How does the energy industry work?
Lights go on. Lights go off. In many ways, we take electricity for granted. When was the last time you turned on your lights and said ‘WOW, this is amazing!’? It’s a fantastic service that we all depend upon. But to most people it’s a bit of a mystery – your bill comes once a quarter – you pay it – and we carry on turning those lights on and off. But how does it all work? Who does what? Where exactly does that money go?
SO WHO ACTUALLY RUNS IT?
The first thing to note is that in Australia, as in much of the world, there isn’t just one company involved in supplying electricity – there are multiple companies and stakeholders, along with numerous regulatory bodies. The people who generate the electricity aren’t necessarily the same people you pay to use it.
The energy industry is a regulated market, meaning the government controls certain things, such as who can enter it and what they can charge. After previously being state-run, the Australian retail energy industry has been progressively moving to full competition in the Eastern states since 2001. This has allowed private companies to enter the market for the first time.
The Australian energy industry is made up of three broad sectors; generation, network and retail. This is not too different to many other industries. Consider groceries, where you have farmers who produce the food, logistics companies that package and transport it and supermarkets that aggregate and sell the end product to consumers.
Generators produce the electricity in far flung parts of the country (historically close to coal mines). Traditionally most electricity is produced through burning fossil fuels, although there are now multiple sources of renewable energy. In the Eastern states, this is carried out by privately owned companies.
The networks transport the energy from the generators to your home. This takes place over several stages, during which the voltage dramatically changes as it passes through substations in the transmission and distribution phases, before finally ending up in your appliances. In NSW this is currently government owned (although leased to a private consortium Transgrid).
The final stage of the process is retail – the selling of electricity to consumers. Retailers own the customer relationship; they manage billing, pricing and provide customer service. This is generally managed by private companies. At Mojo, we’re an Australian retailer on a mission to be net renewable by 2024. That means we don’t own energy asests but we have contracted most of our future wholesale electricity through PPA’s with solar farms.
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