The electricity market is stuffed “from the top down”. Consumers are being misled by offers where the headline price is inflated artificially, the prime minister is pandering to a backbench bent on dirty power and asking retailers to write to millions of people who have never bothered changing their energy plans and probably never will and wholesale prices have risen in a market of declining demand.
Everything’s upside-down and inside-out, says Energy Locals founder and CEO Adrian Merrick.
Where can we turn for help? It’s just too hard to know. Regulators should be leading the way but some of them will find themselves becoming irrelevant as the market outpaces the rate they can keep up with change. “That’s not the way it should be,” Merrick says. “Regulators should be at the forefront of finding new ways for new technologies and business models to be able to be easily embraced by consumers.”
The longer regulators prevaricate the more consumers will become frustrated and levels of grid-defection will increase. “Why would you want the umbilical cord to remain connected when you’ve started growing up on your own?” he says, before dropping the suggestion that now’s the time to launch a business designing energy systems for consumers who want to go off-grid in protest.
Things only look more and more fishy as the ACCC is asked to investigate whether incumbents have been manipulating the markets to create a bit of profitable pricing volatility.
The federal government is utterly confused about the energy problem and somehow held hostage by former prime minister Tony Abbott, who reckons climate change is kind of good. In the meantime, the states are left to do it themselves.
“If you were to look at this from a distance, at all of this shambles, you’d ask: Who is going to get a grip on this? At this particular point of time I can’t see that anyone is.”
Hands off my coal!
Energy companies are protecting aging assets that are generating incredibly good returns, politicians are unsure how to rule on long-term changes to a system they struggle to understand and states appear eager to create political battles. Victoria is looking at a form of price reregulation, South Australia is tearing ahead with investment, NSW is dragging its feet and Queensland is doing a deal directly with a retailer. All the while customers are posted onerous, unsympathetic bills with little hope of relief.
OK, so 1.7 million householders have been moved to take matters into their own hands and install solar, with their fingers crossed that they pay the right price for something that works properly and that the install company will be around if anything goes wrong down the track. But is that really a good idea? As a retailer, Merrick has a grasp of the different levels of consumer sophistication – some are very engaged, he says, but not the majority. To make matters worse, all energy users are effectively price-takers.
“There is not a single customer out there with any idea if they’re in Victoria on January 1 what they’ll be paying for energy or on July 1 in the other states what they’ll be paying. They have no idea. Not a single one of them,” he says. “On June 30 some retailer will write to them and say, ‘Oh, by the way, here’s your price that starts tomorrow. Good luck with that.’”
The thought of retailers charging a margin on every variable unit when the incremental effort to provide that unit is zero just does not make sense, says Merrick, speaking to EcoGeneration at the All-Energy conference in Melbourne in October. “The fixed-fee model is more appropriate for the future.”
Early adopters of solar feel pretty good that they made an investment at a smart time, he says, and now they are focusing on the data their systems generate to understand and manage usage. “They’re really highly engaged because they paid a lot more for those systems than people will today.”
Don’t step on me
Inquiries about solar these days are coming from consumers who “simply want control over something they feel they’re being gouged for”, he says. Some of these later adopters have heard stories about ropey installers, but they’re finally being driven to action by bills that seem frankly punitive. Payback periods look shorter as energy prices trend higher, and there is plenty of pressure on installers to do their bit to uphold the standards of an entire industry and deliver suitable, well-designed systems. That may work out at household level but the industry is moving fast towards finding ways to match aggregate supply with aggregate demand.
“If everyone individually maximises their own solar and storage for peak demand, then there is a lot of wasted resource out there,” he says. “The only way you can effectively make the most of those resources is if there is a reasonable way to share them, and share the capacity of the batteries and output of the solar systems … with people who need energy at that point in time.”
But the sharing economy won’t work if the market rules keep changing.
Merrick says Energy Locals is working with SunTenants on a solar service that enables renters to benefit from cheaper PV power. Systems will be owned by investors and resident consumers will only pay for the energy they use.
Energy Locals is planning to take this model further, too, with a solar offering that will be investor-owned regardless of whether someone is a renter or home-owner, and in a way removes risk for customers using the system. “The customer is guaranteed to save money on every unit of energy they use from the grid,” he says, without being locked in to a minimum purchase commitment and using a model that removes many of the variables system buyers and designers can sometimes fuss over.
In an economy where discretionary income consists of a $10 note folded into the back of a wallet in many households, steeply rising energy bills are hurting Australians — and they are angry. The media is trying to keep them informed, but the energy market is sullied by politics and ideology.
It would be nice if the problem just went away and if electricity could become boring again.
“Our job is to make [electricity] less interesting for most customers,” Merrick says. “At the moment it’s interesting for all the wrong reasons.”
It’s a confusing landscape for consumers. All the retailers are pushing their green credentials, regardless of their generation portfolios, and some young retailers who have pitched themselves as offering simple plans and cheap power are marketing deals that include high subscription fees that favour users with high consumption. Retailers who have reaped terrific profits by targeting high-value customers should be worried that those very customers are the ones with the means to install their own generation, with rooftop PV. The incumbents face a serious dilemma.
Merrick’s spent time at the big end of town as group executive manager of retail at EnergyAustralia and with E.ON in the UK, where customer retention is a science. Out on his own with Energy Locals he can now admit to “never being a fan of big corporates”, with their many levels of management and the painful delays between having a good idea and seeing it implemented — not to mention loading fine print with caveats. “Energy companies are probably some of the worst corporates, or have been over the years,” he says. “The challenge for the big companies is you’re defending something that is quite hard to defend.”
Everyone in the renewable energy industry is, or should be, obsessed with efficiency. For Merrick, it’s a doctrine that was instilled during his time with the Royal Air Force. “There’s always been a lot of intolerance in the military for things that just don’t help you get on with the job,” he says. “You should all be pulling in the same direction, but that doesn’t always happen in big companies. I hear it all the time and it’s certainly happened to me in the past.”
In the armed forces, the best solution is a “magnanimous victory” where only the bad guys are disarmed (or worse). But nothing ever goes as planned. Merrick saw it during a stretch with an intelligence cell within an air force base in Turkey, where aerial reconnaissance photos were scrutinised intensely during the process of identifying targets. “There is a lot of damage if you get that wrong, and they do get it wrong. But you’ve got to try your damnedest while still getting the job done,” he says.
As Energy Locals inches ahead in the market Merrick is reminded of the buzz of the military, where on some days you’re given a task that seems “frankly impossible”, he says. “I certainly enjoy that. In the military you have to get the job done, and if a bit of kit isn’t working you still have to get the job done.”