The story so far
In the late 1990s, Australia’s national electricity grid (NEM) came into existence. It linked Australia’s eastern seaboard states together and was designed to balance customer demand for power with supply.
Back then, much of the NEM’s assets were owned and managed by the government, that delivered power to customers based upon demand. It was a simple process designed to provide more power into the system at peak periods and less when demand was low. Power costs were low but the NEM was inefficient and lack of competition left Australians calling for a free market.
It was at this point that retailers stepped into the picture. In 2002, Victoria and NSW were the first Australian states to allow private energy retailers to enter the market. By 2009, Victoria became the first state to fully deregulate its electricity market, giving retailers the power to set their own prices, and other states quickly followed suit.
The retailers inherited a fixed-rate contract model that disconnected customers from the signals of the market. Instead of reconnecting the customers to the market, many retailers bought generators to manage the risk of mismatched supply and demand. This could have been for a range of reasons, from internal attitudes or perceived customer needs to a push towards increased profits.
These retailers – often called gentailers – have no incentive to connect customers to market signals. Under gentailers’ fixed-rate models, peaks in demand for energy directly correlate to increases in power prices for the customer and revenue for the gentailer. Put simply, rather than providing customers with cost saving mechanisms, a gentailer profits directly from the scarcity of supply that is met by its generator.
This is the power market that we see today. But it doesn’t need to stay this way.
So, what’s the solution?
From January to March 2018, Victorians could have saved 23% on power costs simply by connecting to spot prices. In South Australia, the gap reached more than 30% in the second half of 2017. In these instances, had power users chosen to respond to market signals, the savings would have been even greater.
Australians need to be connected to the signals of the NEM. This is the way forward for a better energy future.
At Flow Power, we believe that the solutions are customer-centric – whether this means demand response, renewable power purchase agreements (PPAs), behind-the-meter solutions or a range of technologies that are yet to emerge.
Now, more than ever, there are countless opportunities for Australians to be smarter about their energy use. New technology has the power to connect customers to variable generation, either through PPAs or behind-the-meter solar generation, and allow them to respond increasingly closely to the rhythms of the power market.
We need to get on the same page
Currently, fixed-rate contracts are stopping Australians from truly connecting to the signals of the market. We need to cut these contracts from the picture to minimise market power, resolve the market programs and keep power costs down.
A fixed-rate contract free NEM will be a return to its foundations but not as we know it. Demand response will see a more empowered customer come to the fore to transform Australia’s energy sector.
Connecting customers to generation signals is a simple idea that has the power to revolutionise Australia’s energy market. Consumers are now better equipped than ever to manage their energy use and contribute to the reliability of the NEM.