It’s a new year with new opportunities ahead. What better time than to look forward and ponder what might be in store for the Australian energy sector in 2023. To do this, however, it helps to briefly reflect on some of the events of 2022:
- Post-Covid, energy wholesale prices have been high, but are beginning to stabilise
- Late December, a price cap for gas was introduced
- Market instability has instigated an increase in renewable energy sources and a reduction in reliance on coal, and coal prices have increased
- Challenges with accuracy of billing and metering, pricing caps eroding margins and therefore a need to reduce cost to serve caused a number of energy retailers to pull out of market
- Some smaller retailers were acquired but the viability of purchasing a book of customers is reducing as the market stabilises
- Two major new regulations were introduced:
- Better Bills: a mandatory billing guideline for energy retailers to make it easy for residential and small customers to pay, query, understand usage and navigate the retail market to seek the best offer
- Consumer Data Right: aims to provide consumers with more choice and control over how their data is shared, and enables the secure transfer of data between providers to enable comparison of services more easily.
Here’s our thoughts on how these things (and more) will impact 2023.
Complying with new regulations will max out budgets for innovation
The Better Bills Guideline and Consumer Data Right regulations pave the way for consumers to have greater transparency and control over their energy costs. And it places significant onus back onto retailers to facilitate this. For most retailers, this will require adjustment, or in some cases development and implementation or recruitment of new processes, technology, and skill sets. For some energy businesses, it won’t be a small undertaking to be equipped to comply with these regulations, which means budgets that may have been earmarked for innovation may well be funnelled into this project. However, what this technology will do is enable greater flexibility in energy pricing, and that in itself provides a great platform for innovation. We expect to see bespoke energy pricing being enabled, or in other words, tailored pricing down to an individual level.
The increasing cost to serve will create a simplification of the energy sector
The Australian energy market is opening up again after a period of consolidation and trepidation. Being so highly regulated and with margins under stress due to fixed pricing and cost to serve, we see the market simplifying into two categories:
- No frills retailers operating lean energy supply. Just your basics, nothing extra.
- Low-cost innovators. These energy retailers will release new products to market, albeit as cost-effectively as possible, and will continue to drive innovation in the sector. They will, however, be somewhat reliant on technology partners to help them reduce the cost to serve and this will take some investment up front. This process will be vastly enabled by a strong business strategy and roadmap to ensure it stays on track and budget and will be worth it in the long run.
Renewables are on the rise and require modern technology to facilitate the customer and billing experience
For business customers in particular, the use of renewable energy has traversed from a ‘nice to have’ to a ‘must have’. In many instances it has become currency with renewable energy credentials entrenched in brand messaging as part of a broader sustainability promise. Indeed, the other day we saw a trampoline park proudly displaying messaging about its use of renewable energy! But for energy retailers, renewables are significantly more complex to bill, and legacy systems are simply not dynamic nor flexible enough to adequately handle this kind of data. Energy retailers will need technology partners like Flux who can deploy solutions that make billing renewable energy viable and profitable.
Virtual technology is taking off and demand for these products will grow exponentially
Emerging technology such as Virtual Power Plants (VPP) are continuing to be more commercially viable and we believe will grow at a rapid pace. In Australia, government and private partnerships have been piloting VPP in regions where energy reliability has been an issue, and companies are now expanding their VPP into more regions across the country. We expect to see VPP shifting from theory testing to hyper local penetration this year, and we view this as largely being driven not by energy retailers, but by brands who sell the kit, such as batteries.
Other virtual products will start to grow too, such as virtual solar for renters or apartments – typically not candidates for solar as they don’t own the property or don’t have a space to locate the physical panels. An interesting question we were asked recently about the advent of VPP and other virtual products was ‘how will this impact the customer experience?’ Initially we think the customer experience will be somewhat fragmented – consumers may need to utilise multiple apps or platforms to access the components of their energy supply. However, fairly quickly we see app developers and energy retailers developing common platforms where energy products can be consolidated and managed seamlessly. Those platforms that incorporate intelligence so they are intuitive and self-adjust depending on current conditions will be the most successful.
Expect to see an increase in non-traditional energy retailers
We’re already seeing non-traditional energy retailers installing renewables to enable them to trade energy, such as large shopping centres in Victoria. We expect to see more organisations of this kind utilising their physical space to install renewable energy sources and open additional revenue streams. For shopping centres and the like, this also provides an added service they can pass onto tenants with customised pricing plans that better suit their type of usage.
So, there you have it. In summary, we think the sector will be busy for the foreseeable future getting people, processes, systems, and technology in place and running smoothly to meet regulations as well as the evolving needs of the market, but we also think this opens the door for tremendous innovation and change. We are excited to see what technology partners such as Flux will bring to the market to underpin transformation and accelerate change in this dynamic environment.
Watch this space!
