The Australian Energy Regulator (AER) has called for ‘game-changer’ reforms to the way the nation’s energy system approaches vulnerability among consumers.
Launching the AER’s new consumer vulnerability strategy today, AER Chair Ms Clare Savage said the strategy recognises that Australia’s energy market is growing ever-more complex and impenetrable for many in our society.
“For as long as I’ve been in this role, I have felt the weight of responsibility to do all that we – as an industry, and wider society – can do for those energy consumers experiencing vulnerability,” Ms Savage said.
“In the past, the energy sector has been focused mainly on addressing payment difficulties, but our research has helped us to understand that this is just the tip of the iceberg when it comes to improving outcomes for consumers experiencing vulnerability.
“We’ve listened to real-life experiences, consulted with experts, and questioned current approaches to identify what we will do differently to get better outcomes. “We know that 44% of Australians have literacy levels below what is considered enough to get by in everyday life, one in five have a disability, and almost half the population will live with mental ill-health issues at some point in their life.
“As COVID-19 demonstrated, life can make any of us vulnerable, at any time. Unexpected life events can lead to a spiral of mounting bills, debt and great despair. The average debt of customers on hardship programs is around 30–40% higher as at June 2022 compared to pre-pandemic levels.”
Around 2.7 per cent of residential energy consumers have debt longer than 90 days. For people at that point, the average debt is $1000. By the time they get access to a hardship program, that average debt has often grown to more than $1700. For a quarter of those customers, their debt is greater than $2,500.
“When your budget might allow a spare $5 or $10 a week, coming back from $2500 worth of energy debt would be almost impossible - it would certainly feel insurmountable,” Ms Savage said.
“We also know that consumers experiencing vulnerability tend to be less able to adopt technology and modify their energy use in response to higher prices, and less able to shop around for a cheaper deal.”
Energy businesses also face challenges, risks and costs in supporting consumers experiencing vulnerability.
“We’ve identified $645 million in quantifiable financial costs driven by vulnerability each year. As part of this figure, consumer-facing energy businesses spend considerable amounts in assisting consumers experiencing vulnerability,” Ms Savage said.
The strategy – Towards energy equity: A strategy for an inclusive energy market – details 15 specific actions: to tackle market complexity, remove barriers to participation, increase protections, and improve affordability for all consumers by reducing retailers’ cost to serve customers.
The strategy seeks to tackle the enduring issues that prevent people from getting what they need from Australia’s energy system and reduce retailers’ overall costs that come from supporting consumers experiencing vulnerability. Action 15 is simply titled ‘Advocate for sector-wide “game changer” reforms’.
“The “game-changer” action recognises the enormous potential in the energy sector to innovate and better allocate resources to not only provide a safer, healthier experience for consumers but also potentially save money and resources throughout the system.”
The “game-changer” aims to better balance cost and risk within the energy sector so that consumers experiencing vulnerability are identified early and get the support they need to improve outcomes.
“We have already begun work with a cross-sector group that will work collaboratively to design such a ‘game-changer’ solution, and in 2023 we intend to commence the broad advocacy to bring that solution to life,” she said.
“It’s critical that consumers are not left behind and that they feel confident that Australia’s transitioning energy sector is working for them.”