Findings

  • The median market offer fell by 4% in South Australia from March 2018 to March 2019.
  • Shopping around is now more important than ever. Customers on the median standing offer could save $760 by switching to the minimum market offer.
  • There are now a number of offers in South Australia that are just as competitive as those with discounts, without requirements such as ‘pay-on-time’. There are also competitive deals with fixed prices available, which give customers more bill certainty.
  • Competition has increased for both electricity and gas consumers over the past year. Three new retailers entered the South Australia market – Energy Locals, Powerclub and Powershop – bringing the total of retail brands in South Australia to 23. The market share of the Big 3 retailers continues to fall, with Simply Energy now holding a greater market share than EnergyAustralia.
  • Satisfaction with the level of customer service increased by 8% in South Australia between April 2018 and 2019.
  • The number of customers on hardship programs increased by 35% during 2017-18 to just over 21,000, and the level of debt they had when they entered the scheme also rose, indicating poor levels of energy affordability among some customers.

Looking forward

Electricity price regulation will be reintroduced on 1 July 2019 after prices were deregulated in 2013. This will reduce the prices paid by the 9% of households and small businesses in South Australia that remain on a standing offer (down by 3% over 12 months)

The AEMC will monitor the impact of reregulation and advise the South Australian Government on any actions required to minimise any disadvantages for small customers who use a large amount of energy and vulnerable consumers already on market deals

We are also advising the Energy Security Board on the implementation of the retailer reliability obligation in view of liquidity issues in South Australia , and considering the State Government’s rule change request in relation to demand response.

Overview

For the electricity market in South Australia:

  • in March 2019, there were 19 retail electricity businesses (23 retail electricity brands)

  • Energy Locals, Powerclub and Powershop have entered the market in the past year

  • these brands are supplying approximately 865,000 small electricity customers, as of December 2018.

For the gas market in South Australia:

  • in March 2019, there were also six retail gas businesses (seven retail electricity brands)

  • there were no new entrants into this market in the past year

  • these brands supplied approximately 438,000 small gas customers, as of December 2018.

Full retail contestability was introduced for electricity in 2003 and gas in 2004. In 2013 South Australia removed retail price regulation for both electricity and gas, and implemented the National Energy Customer Framework (NECF) subject to some variations. On 1 July 2019, standing offers in South Australia will be capped under the Commonwealth’s default market offer (DMO), as set by the Australian Energy Regulator (AER).

The Essential Services Commission of South Australia monitors and reports annually on energy retail prices.

Retail market structure

The structure of a market influences the conduct of its participants and in turn the performance of the participants and outcomes for consumers as a whole. The Commission analyses a range of factors, including market concentration, customer switching and barriers to entry, expansion and exist to assess market structure. The key findings of this analysis for Queensland are outlined below.

  • Electricity market concentration, as measured by the Herfindahl-Hirschman index (HHI), declined by 2.8% (76 points) to 2,656 from December 2017 to December 2018. South Australia is the third least concentrated market in the NEM based on the HHI.
  • Gas market concentration declined by 150 HHI points to 2,925. South Australia is the third least concentrated gas market.

Changes in retail market concentration by jurisdiction are set out in the figure below.

Short-term changes in market share, 2015-16 to 2017-18 (electricity) — Residential

Source: AER and ESC data, AEMC analysis. Description: Queensland refers to South East Queensland. The market share measures (and related HHI calculations) were taken from the fourth quarter of each financial year. The exception to this is the 2018-19 year, where the measure is taken from the second quarter of the financial year and therefore does not represent the entire year. For the best experience please view this chart on a desktop computer

Independent rivalry

Consumer switching activity can provide an insight into the level of independent rivalry among retailers in a market and also influences levels of market share. Information about consumers switching between different types of retailers (such as switching from one big 3 to another, or from the big 3 to tier 2 retailers) provides an indicator of progress in achieving effective competition in a market. Further, the rate of switching between the big 3, and from tier 2 retailers to the big 3, provides an insight into how effectively retailers who have historically enjoyed the benefits of incumbency are competing for consumers.

Switching rates between retailers are shown in the figure below.

Consumer switching within and between retailer tiers, 2012 to 2018

Source: AEMO data. AEMC analysis. Description: Queensland refers to South East Queensland. Big 3 in the Australian Capital Territory includes ActewAGL.

Retailer views on market structure

In addition to examining observable market share data and trends, the AEMC conducts a retailer survey and interviews to obtain insights from retailers of various sizes about what they believe is affecting market structure, the state of competition in the energy market and factors that retailers consider will influence the market in the future.

For South Australia a number of retailers commented that:

  • there is increased political and regulatory intervention across the NEM. Further, retailers were critical of the Commonwealth Government’s proposed default offer market (noting that interviews were held before the Commonwealth Competition and Consumer (Industry Code – Electricity Retail) Regulation 2019.)
  • there continues to an issue with contract market liquidity in South Australia.
  • it had become slightly easier to get access to wholesale gas contracts over the past year, after the Prime Minister’s gas roundtable in September 2017.

Pricing practices, products and innovation

The AEMC examines how retailers compete for customers through price and non-price offerings in relation to small consumers in both the electricity and gas markets.

To analyse pricing and product innovation, the Commission examined a range of possible bill outcomes for a representative South Australian customer as follows:

  • For residential non-solar offer - annual consumption of 3,800kWh (Ausgrid), 4,900 (Endeavour Energy) and 4,600 (Essential Energy), all with no controlled load
  • For residential solar offers – as above and with a 3kW solar PV system on a flat tariff.
  • For small business offers - annual consumption of 20,000 kWh
  • For residential gas offers - annual consumption level of 24,387MJ.

Standing and market offers

The below table shows the proportion of small customers on standing offers for electricity and gas and shows that in South Australia 91 per cent of electricity customers and 89 per cent of gas customers are on market offers.

Proportion of small customers on standing offers in 2018

ELECTRICITY STANDING OFFERCHANGE FROM 2017 TO 2018GAS STAND- ING OFFERCHANGE FROM 2017 TO 2018
Queensland*24%↓ 4%
South East Queensland15%↓ 5%
New South Wales14%13%↓ 2%
Australian Capital Territory51%↓ 19%49%↓ 19%
South Australia9%↓ 3%11%↓ 2%
Tasmania**92%↑ 2%
Victoria***6%↓ 1%7%↓ 2%

Source: AER retail statistics and the ESC's Victorian Energy Market Report 2017-18. Note: rounded figures may not sum to 100 per cent. Data as of December 2018, except for Victoria which is based on 2017-18. Note: *Gas statistics are Queensland-wide and electricity statistics are for the deregulated region (South East Queensland). **While Tasmania has three gas offers, the AER does not publish customer numbers. ***Victorian numbers are based on residential customers only.

The figure below shows:

  • The minimum residential electricity market offer bill fell in South Australia.
  • The spread of residential electricity standing offers in South Australia increased with the minimum standing offer falling by nearly 12 per cent.
  • Standing offers for small business electricity customers decreased.
  • The median residential gas standing offer increased slightly and the median offer was closer to the minimum offer in the market with a cluster of offers in the lower price range.

Median residential standing and market offer bills

Pricing behaviour of retailers – standing and market offers

As shown in the figure below, South Australia, there have been a number of new offers priced substantially below the second lowest offer in 2018. However, there has not been the same reduction in offers at the higher end observed in other states.

Similar to other jurisdictions, there has been a substantial increase in the number and proportion of no-discount and fixed priced offers. While the no discounts offers are amongst the lowest priced offers in the market, in contrast to other jurisdictions the fixed priced offers are largely on higher priced offers. The second figure shows that the lowest offers in the market are from a new or emerging retailer.

Distribution of representative bills by offer type

Distribution of representative bills by retailer type

Discounting of the big 3

In order to assess achievable discount levels available to customers, the Commission sought and gathered data from retailers. The below figure presents this data across jurisdictions for the big 3 to provide trends in discount levels over the two years.

Discounting levels of the big 3

DOWNLOAD CHART DATA [1.78 kB CSV]

Source: Retailer data, AEMC analysis.

Switch and save

By switching from the median standing offer to the cheapest market offer, residential and small business consumers can save the following.

Switching from standing offer to market offer savings - South Australia

NetworkCustomers on standing offers (%)Annual bill saving (% of bill)
Residential electricitySAPN9%$760(41%)
Residential GasAGN Metro/Barossa/Peterborough11%$277(23%)
AGN Riverland/Murray Bridge$125(11%)
SME ElectricitySAPN15%$4132(46%)

Source: Energy Made Easy (accessed 1 March 2019). Note: Standing offer proportions are for the whole state while the savings are based on the indicated distribution zone.

Consumer behaviour

In order to determine consumer behaviour the AEMC examines consumer:

  • preferences
  • sentiment and confidence
  • trust in the energy market
  • actual and intended activity.

In an effectively competitive market the expectation would be for consumers to have increasing confidence in their ability to make decisions over time.

Residential consumers

Data on residential consumer sentiment is sourced from the ECA's biannual Energy Consumer Sentiment Survey (the ECA Survey). Survey results have been compared on a year-to-year basis due to seasonality in the biannual survey responses. The ECA survey results show that September/October results are generally more pessimistic than April.

Key changes in residential consumer behaviour in South Australia were:

  • More customers in South Australia switched retailers (20.6 per cent in 2018 compared to 16.8 per cent in 2017).
  • Slightly fewer consumers indicated an intention to switch retailers in the next 12 months (17 per cent in April 2019 compared to 20 per cent in April 2018).
  • The main reason stated by consumers for switching was they searched for a better deal on a comparison website (31 per cent) and/or were not satisfied with the value for money from their retailer (31 per cent).

Overall customer switching electricity

Source: AEMO data, AEMC analysis. Description: Data does not include where a customer has changed plans with their current retailer. Queensland refers to South East Queensland.

Overall customer switching gas

Source: AEMO, AEMC analysis. Description: Data does not include where a customer has changed plans with their current retailer. Queensland refers to South East Queensland.

Residential consumer confidence in the energy market increased in 2019. In April 2019, compared to April 2018, confidence in South Australia that:

  • the market is working in consumers’ long-term interests was 29 per cent (up five per cent)
  • they can make good decisions was 67 per cent (up five per cent)
  • they can access easily understood information was 51 per cent (up two per cent).

Residential consumer sentiment survey – conduct results

Small business behaviour

Key changes in small business consumer behaviour in South Australia were:

  • Business engagement in South Australia has somewhat increased in the past year with less businesses intending to switch, or having actively investigated different energy options. There was a reduction in businesses’ propensity to switch from 68 per cent in 2018 compared to 58 per cent in 2019.
  • The level of confidence among South Australia businesses to find the right information to select a retailer or plan decreased by five per cent to 54 per cent.

For all the South Australian small business sentiment survey results, see the Colmar Brunton report.

Outcomes for consumers

In order to assess the outcomes small consumers are achieving from the market, the AEMC examines small consumer perceptions and observable data on the following:

  • consumer satisfaction as measured by consumer surveys
  • observable data on:
    • the level of consumer complaints to retailers and Ombudsmen
    • disconnections
    • customers in hardship.

In a well-functioning competitive market, customers who engage can drive better outcomes for themselves and the market overall by influencing the design of products and levels of service provided. A high proportion of customers who are generally satisfied with difference aspects of the market can signal an effectively competitive market.

Residential consumer satisfaction

In April 2019, compared to April 2018, satisfaction in South Australia with:

  • the level of competition was 50 per cent (up three per cent)
  • customer service from electricity retailers was 61 per cent (up eight per cent)
  • the value for money of electricity retailers was 46 per cent (up eight per cent)
  • customer service from gas retailers was 67 per cent (up eight per cent)
  • the value for money of gas was 59 per cent (up six per cent).

Residential consumer sentiment survey – outcomes results

Small business satisfaction

In 2019, compared to 2018, satisfaction in South Australia with:

  • customer service from electricity retailers was 58 per cent (up 28 per cent)
  • the value for money of electricity was 39 per cent (up six per cent)
  • choice of energy companies and plans was 24 per cent (up eight per cent).

For all the South Australian small business sentiment survey results, see the Colmar Brunton report.

Summary of key statistics

The below table provides a summary of the key market statistics for South Australia.

South Australia: Electricity

CategoryMeasurePeriod2014 review2015 review2016 review2017 review2018 review2019 reviewsource
SA
Market characteristicsNumber of small customers ('000)As at end of previous financial year820830841848862AER retail statistics
Number of retail brands / businessesAs at end of previous calendar year13 / 1315 / 1318 / 1519 / 1619 / 1523/19AEMC analysis, AEMO data
Independent rivalryMarket concentration (HHI)3,2593,1213,0152,8422,7322,420AEMC analysis, AER data
Market share of Big 382%80%79%78%74%73%AEMC analysis, AEMO data
Customer activitySmall customers on market offers83%85%86%88%Residential: 91% Small Business: 84%AER retail statistics
Competitive retail prices*Range of bill outcomes - SA Power NetworksBetween January and February$1,491-$1,881 ($390 difference)$1,401-$1,965 ($564 difference)$1,429-$3,026 ($1,597 difference)$1,467-$$2,908 ($1,441 difference)$1,106-$2,384 ($1,278 difference)AEMC analysis, Energy Made Easy website

* 2018 data is based on a representative consumer with an annual consumption of 5,00 kWh and no controlled load. 2017 data is based on a representative customer in South Australia with annual consumption of 5000kWh, as at 5 January, 2017. 2016 data is based on flat tariff offers as at 27 February 2016, without GreenPower, for a representative customer consumption of 5000kWh annually. 2015 based on a representative customer consumption of 5000kWh annually. Range of bill outcomes is based on the least to the most expensive (standing or market) offer available in the DNSP area.

South Australia: Gas

CategoryMeasurePeriod2014 review2015 review2016 review2017 review2018 review2019 reviewsource
SA
Market characteristicsNumber of customers ('000)As at end of previous financial year409.00408.00416.00422427435.00AER retail statistics
Number of retail brands / businessesAs at end of previous calendar year5/56/67/6AEMC analysis, AEMO data
Independent rivalryMarket concentration (HHI)As at end of previous financial year3478.003269.003253.003,1903,1882925.00AEMC analysis, AER data
Market share of Big 30.920.900.8888%86%83.00%
Customer activitySmall customers on market offersAs at end of previous calendar year0.820.830.8586%87%AER retail statistics
Competitive retail pricesRange of bill outcomes- AGN Metro/Barossa/ PeterboroughJanuary to March of the review year$869-$1019 ($150 difference)$979-$1,241 ($262 difference)$929-$1,239 ($310 difference)AEMC analysis, Energy Made Easy website
Range of bill outcomes- AGN Riverland/ Murray Bridge$902-$992 ($90 difference)$982-$1,090 ($108 difference)$963-$1,089 ($126 difference)

The review

The Australian Energy Market Commission (AEMC) conducts an annual review of the state of competition in the retail energy market at the request of the Council of Australian Governments (COAG) Energy Council. The 2019 review is the sixth review. The AEMC adopts a structure-conduct-framework performance to assess the state of competition and the outcomes consumers are achieving from it.