I was privileged to speak at the Energy Management Association of NZ (EMANZ) annual conference in Wellington last week and showed how market reforms over the last two decades, and now the Internet, are working together to disrupt the retail electricity market.

By Greg Sise, 28 May 2017

In broad terms, the aims of EMANZ are to promote and foster energy management in New Zealand, which might make you think the annual EMANZ conference is all about turning off lights and doing energy audits.  In fact, the conference canvasses a wide range of topics relevant to energy in general, both for the present and looking far ahead, and I found it to be one of the more stimulating conferences on the calendar.  The theme of the conference this year was “Disruptive Innovation” which says it all.

My talk covered disruption in the commercial and industrial (C&I) procurement sector and the slides are available on the conference web site.

We’ve had a competitive electricity market for so long now that many of us take it for granted, but before the market opened in 1996 things were quite different.  Prior to 1994, the Electricity Corporation of New Zealand owned 97% of all generation and the National Grid, and sold to the regional Electricity Supply Authorities (ESA) who are now lines companies.  All customers had to purchase electricity from their local ESA so they had no choice in supplier.

But starting in 1994 a raft of reforms removed monopoly franchises on customers, required the ESAs to separate their lines and energy businesses (and most sold their customers to new retailers), saw Transpower separated out of ECNZ, split ECNZ into four, established the spot market, and so on.

Today there are 27 companies participating as ‘Tier 1’ retailers who buy direct from the spot market, and many more ‘Tier 2’ retailers who buy from other retailers to supply their customers:  the majority of these retailers didn’t exist 10 years ago and most didn’t exist 5 years ago.

C&I customers have the right to choose to purchase everything at spot prices, or in combination with hedging contracts, or they can purchase 100% of their requirements at totally fixed prices on so-called ‘FPVV’ (fixed price variable volume) contracts.

After 2004, C&I contract prices rose steadily for years at greater than the rate of inflation but at the end of 2012 they took a sudden and unprecedented fall by 1.5 cents per kWh ($15/MWh).  There are a number of reasons for this fall, but intense competition amongst retailers for C&I business features prominently in the list.

The Internet is well and truly making its presence felt in the electricity industry, so that today we all get our invoices via email or on a web site.  Retailers are making more and more use of the Internet and information technology to lower costs, retain margins and improve their service. 

Price comparison web sites have been around for several years now, but we last year launched our new Energy Exchange for larger customers and in my talk I covered two recent cases, one of a ‘small’ larger C&I customer consuming around 2 million kWh per annum at a single site, and one large utility consuming 100 million kWh per annum at several hundred sites.

Using the Energy Exchange, these two companies took advantage of the maximised competitive pressure created by the exchange to get the best possible prices, and they also benefited from the ease and speed at which these transactions can be completed using the exchange.

Looking ahead, I am certain the market will have more retailers, more competition and greater use of IT and the Internet by retailers and by third parties, all of which will create even more competition and more choice for C&I customers.  And, in fact, for all customers.