Each year in May, the media makes a lot of noise when the Essential Services Commission releases the Victorian Default Offer for the new financial year.
A quick Google search will see countless media reports declaring an approximate 7% saving for Victorian small businesses equating to approximately $261 per year.
But if you dig a little deeper, you’ll realise this is all just noise, and what’s not being conveyed is the default market offer is 18% more expensive than it was two years ago, and even then, it's not necessarily the cheapest offer available.
Here are the facts on the Victorian Default Offer and how the power is still in your hands to lower your small business electricity costs.
What is the Victorian Default Offer?
The Victorian Default Offer (VDO) is an annually-released “reasonably priced electricity option” providing electricity consumers with a safety net, set by the Essential Services Commission in Victoria, not energy retailers.
Under legislation passed in the Victorian Parliament, It was introduced in 2019 to provide a simple and trusted electricity price for Victorian electricity consumers.
The Victorian Default Offer differs from the Default Market Offer which applies to New South Wales, South Australia, and South-East Queensland.
The 24-25 Victorian Default Offer prices will apply from 1 July 2024 - 30 June 2025.
Is the Victorian Default Offer the most competitive retail electricity offer available for small businesses?
The default offer is not necessarily the lowest price in the market.
Businesses must understand retailers can provide market offers substantially cheaper than the default offer, which in turn means significant savings; or overpaying on operational expenses if you don't proactively compare the market.
Therefore it’s in the best interests of business operators to 'shop around' your electricity provider, or work with a broker like Choice Energy who can run a comprehensive and free comparison for you.
Who does the Victorian Default Offer benefit?
It primarily benefits homes and small businesses that don’t engage in the electricity market to find a competitive retail market offer.
According to the Essential Services Commission, 19% of small Victorian businesses currently on the default offer will benefit from an annual reduction of approximately $261, which is almost $22 per month (assuming annual 10,000 kWh usage).
How does the VDO compare to previous years?
While small businesses will receive a 7% reduction or $261 (on average) saving per year compared to the 23-24 default market offer, it’s important to highlight that there was a 25% annual (of approximately $752 annually) from the previous year.
What are energy retailers required to do?
According to the Essential Services Commission, all electricity retailers must:
offer residential and small business customers the current flat tariff or flat tariff with controlled load tariff Victorian Default Offer
use the default offer as a reference price when they advertise retail market offers to help Victorian consumers compare energy deals.
Will businesses across the state receive the same decrease?
Across Victoria’s five distribution zones, charges and therefore savings for businesses will vary slightly due to variations in network tariffs for each zone.
Here is a breakdown of each distribution zone, courtesy of the Essential Services Commission:
What can businesses do to tackle rising energy costs?
Put simply: the Victorian Default Offer is not the cheapest in the market and is purely a reference point on what is reasonable to pay, set by a third party, based on the physical cost to acquire the electricity.
At a time when all small businesses could benefit from cost reductions, operators should undertake their independent comparison - or better yet, work with an energy broker like Choice Energy who can provide expert energy comparison, hassle-free, with greater ease and transparency.
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