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Monday, 20 April 2018 08:88

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What are Electricity Retailers ?

The so-called "Electricity Retailers" are NOT really Retailers ! There title is deceptive to say the least, as there charges are NOT actually associated with delivery of a product, apart from a bill.

We accuse these Self Governed Retailers of standing in the way of the true energy revolution, "The uptake of Independent Small Generation Units" (SGU) like Home & Business, is becoming a disruptive force.

So, Do we need these deceptive "Retailers" ?  We think not !

The Big Electricity Retailer Con !

People should understand what a Retailer is: It’s a place where you go to buy and collect items like clothes, groceries, petrol and other items like Solar panels & Batteries! Retailers are at the points of sale after manufacturers sell to Importers, then on to Wholesalers, then finally to Retailers that supply products to consumers.

SGU like Home & Business are closer to being a electricity Retailer as they actually harvest clean energy, and many sell it back to the market for distribution!  Making SGU owners smaller scale independent power Generators, with cleaner energy than any Coal fired power Generators, that are not as bad as may ill informed politicians say.

Note: We at Micro Power Grids offer you the option to bypass the Retail prices by cutting out the middle men and compounding price increases, and that in it's self will reduce the break-even investment time dramatically!

So, electricity retailers do not actually deliver you any electricity at all.

As the diagram below explains (taken from a presentation by UNSW electricity expert), it shows exactly how your power comes straight from the generators via the transmission network and the distributors - So if you already have a Solar Array and exporting into the state grid, some of your neighbours will actually be getting electricity from your Solar Array, and in may cased they are paying over 300% more for your power than any rebate price currently offered to Solar Array owners.

Remember, electricity retailers simply competing for the right to send you a bill, and package up a range of tariffs that few people understand, some deceptively lock customers into a contract ...for simply sending you a bill.

They are simply the archetypal middle-man, and the question is: Are they of any use?

Again, we believe NOT ! This question arises time & time again, because the so-called retailers have long been part of an economic model that relies on consumers buying more electricity. That means that retailers can sell more contracts, generators can build more power stations and distributors can build more poles and wires to transport the electrons, But that business model is now changing rapidly as demand is falling, energy efficiency is at a premium, more and more consumers (residential and business) are producing & consuming their own energy, and the retailers are getting in the way!

One of the biggest problems for retailers is a basic one, — they aren't very good at what they do. They find it difficult to hold onto customers, and some con you into a contract as the only way of holding on to you.  The major electricity retailers reported that the “churn” rate was nearly 25%. That means, they lost nearly one in four of their clients, and then they had to go and pay to get them back again, and then bill you for it.

This may have something to do with the long-run inability of retailers to engage with their clients as they only offer you a bill.  International surveys show that electricity retailers have the worst relationship with their customers of just about any customer-facing group — their relationships are fleeting, and usually coloured by complaints about price hikes and connection problems. Still, they make a profit. According to the most annual accounts the biggest retailers, their gross margin are the difference between the cost of electricity they pay the distributors/generators, and the cost of packaging up your bill and collecting money from customers — was between $150 to $200 per customer per quarter.

The true overall cost of retailers equates to about 5% of your electricity bill, or about $150 a year, depending were you live, But that’s not the end of it. Retailers are now being accused of pocketing hundreds of millions of dollars in profits from schemes that have supported the introduction of technologies such as rooftop solar.

For instance, Retailers are allowed by the "self-governed pricing regulators" (with the exception of the ACT), to charge customers $40 for each small-scale technology certificates (STC's), when the market price has rarely risen about $25. And there was about 45 million STC's washing around the system years ago.  That alone has grossly inflated the cost of the schemes, and the returns to retailers, even with their carrying costs.

Electricity retailers are now also picking up even more profits from the export of excess electricity back to the grid from rooftop solar systems (without Battery storage) — for which they pay 6c~8c/kWh (in some cases nothing at all) and then sell it to the houses in the same street for up to five times as much! People that select to pay more & purchase so called "Green electricity" are also been fooled, as this is just another marketing ploy to make more money, as some of the Solar feed-in electricity will be actually be used by you, without you even knowing.

How can the retailers do this ? Because they have managed to convince the "self governing pricing regulators" that the difference is made up with fixed grid, billing and other costs. But the solar industry knows they are profiting handsomely — hence the push for a “fair value” of solar.

One thing they do achieve is loosely manage pricing risk, and the rapid and often steep swings in wholesale electricity prices. They do this through a range of hedging policies and by being “vertically integrated”. That means that some also own generators, so when the price moves one way, they make it up by increasing profits elsewhere. Unfortunately for customers, this has meant that few have enjoyed the benefits of the lowest wholesale electricity markets since the start of the NEM (National Electricity Market).

Like banks & insurance companies, electricity retailers are very slow to pass on the benefits of falling costs, But quicker to act when prices or rates go up.

So what would happen if we got rid of Retailers ? The biggest challenge would be managing the wholesale price risk — electricity is one of the biggest traded markets, bigger by a long shot than carbon, that we believe just another smoke & mirrors department set up by big government mentality.

If say the retailers were made redundant, we would need interval metering throughout and to provide financial risk management, we would also need a carefully designed derivatives market accessible to small players.

Such a market was envisaged in the 1990s, but banks and other financial market players argued that this could have been a constraint on competition.

Perhaps the best answer is to turn Retailers into Service providers as, “We need energy service companies instead of retailers”.

Why, “Because of the way they operate, energy retailers mess up efficient management of uncertainty and deter end-users from energy efficiency improvements, as well as pocket a fee for doing so.”

So, Evolving Retailers into Service providers, would require a massive cultural change. We believe it will be one that will eventually be forced upon them.  As electricity retailing business is about collecting data (metering) and sending out bills, then there is a host of competing organisations like Reposit, that are specialists in data management and IT that can take that role, and offer a snappy new devices that performs in-house monitoring and controls, and are currently offer a market leading $1.00kWh "Grid Credit" ™.

If it is about customer management, there are a host of customer service specialists that can do that better too; and now there are a host of technology providers that can offer alternatives to sourcing electricity from the grid, and now these specialists are recognising their are opportunities to work together.

The best chance the retailers have of surviving — apart from regulatory protection — is to strike up some alliances of their own, and to get out of the way of progress. The sooner the better !

All that said and done, by you generating, storing & self-consuming your own power, you will have removed all the above issues, and that puts you in control of your power needs and true power independence !

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The dirty secrets the Electricity Retailers don't want people to know: Read this article Electricity Retailers Redundant!

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