Bright-spark online start-up Flick eyes overseas markets

Wellington-based online electricity retailer Flick said it's scoping overseas markets for expansion in a bid to build the scale it needs to reach profitability after winning the Vocus Communications Innovative Services award at the annual Hi-Tech awards in Auckland last night.

The two-year-old start-up has attracted 10,600 customers, offering electricity at spot-market electricity prices while consistently being below the major electricity retailers' tariffs in recent times.

Growth has been enabled by the roll-out of smart meters now spread around 65 percent of the country and above 90 percent in main urban areas.

Electricity Authority (EA) figures show Flick's 30 percent monthly growth means it's leading the pack of new entrants in fast growth, though the market continues to be dominated by the top five gen-tailers.

Chief executive Steve O'Connor said it was around a third of the way to hitting the customer numbers needed for profitability, despite adding 50 customers a day. "We're not profitable yet and that's the challenge."

New Zealand's rate of customer switching for power is among the world's highest, with churn averaging around 22 percent. O'Connor said his company is about a third of that, mainly due to customers shifting to areas Flick can't service or that don't have the necessary smart meters. "Our voluntary churn is especially low," he said.

Industry participants predict the number of competing companies for electricity supply will grow from more than 20 now to up to 50 in a few years.

O'Connor says scale is crucial, but says too many new entrants aren't offering consumers a differentiated product and are likely to fail against the big players.

He has been looking at what overseas markets would be worth expanding its technology platform into, with the Australian state of Victoria, which has smart meters, looking attractive.

"In 12 to 18 months it will be time to move into other markets," he says, though that is likely to be in conjunction with a local partner or a well-funded entity outside the industry wanting to enter the fray.

Community-owned Eastland, which owns the Gisborne area electricity network, became a cornerstone shareholder in Flick last December. It took an 11.1 percent shareholding for $2.2 million as part of Flick's $5 million second capital-raising. The original investor, Evander Group, now holds 10.2 percent.

O'Connor says Flick has also launched an employee share ownership scheme for its 40 staff.

He's aiming to list the company, potentially next year, though its claimed $21 million or so turnover is still well shy of the $50 million required to list on the NZX's main board.

Flick is one of the few industry players to publicly support the EA's recommendations on who should pay what for access to the national grid, which suggested charging less to consumers in many parts of the South Island and lower North Island while raising the prices for most others.

O'Connor says any move that better reflects the cost of supply to the end-user will help New Zealanders better understand how the system works, with some big investment decisions looming in the next few years. Costs associated with accessing the national grid, managed by Transpower, comprise about 10 percent of the average household bill.

Flick passes on to customers the costs of getting power to their place - generation, transmission, distribution and metering - at wholesale prices without mark-up, charging a separate retail fee. The commercial risk of playing the electricity spot market, which changes every half hour depending on supply and demand, sits with customers compared to the established industry model of charging a fixed rate per kilowatt-hour.

Flick claims customers save an average of 19 per cent on their bills compared to their previous retailer.

(BusinessDesk)

BusinessDesk receives funding to help cover the commercialisation of innovation from Callaghan Innovation.