The Wave of Retailer Exits, Why Smaller Electricity Companies Are Leaving NSW

Since 2019, numerous smaller electricity retailers have exited the NSW residential market, citing unsustainable wholesale price volatility, hedging costs, and regulatory compliance burdens. This article examines the factors driving these exits and what they mean for competition and consumer choice.

NSW's electricity market was fully deregulated in 2014, removing government price caps and allowing new retailers to enter. Over the following years, dozens of new entrants competed on price, innovation, and customer service. However, the market structure heavily favours large, vertically integrated retailers who own generation assets and can hedge wholesale risk internally.

Smaller retailers without generation assets must buy electricity from the wholesale market or through financial hedge contracts. When wholesale prices spike, which can happen during extreme weather, generation outages, or interconnector failures, these retailers face significant financial exposure.

Several factors converged to squeeze smaller retailers. Wholesale electricity prices spiked dramatically during 2017–2019, partly due to the closure of coal-fired power stations including Hazelwood in Victoria. The cost of financial hedging contracts rose sharply, and the Australian Energy Regulator tightened compliance requirements following the 2018–2019 retailer failures.

Smaller retailers without generation assets were exposed to unhedged wholesale price spikes. Some faced multi-million-dollar losses in a single settlement period. Notable exits included GoEnergy and ERM Power's retail arm, among others. The Retailer of Last Resort (ROLR) framework was activated multiple times to transfer customers from failed retailers to larger ones.

The exit of smaller retailers has consolidated market share among the three dominant retailers, Origin Energy, AGL, and EnergyAustralia, who collectively serve over 70% of NSW residential customers. This reduces price competition and limits the product innovation that challenger brands typically drive.

Customers of failed retailers were automatically transferred to retailer-of-last-resort arrangements, often at higher default rates. While these customers could subsequently shop around, many remained on the default rate, effectively paying more than necessary.

For electricity customers, fewer retailers means less competitive pressure on pricing and fewer innovative product options. It also means that the remaining retailers have greater pricing power, particularly in the default (standing offer) market.

Customers should compare plans regularly, as the competitive landscape is narrower than it was five years ago. The consolidation trend also underscores the importance of choosing financially stable retailers, a retailer failure, while manageable through the ROLR mechanism, creates temporary uncertainty and potential rate increases.