Where does my power come from?

A question we have frequently been asked since we launched is ‘where does my power come from?’

The short but somewhat unhelpful answer is no one knows!

Engineers and economists alike would love to be able to track the path of electrons around an electricity system. Unfortunately, this is simply not possible; after all they travel at the speed of light!

Instead of tracking where power actually comes from and where it goes to, the electricity industry has a complex web of regulations and contractual structures that, amongst other things, defines ‘ownership’ of energy at various points in the chain.

In simple terms, all generators sell their energy to the Australian electricity market – the wholesale market – (at the point where power stations connect to the national grid). Similarly, all retailers buy the energy they sell to customers from the wholesale market (again at the point that the local lines company connects to the national grid). What this means is that all retailers are selling customers energy that is purchased from the wholesale market, whether or not they also generate power.

So, while generators cannot actually sell the power they make, they sell retail electricity (bought from the wholesale market) directly to customers for two main reasons:

1. To earn retail margins.
2. To reduce the financial risks they face on the wholesale market.

Essentially, these ‘generator-retailers’ are re-packaging wholesale energy for on-sale directly to customers.

Now introduce Powershop into the mix and life gets really interesting! Powershop essentially takes over the role of the retailer in terms of packaging up energy bought from the wholesale market and supplying this to customers. However, we have also introduced a ‘marketplace’ that allows both existing electricity retailers and new brands to sell ‘energy credits’ that customers can purchase and redeem against their consumption. The sale of these energy credits allows retailers to earn margin and manage financial risk in exactly the same way as direct retailing does now.

But the real value of the marketplace is what it does for customers. Customers can very simply and easily choose whom they buy their energy credit products from. This is a much smarter way to buy your power. Powershop’s retail brands need to work hard to ‘earn’ custom – rather than by default through the current love-hate relationship most people have with their power company. Our brands must provide products that are either competitively priced, or that genuinely add value to customers – purchases may give customers loyalty rewards, or entry into prize draws or products could involve the purchase of carbon offsets, or come with a commitment from the retailer to generate from renewable only source, it might involve supporting a community cause. This is true retail. Sellers need to work hard to develop products that customers want to buy.

Powershop makes no apology for introducing this competitive dynamic into electricity retailing – Power to the People!