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Energy retailing ripe for disruption as business goes direct

By Angela Macdonald-Smith / Financial Review / 1 August 2018

The energy retailing industry looks set for a major overhaul over the next few years as business consumers seek to bypass traditional retailers to buy power more cheaply direct from renewables projects, while the consolidation of suppliers is also on the cards.

With businesses increasingly aware of surging power prices and hungry for certainty, they are likely to turn in growing numbers to corporate power purchase agreements with wind and solar projects, said Matthew van der Linden, managing director of FlowPower, which arranges such deals.

“New players will have a big impact and might disrupt [the market] more than people realise,” Mr van der Linden told a clean energy summit in Sydney.

He described FlowPower’s business model as “pivotal” for the industry, giving businesses direct access to cheap renewable power, sometimes cutting their energy costs by 45 percent compared to fixed rates.

Steel producer BlueScope and M&M’s maker Mars Australia are among those purchasing renewable power.

Mr van der Linden said the major suppliers were doing well out of the market at present, with rising prices and no proper price signals to customers that cause them to change their behaviour and shift their demand. But that position of strength could be under threat, he suggested.

“If you’re a large vertically integrated retailer … you are actually doing very very well: why would you want this current market to change? why would you want demand response?” he said.

FlowPower, which has doubled its client base in the past year, targets big business customers that have the ability to flex their load in response to prices. Mr van der Linden’s comments suggest a threat in the business power retailing space to majors such as Origin Energy, AGL Energy, and ERM Power.

Ed McManus, head of the upstart residential retailer Powershop, meanwhile predicted a dramatic consolidation of the retail sector over the next five years or so.

He suggested that today’s 25 or so retailers could shrink to just 12 as liquidity in the generation market tightens as coal stations close, while the increased use of renewable energy would make wholesale prices swing more wildly through the day. That combination is likely to create problems for junior retailers that don’t have their own power stations.

“A more volatile, less liquid market would tend to make things harder for smaller retailers who can’t get access to generation,” Mr McManus said.

Baker McKenzie special counsel Aylin Cunsolo said she expects key retailers will “evolve and adapt” to the shift away from centralised generation with a one-way flow of power to consumers, which has brought new entrants into the sector.

“There will still be a role for traditional retailers, but there will certainly be other players in the market,” Ms Cunsolo said.

 


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