Yeah we admit it, electricity isn’t the sexiest product. We know nobody goes to bed at night dreaming about that new electricity deal they’re going to buy tomorrow, and we understand why no one is spending hour upon hour carefully researching the trade-offs of each electricity plan like you might when buying a new car or deciding where to go on holiday.
In fact, people spend, on average, only nine minutes a year thinking about energy. Nine! That’s less time than the average person spends thinking about cleaning their oven or whether any of the Married at First Sight couples will actually stay together.
When you boil it down, energy is a means to an end; it powers so many of life’s essentials and luxuries but is not something we give a lot of thought to. We’re fortunate enough to live in an age of information, via the web where it is vastly easier to quickly access information about even the most boring products (looking to upgrade your hot water heat pump? Look no further than here. Want to find out the formula to make the perfect Doughnut? You’ve got it here).
As Steven Levitt and Steven Dubner pointed out in Freakanomics, this has led to less information asymmetry in a lot of industries like real estate, meaning consumers have been given better and fairer prices — although first time home buyers in Australia are likely to disagree.
Sadly, while the information is there, sorting through and comparing each individual offer is incredibly time consuming and tedious, which is where comparison sites have stepped in. Businesses like iSelect, Energy Watch and everyone’s favourite Meerkats with their slightly racist accents, Compare the Market, allow you to quickly assess the best deals of several retailers.
All good then? Not exactly... In The Age, Michael Pascoe has written about how comparison sites for Credit Cards are “primarily sales channels for the banks and insurers that pay to be listed and/or pay a commission when a punter clicks through to buy a product”.
This is not a problem unique to Credit Cards, a 2014 Choice review found that Canstar was the only genuinely valuable comparison site for Insurance policies (yay Canstar!). Furthermore, this isn’t a problem unique to finance and banking: an investigation by Max Starkov found travel comparison sites were making up to 30% commission on every transaction made through their sites, hence forcing all listed competitors to account for this cost in their offers.
When it comes to Energy comparison sites, the problem is just as bad. We compared the people who compare by looking at 10 energy comparisons sites:
|Company||Energy Companies listed||Energy companies listed on site as a percentage of the 41-energy company's found in total|
|Compare the Market||12||29%|
|Make it Cheaper||12||29%|
So, the most popular sites like iSelect, Energy Watch and Compare the Market compare less than 30% of all providers found. This is the case for two thirds of all comparison sites surveyed. Finder and Mozo were the best when it came to number of energy providers listed, but still failed to list one third of the suppliers you could choose.
We also found that some retailers are much more desperate to be listed — and pay handsomely for sales — than others:
|Company||Percentage of Comparison sites they're listed on|
|AGL, Energy Australia, Sumo Power||90%|
|Powershop, Alinta Energy||80%|
|Click Energy, Dodo Power & Gas, Origin Energy, ActewAGL||60%|
|Simply Energy, Red Energy||50%|
|Lumo Energy, Mojo||40%|
|Diamond Energy, GloBird, Qenergy, Sanctuary Energy, ERM Business Energy, Blue NRG||30%|
|Online Power & Gas, 1st Energy, Covau, People Energy, Next Business Energy||20%|
|Energy Locals, Commander, Enova, Aurora Energy, Ergon Energy, Neighbourhood Energy||10%|
Given the commissions charged by most of the comparison sites, we can clearly see who is spending the mega bucks luring new customers.
On the back of the Grattan Institute Report (read our article on that here) it becomes painstakingly obvious why consumers are not getting the cheapest electricity prices when the largest retailers are forking out ridiculous amounts of money to be listed on comparison websites that don’t necessarily give customers a transparent view of the best deal for them.
We’ve chosen to be listed on just a tiny number of sites, and our criteria is this: is the customer in the driving seat of the decision; do they have access to transparent information; and are the commissions charged by the comparators affordable?
We can’t tell you who the cheapest supplier of electricity is because we ourselves don’t know in all honesty. Why we would love to say it is us, it probably isn’t. There’s a good reason for that.
For a start, we believe that the price should be the price. It’s unreasonable to expect someone to be a quantum physicist in order to accurately compare the different rates properly. Therefore we have ongoing great value prices, rather than misleading discounts that quickly erode.
We also reckon that earning profit from the number of units of energy you use is a bit 1970s. We retain a fixed fee for providing our service, and half the profit goes to our community and charity partners, and into new, local renewable energy.
We’ll re-visit this topic again soon and propose some solutions to the problems described in this article. If you’ve got ideas, we’d love to hear them and with your permission get them published.
In the meantime, if you want to know whether we could save you money just email your bill to email@example.com. We’ll compare it transparently side-by-side with our rates and let you know the outcome. We’ll even send you the detailed Excel workings if you like. If we can’t save you money we won’t try to talk you into joining us.
So next time you’re watching a flashy TV ad or driving past a massive billboard, have a think about where the money is changing hands — and how much of it is yours.
Posted by Adrian Merrick
Founder @ Energy Locals