Report: Smart Moves for a Smart Market

Smart Moves for a Smart Market: Simple steps to ensure consumer protections keep pace with innovation in a hi-tech energy market takes an in-depth look at the emerging demand-side energy market, including the technologies and services that will come with it. This market will enable consumers to directly engage with their energy consumption, or create market space for third-party energy services to consumers. It also introduces the need for consumers to move away from a single vertical relationship with their energy retailer in the provision of energy services, to a cluster model where consumers may have multiple relationships for the provision and sale of both their supply and demand.

While these changes offer possible benefits for consumers, this increasingly complex market will also create challenges, regardless of whether consumers opt to engage with these new technologies and services or not. Those who might benefit from engaging will face a complex and confusing marketplace, and those who do not engage—through choice or exclusion—may be excluded from realising energy savings.

The report identifies the key opportunities and risks for consumers in this evolving market, and highlights the sentiments and concerns of real consumers about emerging energy products. In it, we argue that it is critical to the success of the demand-side market that strong consumer protections are included from the outset to ensure that consumers have the confidence to participate and can see the benefits straight away. Without this, the development of a demand-side market may fall short of delivering the desired market benefits of greater efficiency in investment and use of infrastructure.

Key Points

  • The energy market is becoming more complicated for consumers with continued focus on creating a robust demand-side market. However a smarter market does not need to mean a more complex market.
  • Consumers in a complex market place do not always make rational or logical decisions, or even decisions that are in their best interests. Classical economic theories and policies won’t ensure engaged consumers or efficient and effective competition for demand-side products and services.
  • The lessons of behavioural economics will be fundamental to getting the demand-side market right for consumers. This includes recognising that:
    • Framing of products and services will influence consumer take up. Consumers are more likely to choose a product or service that is framed as low risk or includes a reward.
    • Choice overload will lead to paralysis. If consumers have to compare too many products or services, more often than not they will choose to not to change from what they already have.
    • Consumers will base decisions on approximate measures where the information available to them to inform the decision is too complicated or choices too vast.
    • Consumers have a default bias, and value things more once they have already ‘owned’ them. They are therefore more likely to accept the status quo, or the existing product, over change.
    • Use-pattern mistakes are common. Consumers make decisions thinking they can change their behaviour to receive an offered benefit, when in reality changed behaviour is unlikely, leading to consumer detriment.
  • Consumers must be empowered to engage with the demand-side market, or both consumer and market benefit will not be realised. To make this happen:
    • Consumers must see the benefit of all new products and services. They must be designed with consumer preferences in mind and ensure that financial benefits flow directly to consumers.
    • Privacy and data security must be addressed from the outset. By far the biggest concern of consumers surveyed for this research was about the security and privacy of their consumption data.
    • All consumers should be able to access the market including vulnerable, disadvantaged and non-English speaking consumers. The potential for market exclusion is high.
    • Information must be clear and relevant. Contract terms and conditions, technology costs in bundled contracts and product information sheets must be simple, accurate and engaging. Disclosure of information about product attributes and use will also be essential.
    • Flexibility will be essential. Long-lock in contracts and undue exit fees will not allow consumers to realise benefits as their situations or understanding change.
    • Increased standardisation of products and services will be necessary. This should not be so onerous as to limit innovation, but undertaken to ensure maximum comparability of products and services for consumers.

[1] Graham, P. et al, The Heat is On: The Future of Energy in Australia, Commonwealth Scientific and Industrial Research Organisation (‘CSIRO’) Australia, 2006, pg 35
[2] See, for example, Energy Reform Implementation Group (ERIG), Final Report – Energy Reform: The way forward for Australia, 2007 and Australian Energy Market Commission (AEMC), Power of Choice review – Giving consumers options in the way they use electricity, Final report, November 2012
[3] See for example, Energy Networks Association (ENA), Smart reform – People, Power, Price, Discussion Paper, June 2013 and The Futures Project, Energy Futures Enquiry, Using social media to capture the wisdom of crowds and identify consumer preferences in regards to energy delivery technology over the coming twenty years, May 2013
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