- within Intellectual Property, Environment and Finance and Banking topic(s)
- with readers working within the Technology industries
Default offers were introduced in the retail electricity market in 2019 to reduce “loyalty penalties” and make electricity plans easier to compare. Standing offers are default plans with standardized terms and protections for residential and small business customers that have not actively chosen a market offer or have rolled off a fixed-term market offer.
In The Energy, Senior Consultant Ryan Esplin explains that the primary purpose of the default offer is to cap the prices on standing offers that retailers can set, and it also serves as a reference price for market offers. The Default Market Offer (DMO), set by the Australian Energy Regulator (AER), applies in South-East Queensland, New South Wales, and South Australia, while the Victorian Default Offer (VDO), set by the Essential Services Commission (ESC), applies in Victoria.
Dr. Esplin states that the AER and ESC now use broadly similar bottom-up methodologies to calculate default offers. The calculation is based on what regulators estimate it would cost a prudent retailer to supply a representative customer by stacking up the different components of a retailer’s costs. These components include wholesale electricity costs, network costs, environmental costs, retailer operating costs, a retailer margin allowance for a reasonable profit margin reflecting the opportunity cost of capital and risks, and a small allowance for other costs not already captured in the components.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]