Choice, control and transparency are the core elements of one of Australia’s most innovative energy retailers. With their slogan “You’ve had electricity, now you’ve got power!” Powershop began its journey to a new era of energy retailing. I had the honor to have an interview with Ed McManus, CEO of Powershop, at the inspiring HQ of Powershop Australia in Melbourne.
A bit of background to start with!
Australia isn’t particularly a country when it comes to political certainty. And as most of you should know political uncertainty isn’t really beneficial for the deployment of renewable energy sources. Such investments that are generally 25 years projects demand for long-term certainty. So unexpected shifts in political power isn’t really what you would call beneficial to the investment community.
Australia has had five prime ministers in five years time! So you could argue that the political environment has changed. Over recent years power has moved from the Labor party to the Liberals when Tony Abbot got elected. However, shortly after, he got simply removed by Malcolm Turnbull from its own party.
Today, Australia’s energy system is still highly dependent on fossil fuels. About 80 to 90 per cent of its electricity generation comes from fossil fuels with large amounts of coal in the Eastern region. To increase the shares of renewable energy Australia got the Renewable Energy Target (RET) installed years ago. This RET mandates that by 2020 23.5 per cent of Australia’s electricity generation in 2020 will be from renewable sources. Things get complicated now…!
These days it’s difficult to make the investment case for renewable energy sources stack up. Why? Wholesale prices of electricity are too low. Yeah right! This trend is the result of shrinking demand: a lot of large and small manufacturing has gone overseas over the past years and rooftop solar increased seriously. But the thing is… wholesale prices are simply too low to make up for the investment in renewable energy sources. Actually they require way higher wholesale prices. This is exactly where the RET becomes useful.
This policy makes up for the gap between the wholesale price and the actual required wholesale price for making the investment beneficial. It does so by creating Renewable Energy Certificates that are being produced by all renewable energy generators. Retailers have the obligation to purchase a number of these certificates in proportion to the amount of retail electricity they sell, which is around 11 per cent. And the price for these certificates is set by supply and demand: renewable generators producing them and retailers buying them. So the revenue earned by the renewable generator for the sale of certificates is additional to that received for the sales of electricity generated.
So why Powershop?
Powershop is part of Meridian Energy, a New-Zealand energy business that owns and operates two wind farms in Australia. In New-Zealand Powershop started an era of Digitalization in energy retailing by “being a better power company” through the use of an App: everyday insight in energy usage, no more surprises and monthly payment of electricity bills. Soon Powershop realised that it had put consumers back in control, provided more transparency and shared the feeling of power to the people!
In Australia Powershop shared the same mindset and vision but emphasized its green focus. Powershop is very pro renewables! It is not for nothing that Powershop got awarded greenest electricity retailer of Australia second year in row.
At Powershop it’s all about digitalization and a green focus. They want to educate their consumers and stimulate them to change their behaviour to become more energy conscious. Ed McManus illustrated it:
“Imagine, on a really hot day, last Christmas day for example, I was using the Aircon and I was trying to cook a pork in the oven. Next day I could see on my App that it that day had cost me about 11 dollars!”
As a consumer on the App it’s all about choice:
“I can choose what kind of electricity I want to buy. I can choose standard power from the grid, which we made carbon neutral with international and Australian carbon offsets. Or, I can purchase 100 per cent green power from a number of different projects. This power is accredited with Renewable Energy Certificates at a slight price premium to encourage even further investment in renewable energy.”
In this way you basically take out additional certificates out of the market, which affects supply and demand. In theory this pushes the price of certificates up, which makes renewables more attractive! You can even buy future packs, so-called power bundles, that you can just buy ahead of time at a discount. Isn’t that cool?
You know what’s actually cool? Powershop has one of the highest rates of green power purchases in the market! And… They sold even more green power in absolute terms than their biggest competitor that is about 20 times bigger then they are! Well done!
So what about switching customers?
Switching customers is a healthy characteristic for a competitive market. Nevertheless, Powershop wants to breach this so-called paradox in a market that is characterized with a high percentage of switchers. Do you know what actually happens? After signing up with an energy retailer you’ll probably get electricity at a base rate plus the discount for usually twelve months. But…! After these twelve months the discount appears and you go back to paying higher money and paying too much!
It’s weird though? You would think that loyal customers should be rewarded for being loyal! However, it is the switching customer that pays the less! Powershop’s policy is all about equality and no-nonsense. Whether you join up today, tomorrow or in one year’s time, everyone pays a certain rate to get access to a discount and everyone gets that discount.
“So, if you ring us tomorrow and say “Hey Ed, I’m thinking about changing, but I have another offer from someone else. Can you meet that offer?” Then our answer is NO, because everyone gets the same.”
At Powershop they want to educate their consumers that they don’t have to switch every year to lower your electricity bill.
Educating their consumers about one of the most complicated markets and one that is characterized with mostly sleeping customers is what Powershop thinks is the most difficult task. Competition is big in Australia. About 25 different energy retailers operate in this market of which three belong to the biggest utilities of Australia. So at Powershop it’s all about being different in their marketing campaigns to highlight that you should join “the better power company”. Ever heard of buying electricity while supporting a worthy charity or your favorite football team?
Powershop and batteries?
Powershop is definitely looking into the opportunities involved with batteries to understand what is really possible! Think of selling your excess electricity at peak wholesale prices. This could mean an additional income instead of having an electricity bill. First it was about digitalization of energy retailing, now it’s about Democratization of the energy system and returning power back into the hands of the consumers.
However, Ed McManus thinks that the appropriate communication around batteries is strictly important:
“I think batteries are exciting and have a huge potential for the community that wants to use their solar energy more efficiently or just wants to become less dependant on the big utilities”! It’s just that customers should be very careful around how the benefit of batteries is sold to customers. The worst thing that could happen for renewables is that people buy this Tesla Powerwall with certain expectations that at his point simply can’t be met. As a result batteries could end up in bad light. At this point, batteries simply might not make financial sense for all customers yet”