Tens of thousands of customers of an electricity retailer have been told to find a new supplier or face a doubling in prices within days as the toll from soaring wholesale prices grows. Related issues in the gas sector have also prompted regulators to act.
Just days after the energy regulator ordered increases of as much as 18% for household and small business power prices, New Zealand-based ReAmped Energy has taken the unusual step of telling its 70,000-plus customers across eastern Australia to take their contracts elsewhere.
“The markets are just rocketing daily,” Luke Blincoe, ReAmped’s chief executive, said. “The best thing we can do is advise customers to look elsewhere because the price increases that we will need to put through are so significant that we just would rather they were elsewhere and getting better deals.”
Wholesale power prices more than doubled in the March quarter from a year earlier for eastern states. Higher fuel prices from Covid-related disruptions and, more recently, sanctions in the wake of Russia’s invasion of Ukraine were the main drivers. At the same time, outages of as much as one-third of coal power capacity have added to the woes.
ReAmped said it told its customers to shift “before it’s too late” because several retailers have already started “to pull up the drawbridge”. Those who remain can expect a price increase within the next week as the company resets costs.
Blincoe said the big three retailers – AGL, EnergyAustralia, and Origin – all stand to retake market share since they also controlled generation, and their costs had not risen significantly.
“They make a big margin on the wholesale market, which is, as I see it, above retail market,” he said. “The extraction costs of gas [and other fuels] haven’t changed, but the global commodity price has so that you can draw your conclusions for those guys’ profit.”
Access to AGL’s 4.5 million customers was one of the reasons Canadian asset manager Brookfield joined billionaire Mike Cannon-Brookes in a bid to take that company private earlier this year. That bid was rebuffed, but Cannon-Brookes has lately succeeded in blocking AGL’s demerger plan and may make another tilt at a takeover.
ReAmped joins Weston Energy as among the companies telling customers that it couldn’t meet contracts at existing prices. Weston, a gas supplier, said on 23 May that prices had risen more than 180% since April and were more than triple the level at the start of 2022.
With winter demand typically the heaviest on the grid and for gas during the year, the price problems may worsen further, just as the Albanese government takes over.
“This could get nastier than it already is,” Tony Wood, a senior energy analyst at the Grattan Institute, said. Retailers and some large industrial users who had been buying from the spot market or had only limited hedging strategies “would be in deep shit”.
Still, the loss of some smaller retailers might not greatly impact the overall market since many offered limited product differentiation but did add costs. He said that one challenge would be ensuring the transferred customers didn’t end up with the worst deals provided by their new suppliers.
If there is any political fallout from the failure of retailers, it may end up with the states rather than the federal government.
“When we’ve had blackouts as we did in South Australia in 2016, and then we had brownouts or rolling blackouts in Victoria in 2017, it was the state governments who were in the firing line,” Wood said.
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The Australian Energy Market Operator was unaware of the ReAmped notice to its customers. The market regulator, though, had already had to respond to the exit of Weston Energy and the triggering of a so-called gas retailer of last resort measure to ensure customers could keep receiving supplies.
The measures involved capping wholesale gas prices in Victoria at $40 per gigajoule, a limit that will remain in place until the cost of gas drops below certain thresholds.
In Sydney, Aemo has also had to intervene to set a clearing price for gas for four weeks in the wake of Weston’s departure. Since that price was “significantly lower” than spot prices at other gas trading hubs daily, the quantity of gas available in the city had also fallen sharply.
On Monday, Matt Kean, NSW’s energy minister, ordered Aemo to administer a price cap – also at $40/GJ – until 7 June. That put Sydney’s prices back on par with Brisbane and Victoria.
Kean has been approached for comment.
Aemo plans to work with market participants and take action as needed to mitigate any further supply issues at the Sydney hub.
In a statement on Tuesday, Innes Willox, chief executive of the national employer association Ai Group, said: “Apocalyptic rises in energy prices threaten chaos for industry and pain for households. They demand a national, integrated, and strategic response.
“The extraordinary price rises, including a 50-fold spike in wholesale gas prices in Victoria, have seen market price caps imposed in some of our largest local energy markets,” Willox said.
“With Europe announcing further steps today to wean itself from Russian energy, we can expect international factors to sustain high energy price pressures for years to come – especially in natural gas.
“The price paid is already intense for those businesses who’ve found themselves suddenly needing new energy contracts amid local and global turmoil,” he said. “Households will feel the punch from higher default electricity prices from July, and more pain is coming for all.”