Gordon Leslie - 20220525

25/05/2022 Student blogs on their experience changing electricity retailers (for their parents)

I love teaching the students of ECC2460 Energy Markets and Policy. It is a second-year economics elective, but I get a wide-range of enrollees in terms of major (backgrounds include econ, engineering, law, physical sciences and arts) and experience. Building off assumed knowledge of introductory microeconomics we touch on issues of economic regulation, competition and market power, consumer engagement, externalities and externality-correcting policies as they relate to the energy sector. The largest focus is on electricity markets and the policy challenges associated with navigating a transition to incorporate more intermittent renewables. I get to bring in some guest speakers, play lots of game-based exercises with a keen and diverse group of students, and I stay up-to-date with the happenings in the Australian energy transition when I update my figures each year.

Early in the course we discuss the basics of electricity markets. One topic introduces the demand for electrical energy and covers how end-users participate in the electricity sector (which differs depending on the nature of retail competition in your jurisdiction). In our home of Victoria, Australia, we have a long-established market for retail electricity. At Monash, we also have Ron Ben-David as a Professorial Fellow, who was previously the Chair of the Essential Services Commission Victoria (the major regulatory body of retail energy markets in Victoria). Each year he delivers a wonderful seminar that walks students through the history of the electricity sector in Victoria; from the state-owned utility days, to the structural separation of transmission, distribution and generation, to the introduction of retail competition. He then dives more in-depth into the issues surrounding retail markets and frameworks for assessing whether our retail market delivers "effective competition", which begins with a discussion of whether that's even the relevant question when scrutinising the performance of retail markets.

Ron's seminar is a platform for me to run a non-compulsory "bill challenge" - I offer two $50 prizes to students. One prize goes to the person that projects to save the most money by switching their electricity retailer. The other prize goes to the student that writes the most entertaining or informative post. I was motivated to do this by the results of a poll I have run each year during class - "How much does your household pay per kWh?" - I specify in class I am asking about their marginal price and this is the summary of answers I received the past two years:

0-10c/kWh - 1 response
10-20c/kWh - 15
20-30c/kWh - 17
30-40c/kWh - 10
40-50c/kWh - 1
50-60c/kWh - 2
Not on a flat-rate plan - 1
I don't know - 7
I REALLY don't know - 16

There's either a lot of heterogeneity or more likely a lot of incorrect guesses! It makes a big point that competition in these markets isn't like the market frameworks used in Econ 101 - we can't assume perfect information, and we can't assume zero transaction costs; it takes costly time and effort along with some energy literacy to navigate the market and search for a good deal. I think it is important for students to have a go at navigating the real world here to help scrutinise how these core Econ 101 assumptions fail and then consider how you might change the economic framework for viewing markets like these. For example, search costs are inherently unobserved and difficult to quantify, yet essential to consider when asking questions such as "has opening electricity retailing to competition improved economic welfare?" or the like.

One of last year's winners saved a huge amount of money - the exercise led him to discover that his parents' rooftop solar installation was essentially ornamental -- it wasn't connected, what a waste! Rectifying that was obviously a big win! This year I had two terrific entries that I paste below. The first is by Rafiq Muhammad Rashdan who almost blew away one of the points I hope to raise - that there is a lot of heterogeneity in plans offered and most households could make some savings from switching to the best plan for them. Rafiq's family look to be on the best plan available to them. Thankfully, the second entry by Hugo Gill revealed substantial savings, potentially $600 per year. Both pieces provoked an interesting class discussion; centred around things like why the timing of energy use matters for them, and in Hugo's case, the immediate use of some of projected savings to move onto a "green" power plan.

I paste these student blogs below with Rafiq and Hugo's permission. Prospective students, get in touch if you'd like to know more about ECC2460. Prospective employers, get in touch with me if you have an internship or grad program you'd like advertised. I have numerous terrific students such as Rafiq and Hugo come through my classroom each year and will happily connect students and employers.

Cheers,

Gordon

P.S: My experience on real-time pricing was posted in a blog on Feb 2021. It is very much due an update for those following a) the Griddy case study from the Winter storm in Texas that occurred in the weeks following my post, and b) the high-priced happenings of wholesale markets in Australia in the last quarter or so. I'm not sure when I'll get around to it. But as a preview to (b), it is fair to say I'm now experiencing quite a lot of numbness with respect to the prices I face!

Saving for a not-often-home family

by Rafiq Muhammad Rashdan - Saturday, 21 May 2022, 12:40 AM

Number of replies: 1

Hello friends!

Since this is the first post, I'm not really sure how this goes, but I've gone ahead and tried to improve my electricity bill (to no avail). Below, I detail my short- but I hope enjoyable- journey.

We begin of course with the bill:

Immediately, a few things jump out (at me at least):

My family uses a lot more electricity off-peak (yay!)
Our rooftop solar produces a lot of electricity, both in usage terms and in terms of total (it pays for our normal usage!)

Upon further inspection, I found that peak hours referred only to 3pm-9pm every day. Unfortunately, as it turns out, this definition of peak hours is not standard across providers, with some defining it as 8am-8pm weekdays, namely the first two candidates I later discuss (Energy Locals and Arcline).

Looking for a new provider, it made sense to look for the following:

A lower off-peak rate, even if at the expense of a higher peak rate. This becomes a cloudy judgement without the actual data on when electricity is used and thus not being able to compare across different peak hour definitions. Lack of resources however means that I shall treat them the same across providers. In fact, based on anecdotal evidence, the 3pm-9pm definition is probably most accurate for our usage (all of us are either at school, working, or at uni every weekday so peak conscious usage is virtually non-existent), thus any providers with the alternative definition would be much cheaper in reality if their off-peak rates were lower
At least the same feed-in-tariff rate as we currently receive (more is better), especially given the abundance we feed-in thanks to our minimal usage when the sun shines
A lower daily supply charge given it's a significant proportion of the usage cost currently

As a result, after successfully navigating the https://compare.energy.vic.gov.au/ website, I found the cheapest alternatives and compared their offerings. As one does, this prompted me to create an excel sheet calculating the total cost given new rates and other fees but using the current usage.

In all the above tested cases, we couldn't find a cheaper alternative provider! But there are some points to mention and some cases that did have me very excited, even for just a moment.

In particular, both Energy Locals and Arcline provided a great deal on the daily supply charge and this resulted in a lower usage cost ($46.38 from $51.26) where usage cost is the total price of peak times, off-peak times, and supply charge. That was of course until I read the fine print and realised both charged monthly membership fees ($10.49 and $12 respectively) which brought the total cost back in line.

The only other slightly interesting plan was provided by 1st Energy who charged much higher rates and supply charges but provided a $150/year rebate. Incorporating this as a negative monthly fee, unfortunately, it still didn't beat out the current plan.

We will simply ignore Simply Energy because they have nothing going for them in any category...

While I didn't end up saving big through this exercise, it did give me an appreciation for the problems discussed in class from the consumer perspective as well as make me more mindful of my own practices. Just as an example, I typically do laundry in the weekday morning; if I was on a different plan (where peak hours occur during the weekdays) and the sun wasn't shining, I might in fact be more inclined to do all my washing on the weekend! For now, I just feel more justified in doing so.

On the other hand, as an analyst, I also got to thinking what circumstances might make me re-think my conclusions given the considerations I've made here which I've listed below:

The bill discussed was for the February-March period, typically still relatively sunny and hence the feed-in amount is quite large. Obviously, since this is not the case year-round, how much importance should be placed on the feed-in tariff being high in comparison to usage rates, taking the whole year's production into account?
Our household uses very little electricity (5.59 kWh/day) compared to the same sized household in the area (14.54 kWh/day). I wonder if this lends to a relatively unique situation in our case, especially during the summer months. Is our household essentially a mini-generator as soon as the school year begins (my parents are both teachers)? Perhaps more importance should be placed on the tariff!

I've included the consumption pattern above for completeness (we consumed ~7.5 kWh/day in January, still well under the average for a four-person household) because it's not surprising, but I do wish there was more time and more easily available data (how many people keep their old providers' bills?) from the past winter as this might give an indication of possible other plans that may in fact be cost-saving annually, just not for this specific period.

To conclude, I'm very sad to be ineligible for the 'biggest savings' prize but I hope this has been as insightful for you as it has been for me!

Thanks for reading!

Finding a better retailer

by Hugo Gill - Sunday, 22 May 2022, 9:34 PM

Number of replies: 1

After hearing how important it is to change energy retailer, I was keen to get a look at our electricity bills to see how much we were paying. I managed to find the bill for November 2021 - February 2022 where the daily supply charge was 116.41 c/day and 37.03 c/kWh. This seemed outrageously high and got me to find our actual bill which was a much lower 23.4 c/kWh and 93.1 c/day. I don't think my family has ever changed their electricity provider but always complain about electricity being expensive, so I was keen to try and see how much I could save by looking.

In terms of the type of plan to change to, based on my family’s behaviour I assumed that a peak only plan was best for us, but I checked this by looking at our actual energy usage. I was able to download the past 2 years data straight of our Origin Energy portal. This generally confirmed my suspicions, however, we appeared to be using far more energy than I suspected throughout the middle of the day and early morning. I separated the data into 2 sets, past 2 years and 2022. This is because after plenty of time at home in the lockdowns, I thought this was skewing the data. The only 2022 data showed a much clearer pattern of usage after 4pm and briefly in the morning.

After going on compare.energy.vic.gov.au, they said that we currently pay $2,260/year and that we could switch to a plan with a retailer called ReAmped which would cost $1,660/year, a pretty substantial saving. This plan was called the ReAmped Handshake plan and offered 48.4 c/day and 18.12 c/kWh. ReAmped also offers a program called GreenPower which essentially allows you to purchase RECs based on a proportion of the electricity you use. The fee for GreenPower is based on the market rate for RECs and comes out to 2 c/kWh for 50% of your consumption.

This seemed like a much better plan as the per day charge was almost half of what we were paying before and the per kWh charge was 5c/kWh better. To test how good of a savings it is, I went back through our bills and got all the data while our rates were 23.4 c/kWh and 93.1 c/day, which was from 1 August till our most recent bill ending 29 April. This showed a pretty decent saving by switching, coming out at a $291.31 savings (which includes $103.49 which could have been additional savings, but is instead spent buying RECs) over the 270 days I had data for, which comes out to around $1/day savings.

After showing this to my parents they were pretty happy and we have made the switch.