Small energy retailers are important for innovation and customer choice; but may suffer under increased regulation

Elisabeth Ross, Associate Director, Deal Advisory
Elisabeth Ross, Associate Director, Deal Advisory

With growing concerns about retail prices and profits the catalyst for inquiries into electricity retail prices by the Australian Competition and Consumer Commission, and an independent panel in Victoria, retail energy providers are in the spotlight. Large retailers were summoned, by the Prime Minister on two occasions, to explain what actions they will take to reduce prices and improve outcomes for customers.

All this has taken place in the context of concerns about the reliability of the national electricity system and meeting our carbon emissions reduction targets under the Paris Agreement.

The so-called ‘policy trilemma’ – affordability, reliability and sustainability – has led to a level of scrutiny of the energy market not seen in some time.

This increasing intervention by government in the market is not isolated to Australia, but an increasing international trend. Great Britain, for example, actively considered returning to regulating retail energy prices, after deregulation of the market in 1998. A limited form of price regulation was ultimately imposed, combined with other measures to protect customers. Similar options are being actively explored by the Victorian Government, and the Queensland Government has indicated it may set up a public energy retailer.

While some interventions may be warranted to ensure the market is operating efficiently and to support customers struggling to pay their energy bills, there is a risk increasing interventions will have unintended consequences for the viability of small independent retailers.

Small retailers have substantially contributed to the effectiveness of the market through product innovation and increasing tariff choices for customers. Their behaviour has forced the large incumbent retailers to respond through better deals and offers. These small retailers have an important role to play in driving innovation in the market.

New compliance obligations are likely to disproportionately affect smaller retailers. The introduction of metering contestability under Power of Choice as well as increasing regulations aimed at protecting customers has already added substantially to the regulatory compliance burden of small retailers. The proposed National Energy Guarantee will create further obligations, which will add to costs and affect the business model of these small agile independent retailers.

With the increasing adoption of new technologies, opportunities for new products and services open up, often led by the smaller retailers where their role is key for delivering value for customers.

However, increased regulatory obligations on all retailers could have the unintended consequence of jeopardising the viability of smaller retailers. The consideration of the impacts of new policies on small retailers is critical to ensure an efficient and innovative retail market.


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