Getting innovation into the system: A retail perspective

In recent years, the energy landscape in Australia has undergone significant transformation, driven by digitisation and the increasing use of smart technologies. Where previously customers only had the choice of ‘who’ sold them energy and at what price, they can now increasingly ask ‘how’ they want their energy. This shift is empowering consumers to take a more active role in managing their energy consumption and costs, thanks to innovative products and services offered by retailers. From smart meters to virtual power plants and tailored tariff structures, energy providers are embracing new technologies to offer greater choice and flexibility for customers. This article highlights where retailers have been delivering innovation for consumers and outlines some of the regulatory barriers that are slowing it down.

Innovation in Digitisation and Data Services

Over the past few years, there has been an increased digitisation of energy data. Victoria’s mandated rollout of smart meters, along with the relatively recent decision to accelerate their deployment across the rest of the National Energy Market (NEM), combined with growing consumer uptake of smart, internet-connected devices in households, is transforming how consumers interact with energy. Digitised meters, devices, and appliances create greater potential for customers to receive detailed insights into their energy usage.

Retailers have been proactive in designing products that take advantage of these new forms of data, offering innovative solutions that empower consumers to manage their energy consumption more effectively.

Indeed, most retailers now offer apps that allow for customers to granularly track their energy usage.[1] These provide a breakdown of a customer’s daily electricity usage, down to hourly increments, cost per day and kilowatt hours. There are likewise platforms and programs offered by industry that encourage customers to engage further with their energy usage. 

AGL, for example, has an Energy Insights platform. Here data from a customer’s smart meter, weather metrics and home information profile are run through an algorithm to provide an estimate of how electricity is used across their house. A breakdown of energy use and cost by appliance is then provided to the customer so that they may better understand their energy usage and improve their home’s energy efficiency. 

Likewise, Origin offers customers a chance to join their Spike program, whereby customers are rewarded for reducing their energy consumption during times of peak demand, referred to as ‘SpikeHour’. Customers are notified via email or SMS of an upcoming SpikeHour and receive currency that can be redeemed for Paypal cash or gift card for every watt of power they save, incentivising customer engagement with their energy use. The program tracks customer engagement through smart meter data. 

Virtual Power Plants (VPPs)

A VPP program combines the Consumer Energy Resources (CER) systems (home solar systems, batteries and EVs, etc) of multiple different households and businesses into a single entity that is centrally controlled by the VPP operator. In essence, this allows a group of these decentralised energy resources to collectively ‘act’ like a power plant would, trading energy or providing grid services.  

A range of different VPP programs are now provided by retailers for customers with solar and a battery. Examples include:  

Globird’s ZEROHERO Plan

This plan encourages battery charging during the peak solar period (11 am to 2 pm) by offering free electricity usage. In the evening peak, customers can earn a daily $1 payment by avoiding grid electricity consumption, further promoting battery use. Additionally, customers receive a bonus solar credit for the first 10 kWh of energy exported during the evening peak each day.

ENGIE’s VPP Plan

With this plan, customers receive a $300 sign-up credit, plus $20 in monthly VPP community credits and a 10¢/kWh feed-in tariff.

EnergyAustralia’s Battery Ease Plan

This plan offers $180 in bill credits per year, along with a 12¢/kWh feed-in tariff for the first 15 kWh of energy exported daily. EnergyAustralia also works to optimise customers' batteries, helping to reduce overall bills.

Innovative Tariff structures

While complex tariff structures have recently been discussed negatively in the media, less well reported on are the innovative tariffs that retailers offer. Many of these are designed for customers to take full advantage of their energy resources.

Red Energy, for example, offers the Red EV Saver plan, which provides free electricity usage between 12 pm and 2 pm on weekends. Similarly, Powershop offers two plans tailored for electric vehicle owners: the EV Day Saver and EV Night Saver. The EV Day Saver plan provides free electricity for EV charging between midday and 2 pm, while the EV Night Saver offers a super off-peak rate from midnight to 4 am. Both plans are designed to help reduce charging costs by taking advantage of lower electricity rates during specific times.

It should be noted that the Electric Vehicle Council estimates that by the end of 2024, nearly 180,000 EVs will be on the road, roughly 1 per cent of the light vehicle fleet. Despite this being a relatively nascent market, retailers, as evidenced by the examples above, are serving EV customers with more choice and greater competition than the other 18 million light vehicles on the road. 

Additional products and services

Recently, several retailers, such as AGL and Origin, have also begun offering plans that bundle both electricity and internet services, providing customers with greater convenience and potential savings. In addition to these bundled offerings, other companies, such as Amber, are introducing more flexible energy solutions by allowing consumers to pay a flat monthly subscription fee while gaining exposure to the real-time fluctuations of the wholesale energy market.

Collectively, these examples of innovation highlight how the competitive market is adapting to recent technological change and the ongoing energy transition to deliver a much greater array of choice for the long-term interests of customers.

Barriers to Innovation

Despite these examples, there has been a lingering perception that the innovation in the Australian energy market has been proceeding slower than other markets internationally, with even some questioning if it’s there at all. While it is apparent that retailers and the broader market have been developing innovative energy products and solutions for customers, there are areas where it has been constrained.

One of the reasons behind this is the increase in regulation, where, over the past few years, governments and regulators have shifted away from a light-touch regulatory framework promoting economic efficiency in favour of a more interventionist approach. In a previous article, we outlined how this has weakened some areas of competition and in turn dampened innovation.

While some of these new regulations have resulted in appropriate and necessary consumer protections, a few have resulted in a slowing of retailer product innovation in areas that support demand-side participation (DSP) and CER at a time when retailer innovation in these areas is needed most. To be clear, regulation is not currently stopping or preventing innovation, as is evident from the many examples above, rather it has been slowing it down when it could be faster and more impactful for customers.

Take the Default Market Offer (DMO) for instance, which is a cap on the price retailers are allowed to charge their customers on standing offers. The DMO has led to a significant reduction in retailer margins, narrowing price dispersion which is the spread of retail price variation for the same retail product. It has likewise affected price diversity, differences in prices for different retail products, by creating a price to beat that can be lower than the cost of innovation. While previously there was a competition allowance in the DMO, which provided for innovation, this was removed in the most recent determination (DMO 6).

Overall, this has contributed to an environment where for retailers, product innovation is seen to produce less benefit for both them and their customers, whilst increasing retailer cost and risk.

As Australia moves forward with its energy transition amid technological disruption, there is a clear role for retailers in delivering greater customer choice. Changes to the regulatory landscape are essential and ideally these changes must enable an environment where open competitive markets provide the impetus to pursue innovations in technology and service delivery to customer demands first, and then to mitigate any system growth needs at the most efficient cost. To ensure progress, both retailers and regulators must work together to find common ground and develop a shared vision that prioritises customer centricity and choice throughout the transition.

[1] A list of different apps can be found on our submission to the Real-time data for consumers rule change.