Bernard Hickey: Flick the switch to save on bills

New technology will let householders more closely monitor the effect lake levels have on electricity prices. Photo / Mitchell

Back in 1999, Sam Morgan used a new technology - the internet - to change the way buyers and sellers connected with each other in New Zealand. He created Trade Me.

It introduced market signals, auctions and a transparent price that was cheaper than the alternative offered by newspaper classified advertisements.

Seven years later, Trade Me was sold to Fairfax for $700 million.

Now, Wellington-based start-up Flick Electric is hoping to disrupt the electricity-retailing industry in a similar way by using new technology and market-pricing signals.

It wants to make wholesale electricity prices, transmission costs and retailing margins much more transparent to customers in their bills.

And it wants to use smart meters, the internet and a growing range of Wi-Fi-enabled energy management devices to help customers cut their power bills.

Flick Electric launched in June in the Hamilton and Wellington markets after convincing the Electricity Authority it had the financial wherewithal and systems to buy electricity in the wholesale electricity market and then sell it to customers with smart meters.

It launched on Powerswitch last month and is working to get into other cities with smart meters, which are set to be in 90 per cent of homes by 2018.

Flick buys electricity in the wholesale market and then passes it on with a 1.5c/kilowatt/hour margin, plus 40c/day, along with the separately identified transmission and lines charges.

It also breaks out charges for metering. This means as the price of wholesale power goes up and down, so will the electricity portion of the bill.

That price can change hour by hour depending on water levels in lakes, how windy it is and how cold the weather is.

It often means prices are cheapest in the middle of the night when everyone is asleep, or in the middle of the day when people are at work or at school.

Currently, the big "gen-tailers" charge a set price per kilowatt-hour, which means they take the risk if there's a massive spike in power prices, but also benefit when wholesale prices dip.

But there's a cost to consumers for that certainty, which is a type of insurance premium against volatility.

Flick is betting that consumers will be willing to take that risk.

Flick says its customers are saving around 15 per cent on their bills, even taking into account the discounts and specials offered by the other retailers.

Flick's drive towards this new, more transparent pricing is being watched closely in an industry rife with claim and counter-claim about who is responsible for inflation of power bills.

The Electricity Authority has talked up the potential for new entrants such as Flick to apply some extra competitive heat to the retail end of the market.

Flick is hoping the advent of smart meters and new WiFI-enabled power management devices for better control of when hot water heaters, heat pumps and lights are used will mean customers can better use the hour-by-hour price signals it sends.

Households could then change their power-use patterns to take advantage of the cheaper times of the day and year to reduce their bills.

Many in the industry doubt customers will want to take on the risk of a spike in energy costs because of a dry winter or a nasty cold snap, but that risk has reduced in recent years because of the increased amount of base-load geothermal and wind-power generation, which is not dependent on rainfall.

Power-management devices are also arriving that make it easier for households to respond.

Just like Trade Me all those years ago, Flick has the potential to disrupt an industry and hand a lot more control over to the consumer.

The combination of new technology and a functioning market can be a powerful force for creative destruction.

Flick, and a few consumers, will be hoping they succeed in pulling off another Trade Me on the electricity market.