Shopping for electricity – Powershop
Recently Meridian established a new retailer in the electricity market, called Powershop. The marketing tells me that:
Powershop is a revolution in the way you buy power. We’re the world’s first online energy store, a retail outlet where electricity suppliers compete for your custom. This brings you a whole new level of choice and control over the way you shop, helping you save money and power.
Effectively you buy electricity in kWh units. You choose how many units you buy and for what period. The price of the electricity varies, depending on how you buy it. For example, if you buy a ‘bulk’ pack, you can typically get a cheaper per unit price than if you buy units in smaller bundles.
At the moment, with Southern Lakes brimming, prices are far cheaper than competing retailers. For example, the cheapest retailer that I could access in Wellington was charging 21.6 c/kWh (taking into account their discount), as well as a daily rate of around 80 c/day. Compare this to Powershop, where I have been buying electricity at around 18-19c/kWh, without any daily charge, and you can see the potential for savings.
The obvious risk from buying through Powershop is hydrological. Meridian (currently the only ‘major’ retailer on Powershop) generates the vast majority of their electricity through South Island hydro generation. If there was a dry winter, I imagine that prices over this period would be higher than that charged by a fixed-price, variable volume contract typically offered by other retailers. Thankfully Southern Lakes are brimming, so that shouldn’t be a problem…
…so long as the power can get from the South to North Island. Just this week the HVDC link that connects the islands tripped, meaning that the islands became electrically separated. As such, Meridian wouldn’t have been able to get their generation north. The threat of such an event occurring again means that Meridian will have to price this into Powershop rates.
At the very worst, if winter prices raised significantly due to hydrological/transmission problems, one can always switch back to another retailer, as Powershop has no contract term (switching costs are pretty low in my experience. I think I’ve changed retailer three times in as many years).
One nifty, if somewhat surprising, trick that I’ve been able to perform on Powershop relates to refunds. The other day I purchased a large block of electricity for just under 20 c/kWh. Later in the day I saw that the price of this unit had fallen to just over 18 c/kWh. I was able to refund the initial purchase and buy the cheaper power.
My experience with Powershop has been entirely positive and I’d recommend it if you can be bothered devoting a little time to your electricity purchasing (hell, even if you can’t be bothered with the transaction cost, you can set a default electricity product to purchase when you run out).
I’m Ari, I head up Powershop.
Great review and thanks for the positive feedback.
Just a couple of points I’d like to raise, in relation to pricing.
Firstly, all of the energy we sell comes from the wholesale market and not directly from Meridian (see my blog post Where does my power come from? for more detail.
Secondly, and more importantly, we stand by our commitment to deliver savings to most customers over the course of a year (more detail is available here). So, even if wholesale prices rise (eg. due to hydrology, or HVDC link failure) our customers should still see savings.
Power to the people!
Thanks for the response Ari, in particular your clarification on ‘where’ the electricity comes from, although the fact that Powershop retailers buy off the spot market doesn’t negate the threat of hydrological and/or transmission issues. In that respect, it’s pleasing to see your second point that Powershop retailers are committed to delivering cheaper power irrespective of such conditions.
I should say “doesn’t *altogether* negate the threat…”
Being the lazy consumer that I am, I let inertia do its thing. Actually I’ve just changed power supplier and have other things to occupy my time with in the interim so changing supplier again is not on the agenda. However, I would be quite interested in a) what you estimate your savings will be over a year (maybe a %age figure?) and b) what your actual savings are in a year’s time. Put it in your calendar to revisit this! 😀
This “getting the benefit of high hydro lakes” I think is a bit of a myth. Reality is that most retailers smooth their prices over time and across the country – you don’t get any great price separation that you’d expect say in the South due to the excess of supply. Nor do you really get cheap prices at night when prices can drop to near zero.
Not sure whether PS are providing a regional variation, but if so they will be exposed in a dry year if buying on spot – because it will be hard to put prices up to real cost – or there is an entrenched and large separation between north and south, eg today prices in the south are $7/MW and in the north $100/MW. If you are charging SI and NI consumers the same price, how do you manage your risk in such situations?
Of course their rationale could be that dry years are rare and they are willing to wear the risk to make hay in the good times.
I tnink most of us actually prefer certainty because we tend to be risk averse. I think that will work against PS in the short term. It will appeal to the net savvy and types that don’t like the fixed cost of landlines etc. Sadly most of them may not have sole ownership of power bills I suspect – either too young or in flatting situations so the simplicity of a bill that can be split might be favoured – so it is going to be a niche market. That said, I’m still not sure of what their business model is though…
I’d add that if PS are buying on the spot market, how can they justify a price of 19c/kwh when prices are averaging about 4c/kwh? 🙂
Costs to serve and retail margin spring to mind. 😛
@insider
They can justify 19c because about 7-8c goes in line charges, another few cents to Transpower, a bit more on “ancillary” services, and some handling (retail) cost. Not difficult to add that up.
Question for Ari – I’m a dual fuel user…but I can’t get gas on powershop so am unlikely to switch…anything being done about this?
thanks
It’s difficult for me to form a counter-factual, as I live with varying numbers of people with varying consumption habits (whether they’re home during the day or not, for example). The way I can tell I’m making savings is if I’m paying less than 21.6 c/kWh (which doesn’t take into account the daily charge by other retailers either). And I definitely haven’t had to pay near that amount yet (although winter will be the telling period, I’m sure).
@louise
Hmm the 7-8c would usually incorporate TP charges as they are just a pass through. But taking yours and my numbers 4 for energy + 7 for lines + 2 for transmission that leaves 6c or 30% for extras and margin based on current prices! That’s quite a lot for utility businesses in a competitive market I’d have thought. Would be interesting to model what their charges might have been if they had launched in 08 to see what their risk is.
The point is, they smooth prices and are not reflecting the true costs at the time, even though they are selling for very short terms and prices are very low at the moment – under $25 average yesterday and under $10 in the SI today – yet charging over 20ckwh for weekly power packs.
That means their risk exposure is much lower because it’s unlikely prices are going to move unexpectedly strongly in that time and they can lock in risk as you prepay. So the deals they are offering may look good but might also involve some very healthy margins.
That said their rates look very competitive. If I weren’t on a fixed contract I’d definitely consider it, especially if they had sharper rates for off peak or low season power.
What this raises for me is why aren’t others doing similar, why are margins so high, and why isn’t the competitive market delivering lower prices than currently (or perhaps this is proof it is). Perhaps the Comcom report out soon will start to ask those questions.
Hi insider.
re the transmission charges, yes they do get passed straight through by lines co’s but they are still part of the value chain. Transpower recovers over $500m per year of capital costs for the grid which are apportioned across all energy users, hence the 2-3 cents. My knowledge of actual number is probably a bit old, lines charges have probably gone up in the last 8 years since I worked in that area!
I would switch to try it out, but i’m dual fuel and as part of package with Nova get free electric daily charges so unlikely to be worthwhile.