What you need to know about energy discounts
Confusing discounts, complex jargon and more energy options than you could imagine. Here’s some simple truths about an overly complicated market.
“Pricing itself is a very concrete way for people to make comparisons, but there seems to be this unreasonable expectation of consumers to be able to understand the complexities of energy pricing,” explains Dr Paul Harrison, senior lecturer and Unit Chair of Consumer Behaviour in the Department of Marketing at the Deakin University.
“We know people use simple mathematics to make choices, so where pricing is complex, a discount acts as a shortcut. For example, people know a 15% discount is more than a 10% discount, so it becomes about headline numbers rather than people doing their own calculations.”
Discounts can be problematic for energy customers, because of how difficult it can be to compare prices and deals across the board. That’s because different retailers can offer the same discount, but the base rate they’re actually discounting can vary from retailer to retailer. So, while a 40% discount may look good on paper, you might end up paying more than you think if the base rate is inflated.
What else should you look out for?
Check your terms
Before you try to determine the quality of a discount, it’s worth getting to grips with exactly what costs make up an energy plan and bill. The split will vary depending on your provider, but some common terminology you might come across on your bill is:
- Usage charge – This is calculated by multiplying the usage rate by the number of units you use. The usage rates usually appear on your bill as cents per kilowatt hours (c/kWh) for electricity and cents per megajoule (c/MJ) for gas.
- Supply charge – Also known as a service charge, this is a set daily amount your energy retailer charges for supplying energy to your home – regardless of how much or little you use.
A standard household energy bill is mostly made up of usage charges (usage rate x energy consumption) plus your supply charge. But it can also include other charges such as green (when you opt to pay a few dollars a week for AGL to source more renewable energy) or demand charges. For more information on your AGL Energy Bill, see our bill explainer.
Clarify what’s actually discounted
Is it the usage charge only? Or the supply charge, too? What’s actually being discounted can vary between energy providers and the different plans they offer.
Next, check the underlying rates that are being discounted. These vary between providers too, so if you’re only looking at the discount percentage you could be comparing apples with oranges. For example, if a provider offers a higher discount than you currently receive but their rates are much higher to begin with, it might not be a better deal after all.
Checking these few things and doing the calculations will ensure your comparisons are on point.
Consider the conditions
There are many different types of discounts, some of which are conditional like pay on time, direct debit, etc. If you’re choosing a discounted plan, make sure you know which conditions apply so you don’t miss out.
Is there such a thing as too much choice?
“One of the things I see emerging is this idea of overwhelming people with information,” says Dr Harrison. “People often think if they’re being given lots of choices and lots of information, then they’re getting a good outcome.”
It’s something that’s common with household door knocking – something which AGL is no longer doing – where there can be an enormous amount of detail to digest before you’re quickly encouraged to make a decision on-the-spot.
And in the energy market – where there are numerous providers vying for your attention – it can be a challenge to feel confident in your decision. Because what if an even better offer crops up?
In fact, choosing an energy plan can feel a little like shopping in the Boxing Day sales – there’s a lot of time and effort involved in searching for that ‘unmissable’ deal. And a lot of time spent wondering if it even exists.
Dr Harrison’s advice?
“Don’t be too hard on yourself – just be willing to put a little bit of time and effort into renewing or reviewing your decisions from time to time.”
What is AGL doing to address this?
AGL has introduced a new plan called AGL Essentials, which makes everything clear cut, removing discounts by simply offering low rates. It’s a plan that combines value, ease and certainty, so you can relax knowing exactly what rates you’re on for the next 12 months.
See AGL’s low rates, plan details and Basic Plan Information Documents here.