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Consumers are investors too. Where’s their return?

This speech was delivered to the Energy Networks 2022 Conference by Gavin Dufty, a non-executive Director of Energy Consumers Australia and General Manager, Policy and Research at Vinnies.

The Energy Security Board has been fundamentally redesigning the physical operation of the National Energy Market – moving from a system that is centralised to one that is decentralised, and from a carbon-based system to one that is renewable. Ultimately this will also be associated with the electrification of many, if not all appliances used by Australian households.

That’s necessary but it is not sufficient. There needs to be a corresponding redesign of the surrounding social and consumer architecture to complement this change.

In short, the current systems and structures we see across the NEM won’t be fit for purpose in the new system.

Consumers will have much more skin in the game and will be looking for returns. That’s right, returns.

Let’s just say over the next 10 – 15 years that five million Australian households each spend around $50,000 on a combination of things like buying an EV, adding batteries or rooftop solar and changing over from gas appliances to electric ones. That’s actually a pretty conservative estimate.

But it’s no small thing. All of those households doing that represents a $250 billion investment in assets underpinning the future energy system.

We are used to hearing in the energy sector that investors need to see a return on their investment for necessary change to take place. Why shouldn’t that apply to consumers and their investments? $250 billion is a lot of money and consumers will rightly be looking to see value for their outlay.

Consumers and their advocates are starting to see some early signs that just maybe the returns won’t be there on their investment if we don’t change course.

Here are some thoughts on areas that need to change.

  • We need a fit-for-purpose regulatory framework that includes appropriate consumer protections (what’s in the National Energy Customer Framework / what’s in Australian Consumer Law and what is new and needed). What consumer product protections might need to be looked at?
  • We need appropriate and seamless dispute resolution. This will be a challenge because electrifying everything means that simply having an energy and water ombudsman is not enough.
  • Alignment of complementary measures these are the critical support for consumers and the transition – things like energy concessions, appliance subsidies and other supports will be particularly pertinent for consumers transitioning their electricity use and their gas use.
  • Conversations that bring all along – ones that don’t just focus on the new “kit”.   We need conversations about tariff reform and the opportunities for equity and supporting the future. And that requires us to broaden our current thinking. People that won’t have solar on their roof or batteries in their garage (such as renters, vulnerable consumers and the disadvantaged) don’t have nothing. They have LOAD. If we are awash with plentiful energy at times, flexible load at particular times of the day can be viewed as an asset owned by that consumer. This is a huge opportunity for households to leverage (ie those that are home during the day etc). Doing this increases utilisation, supports the transition and brings everyone along.
  • Goods in a services market It’s time for a fundamental rethink of the market. Traditionally the market delivered KWH and MJ to consumers, and the only role available for consumers was either paying their bill or switching to another retailer. We are seeing now a move to a services industry, delivering services to consumers – whether that be demand flexibility, solar management or electric vehicle management. That is a  whole new mindset. All this, to me, requires a seamless and better coordination up and down the supply chain to deliver a better consumer experience. And it means we need to keep front of mind that people don’t want things done to them, they want services when they need them.

We need a shift to the system serving the consumer, not the consumer serving the system.

  • A seamless one stop shop – it’s going to get really complicated and complex if we electrify everything. The call centres need to be able to respond as a one-stop shop. Seamless services are what people should rightly expect. The entirety of the solution in one location and one touchpoint.

The stakes are high, and the rewards are high as we electrify everything. It could be simple or could be really complicated.

  • Resilience of the system will becomemore important as more appliances are electrified. Outages, whether they are planned or unplanned, will have a significantly bigger impact. There needs to be different types of responses in these situations.

That’s a lot. But it’s not everything we need to be thinking about as we work together to build a future system that works better for consumers.

There are plenty of other big issues to consider:

  • Social license – this is going to become an ever-increasing challenge as new communities are impacted by new transmission and generation assets, and old generation closes. Decommissioning and reclamation works will become just as important. On a household level increasing moves to limit or control essential appliances cannot and should not happen without social license and trust. We are already seeing this with debates around demand and export flexibility.
  • Things like cyber security protection of personal data and privacy will become more front of mind as the consumer data right flows through and all types of people seek it to make service propositions and more interconnections. There are potential advantages here but also potentially more points of failure.
  • Unique challenges for the gas industry – This includes the gas transition whether that means accelerated depreciation and the shutdown of the gas industry or shifting to hydrogen or Biogas. All have impacts on energy consumers.

This not only has an impact on households with regards to perceived or actual changes in the “touch and feel of gas flame colour, odour or heating qualities” and feel if you like, to the implications for appliance purchases and appliance retrofit if there is no gas in the future.

If it all seems pretty chaotic, that’s hardly a surprise. But consumers don’t want to feel that way. They will want an orderly transition, as they will be asked to make significant investments such as new appliances, rewiring etc.

I said at the start that we are used to be being told that investors require a return on their investment. Another thing we are often told is that investors need certainty, or if that cannot be available then they at least need a sense of predictability and stability and that their long term interests are being looked out for.

Well consumers are investors too, as I’ve said. We should be thinking about them in that way when we think about how fair and reasonable the things we are going to be asking of them might be. 

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