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Commentary

Last chance to get energy policy right

Author

Rosemary Sinclair

Just over a year ago, federal, state and territory governments committed to integrate energy and environmental policy work through the COAG Energy Council. The goal is to marry the need to meet Australias international commitment to reduce emissions with the need for good energy market outcomes for consumers.

Policy decisions in these two areas have not been integrated, and the Federal Governments decision to bring the two policy areas under one portfolio in
the stewardship of Minister Frydenberg is a welcome first step just in time.

The emissions intensity of the electricity sector has not changed since the 2008 debates on carbon reduction mechanisms, despite 1.5 million rooftop solar
installations. The average electricity consumers bill today is roughly double what it was, in real terms, eight years ago, ranging from $1240 per
annum in Victoria to $1434 in Queensland.[1]

And yet the consumer actual experience has changed little in return for higher prices no noticeable improvement in reliability or customer service
levels and no real innovation, at least not from the main players.

Consumers are confirming this. In a recent survey of 2500 energy consumers in Australia just recently completed by Energy Consumers Australia (the largest
ever in Australia), people made it clear there is simmering disappointment and disillusionment with the outcomes they see from the energy market. The
overwhelming majority of consumers told us they were not getting good value for money for their electricity services indeed they believe they get
better value for money from services such as mobile phones, internet, insurance and banking. Competition champions like Rod Sims are accurately reflecting
the mood of consumers.

Tellingly, our survey also showed that consumers have lost faith in the energy market, with only one in five saying they are expecting value for money
for electricity services to improve in the future. And they may well be right. While the Australian Energy Market Operators projections show there
could be some price relief in the near term, there is uncertainty over this outlook given the legal challenges to the Australian Energy Regulators
network revenue determinations and uncertainty around lower network costs flowing through to retail prices. Even more concerning is the long-term trend
AEMO says consumers are likely to face a new round of price increases from 2020, if not sooner, reflecting the closure of coal-fired power stations
and other measures placing upward pressure on wholesale electricity prices.

This is a difficult context for policy makers to usher through transformational change to a clean energy economy. But one of the keys to the success of
this difficult and politically fraught transition will be the extent to which reform in the retail part of the market is effective in providing consumers
real choice.

Consumers are craving control and options to manage their energy use that is why we see one in five consumers already adopting solar PV (one in three
in some states) and its why our survey shows another one in three looking to do so in the future. These people are not extremists. They are consumers
from all walks of life looking for a way out an alternative to passively accepting continuing price increases.

Currently, over 80 per cent of consumers nationally purchase their electricity or gas from one of the three big retailers. Products are mainly differentiated
by pricing discounts and payment options.

In terms of the outcome youd expect from competition choice, innovation and lower prices Australias energy market is roughly where the music industry
was before iTunes. But the likes of Amazon and iTunes saw an opportunity to disrupt and replace the HMVs of the world.

Similar players are circling the energy industry. Apple, Google, Telstra and others have identified that there is friction in the market and that they
can start addressing consumers needs. They come in with innovation that is centred around consumers needs and that challenges the existing business
model. It will eventually change the culture and shape of the entire electricity industry with or without the traditional players.

We need to find a way to embrace both these external forces and harness them in consumers interests. The only way we will get there is if the private
sector actually behaves like a private sector should in a competitive market and unleashes creativity, innovation and private sector discipline around
managing cost.

The era where our single focus was investment to upgrade and extend networks, and we were prepared to richly reward private sector players to make sure
this happened, is over. More is expected of the private sector. Energy suppliers now need to encourage innovation and pass the price benefits of this
through to consumers quickly. The success of our transition to a cleaner economy may well depend on the markets capacity to embrace this change and
provide real choice to consumers.

Rosemary Sinclair is the CEO of Energy Consumers Australia


[1] See Australian
Energy Market Commission, 2016 Retail Competition Review Final Report, page
17 and 23.