The State Of The Energy Market Explained

What do energy retailer closures mean for customers?

The news that the current turmoil in the Australian energy market has seen two small retailers – including the renewables-focused trailblazer Mojo Power ad Brisbane-based QEnergy (both owned by Ion Holdings Ltd) – shut down operations recently is a disappointing result for around 12,000 customers, across Queensland, New South Wales, South Australia and Victoria. And more retailer closures are expected. But what do energy retailer closures mean for customers?

The two energy retailers were suspended from all trading on the National Electricity Market (NEM), beginning Saturday, 17 June, according to notices published by the Australian Energy Market Operator (AEMO).

The Australian Energy Regulator (AER) initiated the Retailer of Last Resort process that enables the transfer of customers from the doomed electricity retailers, to ensure the continued supply of essential energy services to these customers, following the wind-up orders made in the Supreme Court of Queensland on 15 June 2023.

What is the Retailer of Last Resort process?

The Retailer of Last Resort scheme is a market safeguard, designed to ensure that, if a retailer fails, arrangements are put in place to ensure that customers still receive an uninterrupted electricity and/or gas supply.

When an energy retailer closes, the AER has the power to transfer customers to a new retailer (usually one of the big guns in the business, like Origin Energy and EnergyAustralia).

In this case, the majority of customers – across New South Wales, Queensland, and South Australia – were managed by the AER’s Last Resort Process. Those customers don’t need to do anything extra themselves but are also under no obligation to stay with the retailer they have been automatically transferred to.

The AER is responsible for overseeing the national Retailer of Last Resort scheme. For the 4,880 Victorian customers of QEnergy – including 3,970 residential, 800 small business and 110 larger business customers – who were impacted by these latest closures, they were also protected by a version of the Retailer of Last Resort scheme in Victoria, but it was not administered by the AER. In Victoria, this scheme is the responsibility of the Essential Services Commission (ESC).

Growing list of smaller energy retailers no longer in the market

On the Mojo Power site, a message to former customers mentions: “Significant movement and volatility in the wholesale electricity market… is impacting our ability to offer competitive pricing at this time”.

The fossil fuel-driven energy market crisis has seen multiple small retailers in the space shut down in the past two years – with many of them focused on solar, battery and renewable energy.

These include Elysian Energy, Social Energy and Enova, which went into voluntary administration blaming a market that protects the fossil fuel industry.

How did we get here?

Paul Coghran is General Manager Efficiency at Compare Club.

His career in energy started in New Zealand in 2008, before moving to Australia in 2009.

A number of contributing factors have led the local energy market to this state, driven by the fact that the “transition to clean energy is well behind where it should be”.

“In my mind, this is a failure of the previous government,” Mr Coghran says. “As a result, the wholesale market is on a 'cliff edge', as far as generation assets running end-of-life before new assets can be deployed.”

Although he describes the Default Market Offer and Reference Price as “great instruments”, they have, he says, “unfortunately become ineffective for the purpose they were intended”.

“When most retailers are now pricing over the Reference Price, it's not working,” says Mr Coghran. "Up until March this year, nobody would ever charge more than the default offer. Now we are seeing prices 10% over the default market offer. I've never known the market to be like this."

What might happen in the next one-two years?

It's going to be a rocky road for at least two years, says Mr Coghran, and consumers can expect more of the following:

a volatile wholesale market
more energy retailers experiencing ROLR events
retail prices continuing to increase significantly higher than CPI
low-income customers experiencing high levels of bill stress

For the average Australian, trying to make huge decisions around a variety of energy-related issues (solar vs no solar, electricity in the home vs gas, to buy an EV now or wait, how to negotiate a better rate with their provider, how to shop around for a better provider, how to save money on energy usage), he has these top tips to share:

shop around regularly. Every time you receive a price-rise letter, if not beforehand
look at solar. Either by purchasing the traditional way or via a Virtual Power Plant (VPP) mechanism
make sure you're doing the basics in terms of energy savings tips. Switching off or unplugging wherever you can, rather than leaving household appliances on standby.

"I think the average educated voter in Australia is committed to renewable energy," says Mr Coghran. "But poor planning from the previous Federal government is severely impacting the Australian energy market now - and that is costing people lots of money in rising energy bills."

What do governments need to do (state and federal) to better manage the current energy space?

sort out the DMO / VDO / Reference Price methodology before it loses relevance
fast-track sensible renewable generation
continue to subsidise rooftop PV solar and batteries
increase EV subsidies

The bottom line

With price hikes happening across Australia from 1 July, predictions that there will be further rises still to come, and with more smaller energy retailers expected to go out of business in the coming months, the state of the Australian energy market is currently chaotic and complex.

It’s not going to change overnight and, as the entire industry continues to transform and find new ways of doing business, it is likely to get even more volatile before it (eventually) settles into a new normal. Exactly what that will look like? It’s a case of watching and waiting.

Go deeper: How switching energy providers before the 1 July price hike gives you the power to save hundreds

Financial disclaimer

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.