We found that electricity prices for residential customers increased by an average of 14% in July this year, which was driven by rapidly increasing wholesale costs.
However, these rising costs have been largely offset by decreases in network charges over the previous two years. The net result is that on average, residential customers are paying 2% more for electricity since 2013-14 when prices were still regulated. This is a real decrease in prices of 5% (once CPI is accounted for).
This period of relative price stability contrasts with the large price increases in the 5 years leading up to 2013-14, which were driven by increases in network charges.
Since 2013-14, competition in the retail market has continued to develop. The number of brands competing in the market has risen from 15 to 26; the market share of smaller retailers has increased from 7% to 14% and the number of small customers on market offers has risen from 63% to 77%. More than 30% of customers switched either retailer or offer in the last year.
We also found no strong evidence that the margins being earnt by electricity retailers in NSW suggest that the level of competition is not developing effectively, or that they are higher than appropriate for the systematic risk they face. Retailers’ margins are in line with the profit margins earned by a large sample of listed retailers across different sectors in Australia, the United States, the United Kingdom, and Canada.
However, further improvements could be made to make it easier for the 23% of customers who are still on standing offers to shop around. As the spread of offers in the market has widened, customers on standing offers are paying around 25% more than customers who have switched to a better deal.
Retailers, governments and third parties should focus on facilitating increased customer engagement in the retail market to further enhance competition, and in particular ensuring that vulnerable and hardship customers are not paying more than they need to.
Customers can find information about other market offers at energymadeeasy.gov.au.
We made several recommendations to the NSW Government to:
- Enhance and promote the AER’s energymadeeasy.gov.au web comparison tool so that customers are better able to compare offers, including customers with solar panels.
- Work with the COAG Energy Council to make changes to the National Energy Retail Law and rules to require retailers to provide advance notification of price changes to customers. The price change notification should also inform customers that they can shop around for other deals on the energymadeeasy.gov.au website.