There’s currently a lot of talk about the DMO and VDO and their implications for the Australian energy market. To shed some light on these mysterious acronyms, we ask: What are the DMO and VDO drafts, and what do they mean for your business?
What is the DMO draft?
DMO stands for Default Market Offer. Also known as the “electricity price safety net”, the DMO is an electricity price benchmark issued by the Australian Energy Regulator (AER). Its aim is to protect households and small business customers on standard retail plans from unfairly high electricity prices in South Australia, New South Wales and South-East Queensland.
The draft DMO sets out the approach the AER intends to take in determining the final DMO price, which is scheduled for announcement in May 2023 and will come into force from 1 July. Once the draft DMO has been released, stakeholder groups can have their say on whether the likely price determination is fair or not.
What is most interesting about the DMO is what it says about the likelihood of electricity prices going up, down, or staying the same. This year, given that the probability of prices rising in July is on par with the probability of the sun rising tomorrow, the draft DMO essentially provides an estimation of the price increases consumers can expect in the new financial year.
The AER’s draft DMO for 2023-24, released on 15 March, suggests business customers should expect price increases ranging from 14.7% to 25.4%, depending on their region, while residential customers are likely to see increases between 19.5% and 23.7%.
What is the VDO draft?
VDO stands for Victorian Default Offer. The only significant difference between the VDO draft and DMO draft is that the former is issued by Victoria’s energy price regulator, the Essential Services Commission, and so applies to Victorian consumers. This year’s VDO draft, also released on 15 March, signals that both residential and small business customers across Victoria can expect their bills to increase by a whopping ~30% – the biggest annual price hike on record.
What do the DMO and VDO drafts mean for your business?
In brief, both the DMO and VDO drafts mean that, if you don’t take swift action, you are going to be paying a lot more for electricity in the coming financial year, regardless of where you are based. If you are based in a lucky region, you will be paying around 15% more; if you’re less fortunately located, you could pay >30% more.
These figures will be sobering for businesses that are already doing it tough. Indeed, research by Business NSW shows that rising energy costs were already the number one concern of business owners, even before the DMO and VDO drafts were released.
The good news is that you can push back against rising energy costs by shopping around and comparing energy plans.
As Claire Savage, Chair of AER, explains, "We do tend to see that, when the default market offer rises, other offers in the market also rise, because they are responding to the same sort of cost pressures that we've been analysing. But they should still be offering prices in the market that are lower than the default market offer. So it still makes sense to shop around."
At Zembl, we help businesses buy better. Our market experts specialise in energy price comparisons and can assist you to find the best deal in these challenging times. Check out our website or give us a call today.
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