Its been 8 months since we last took a look at the new registrants in the retail electricity sector in Issue 2 of our Chart of the Week. This week we look at whether the growth in retail licence applications has continued and what sectors new retailers are focusing on.
On 1 May 2020, Octopus Energy (an innovative start-up retailer in the UK) announced a partnership with Origin Energy in Australia under which Origin takes a 20% stake in Octopus and gains a licence to utilise Octopus Energy’s customer platform Kraken to help drive down their costs to serve, integrate innovative products and deliver superior customer service. This is the culmination of a number of international retailers that have entered the market in the last 18 months, Social Energy, SmartestEnergy, and Ovo to name a few. Their aim has been to pursue innovative retail offerings that have been lacking in both the residential and C&I space in the retail markets which have been dominated by the top 3 gentailers (who still hold more than 50% of all C&I customers and more than 65% of the residential market). However, this share has been dropping as more competition enters the market.
It seems that this trend of decline in customer numbers has prompted Origin to recommit to the residential retail industry through its investment in Octopus Energy in an attempt to solidify its market leading position (Origin currently holds more than 25% of residential market customers which is 5% of total market share more than its closest competitor AGL).
So will the boom in retail licence application continue into 2020 after a record 16 approved new applications in 2019? Well, so far in 2020 we have had four new retailers apply for registration. Which is actually exactly how many retail licence applications that had been received at this time last year – which had 20% retailer licence growth. In the reminder of 2019, however, there was a flurry of activity in which an additional 12 retailer applications were made and all except 1 were approved (two of the 2019 applications were approved in Feb 2020, one is still pending). It should also be noted that in addition to the full retailer licences there were also three new white label retailers that entered the market in 2019.
Of the 19 new entrants in 2019 most of the companies focused on the residential sector (58%), the others were mostly interested in the C&I sector (26%) and interesting there was a jump in retailer looking to focus exclusively in embedded networks (16%) likely as result of rule changes requiring embedded networks to provide greater access to retail market competition. Currently, the new applications in 2020 are split 50/50 across residential and C&I.
While our initial analysis shows that there has been a limited overall impact on demand due to COVID-19 (excl. a sharp drop in morning peak load), job losses and stresses on households and business is going to put financial pressure on retailers in the short term. However, it is also a great opportunity for new retailers to take customers away from the incumbents by providing customers, who will be seeking better value for their electricity, with innovative offerings. Switching customers is also likely to get easier in the future with AEMO confirming that incumbent retailers will not be notified of a customer switch until the switch to the new retailer has occurred, removing the ability of the gentailer to undercut new entrants through large discounted offers.