The changes to the provision of energy metering services, as part of the Australian Energy Market Commission's Power of Choice reforms, come into effect today. In sum, basic meters can no longer be installed and all replacement meters must be advanced smart meters.
The regulatory changes, which are underpinned by a movement in consumer attitudes towards energy management, should also drive market consolidation in this space as energy retailers grapple with a shifting commercial landscape and focus on:
- building stronger relationships with their customers through new product offerings (such as solar and battery storage) and pricing strategies
- engaging with customer demand for greater insight and control over their energy usage
- enhancing the penetration of 'behind the meter' resources and demand management programs
- dealing with new market entrants providing novel and diverse service offerings and funding strategies
- anticipating further changes to, or expiry of, government schemes supporting renewable energy development.
The trend towards market consolidation is consistent with the experience in the UK following the British Government's smart meter rollout. In that market, we have seen consolidation resulting from energy retailers effectively deciding that digital metering was 'non-core'. This was for a variety of reasons, including a reluctance by some retailers to work with competitors when customers churned, a focus on core regulated activity and also due to availability of financing.
Similarly, we have seen consolidation of metering asset owners in the UK on account of increased competition in the commercial and industrial market. In particular, asset owners with more significant investments and resources in metering businesses and systems have been able to compete more effectively in the higher margin commercial and industrial market (thereby displacing existing participants). Lower profit margins in the residential market (and uncertainties around costs and risks associated with churn, asset failure and evolving regulations) have also resulted in further consolidation of metering asset owners.