considered to be quite high at 56%. It is unclear whether these changes are because of the DMO and VDO changes, or by increased market competition.
Market Competition
The increased market competition appears to be pushing retail energy prices down after the introduction of 40 new retail brands. In the last 12 months alone, 35 new companies have entered the market. There have also been 8 existing brands who have expanded into other states jurisdictions and are now offering new products. Net retailer margins across the National Electricity Market (NEM) have also dropped due to increased competition. This has seen on average, a decrease of $93 to $66 per customer in the last 2 years.
Products deemed to be essential services such as electricity and gas, have also continued to evolve. To appeal more to customers, retailers are strategically using add-on products as a way of selling the underlying product. Most retailers are doing this by bundling electricity and gas with internet and phone services.
As we can see, there has been a large amount of changes to the market and to customers costs. However, an Energy Consumers Australia (ECA) survey has shown that end users are happier. The results of the survey showed that 57% of customers believed there was value for money at today’s price. Switching rates are a leading indicator of customer dissatisfaction, and recently these have lowered.
Written by: Alex Driscoll
To learn about what else is changing in the market, read our latest article: https://edgeutilities.com.au/2020-isp/
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