BidEnergy Insights

Evolution Of Electricity Contracting For Multi Site Buyers

Posted by Stuart Allinson on 28-Sep-2016 16:25:23
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In the early years of energy deregulation it made a lot of sense to go to market for a single contract covering all sites. It maximised buyer leverage and provided scale to retailers who could spread their fixed costs over lots of demand. It also made administrative sense to deal with one or two retailers, when the (seemingly) inevitable billing problems arose. On the downside, buying at a single point in time exposed buyers to the rises and falls of volatile energy prices - risking being locked in at a high price for up to 3 years.

A number of factors have since changed, requiring a fundamental rethink in sourcing strategy.

Roll out of smart meters

The market has progressively opened up to interval metering - which records energy demand in every half hour. This enables retailers to make custom-priced offers. By contrast, for buyers using the old accumulation meters (typically measuring three months consumption) their electricity is priced at the average shape of the general population - which by chance may be advantageous or a serious extra cost.

Smart meters enable retailers to separate out or unbundle their energy charges from "poles and wires" charges, thereby eliminating an unnecessary premium for network pricing risk - cheaper for the buyer.

Proliferation of new retailers

Whilst the state-wise privatisation has led to the "big 3" of Origin, AGL and EnergyAustralia - vertically integrated players with generation assets to back their energy price risk - there has also been a proliferation of new entrant retailers - some now with substantial customer bases of 400,000 or more. These retailers have carved out specialist niches - based on customer segments (e.g. Commercial and Industrial focus), channel strategies (e.g. web-based) or product differentiation (e.g. energy and communications). They do not necessarily span a customer's whole portfolio, but can handle a specific part of it (state-based, size and shape-based, unmetered supplies) extremely efficiently.

Digital revolution

The digital age has revolutionised many industries and the electricity industry is not immune. Meter data is the single most valuable asset in a buyer's toolkit and digital technologies have evolved to access, validate, slice and dice data into a form that is useful for buying and ongoing management.

At the same time the digital revolution has changed the dynamics of dealing with multiple suppliers - common data formats and processing algorithms enable category managers to effectively handle half a dozen retailers compared to one or two traditionally.

How can buyers take advantage?

By slicing up the portfolio and staggering the "go-to-market" electricity buyers can subject their supply to continuous market testing. By opening up their portfolios to multiple retailers, the market will determine t he most efficient total cost solution, whether that is a contract with single retailer, or in the extreme, a retailer for every site. A common enterprise platform enables the ongoing administration of supply contracts and the use of data for energy and greenhouse gas management.


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