Cheap Electricity Can Be Expensive: Lessons from the ZEN Energy Collapse

Electricity contracts are often won and lost on one number: price.

A lower rate can look compelling on paper, but it doesn’t tell the whole story. Behind every electricity contract is a retailer with its own financial position, purchasing strategy and approach to managing risk. Those factors rarely appear in a proposal, yet they can have a significant impact when market conditions change.

The recent collapse of ZEN Energy is a timely reminder that choosing an electricity retailer involves far more than comparing cents per kilowatt-hour. While many businesses understandably focus on securing the lowest price, long-term value also depends on the strength and resilience of the retailer standing behind that offer.

Rather than focusing on the collapse itself, this article looks at the broader lessons businesses can take from it. We’ll explore why due diligence extends beyond price, what questions should be asked before signing an electricity contract, and why understanding how a retailer operates can be just as important as the rate they offer.

The ZEN Energy Collapse Wasn’t Just Bad Luck

The collapse of ZEN Energy wasn’t simply the result of unfortunate timing. It highlighted a reality that has always existed within Australia’s electricity market: not every retailer is equally equipped to manage wholesale price volatility.

When wholesale electricity prices are relatively stable, many retailers can appear highly competitive. Attractive rates and polished proposals can make it difficult for businesses to distinguish between providers. But when market conditions change, the differences become much more apparent.

Some retailers have diversified generation assets, robust hedging strategies and the financial strength to absorb periods of market disruption. Others are more heavily exposed to wholesale market movements, leaving them far more vulnerable when prices rise unexpectedly.

For most customers, these differences are largely invisible. Electricity proposals rarely explain how a retailer purchases energy, manages risk or protects itself against sustained wholesale price increases. Instead, the focus is almost always on the advertised rate.

The ZEN Energy collapse demonstrated why that approach can be risky. Businesses that believed they had secured a competitive electricity contract suddenly found themselves transferred to default market pricing while searching for an alternative retailer, often at a significantly higher cost.

The lesson extends well beyond a single retailer. Choosing an electricity retailer shouldn’t be based solely on today’s price. It should also involve understanding whether that retailer has the financial resilience, procurement strategy and risk management practices to continue delivering on that promise when market conditions become more challenging.

Why Power Maintenance Never Recommended ZEN Energy

Every electricity retailer is different, and no assessment process can predict the future with complete certainty. However, we believe selecting an electricity retailer should involve far more than comparing today’s price.

At Power Maintenance, we assess the retailer before we assess the rate.
That means looking beyond the proposal to understand how the retailer operates, how it manages risk and whether its business model is likely to remain sustainable throughout the life of the contract.

Some of the factors we consider include:

• Financial stability and market position
• Wholesale purchasing and hedging strategy
• Generation assets and energy sourcing
• Exposure to wholesale market volatility
• Track record and operational maturity
• Contract structure and commercial terms

These aren’t factors that most businesses see when reviewing competing electricity offers, but they can become critically important when market conditions change.

Our objective isn’t simply to recommend the cheapest retailer available today. It’s to help clients choose retailers that combine competitive pricing with long-term stability, reducing the risk of unexpected disruption over the life of their electricity contract.

“One of the reasons we never recommended ZEN Energy wasn’t because we expected them to collapse. It was because our assessment goes beyond price. We look at how retailers manage risk, where they source their energy and whether they’re built to withstand volatile market conditions. That’s the level of due diligence every business deserves before signing an electricity contract.”

Nick Halaris
Director, Power Maintenance

Why Hedging Matters

One of the biggest differences between electricity retailers is how they manage exposure to the wholesale electricity market.

Electricity prices don’t remain constant. They fluctuate every day, sometimes dramatically, in response to factors such as weather, demand, generation outages and fuel costs. Retailers need a strategy to manage that volatility if they want to offer customers stable, long-term pricing.

This is where hedging comes in.

Rather than purchasing electricity entirely at the prevailing spot price, retailers typically secure a significant portion of their future energy requirements through forward contracts and other financial instruments. This helps reduce their exposure to sudden price spikes and provides greater certainty for both the retailer and their customers.

The strength of a retailer’s hedging strategy can have a significant impact on its ability to withstand periods of sustained wholesale market volatility. While every retailer manages risk differently, those with more robust procurement strategies are generally better positioned when market conditions become challenging.
For most businesses, these behind-the-scenes decisions are invisible. Yet they can be just as important as the contract price itself. A competitive rate only delivers value if the retailer has the financial resilience and risk management capability to support it over the life of the agreement.

The Second Risk After a Retailer Collapse

While a retailer collapse attracts plenty of headlines, the biggest impact is often felt by the businesses left behind.

When a retailer exits the market, customers don’t lose power. Instead, they’re typically transferred to a Retailer of Last Resort (RoLR), ensuring electricity supply continues uninterrupted.

The challenge is that this arrangement is designed to maintain continuity, not necessarily secure the most competitive pricing.

Businesses may find themselves on higher default rates while they assess their options and negotiate a new electricity contract. Depending on market conditions, this can result in increased energy costs at precisely the time they have the least control over the situation.

For organisations with significant electricity consumption, even a relatively short period on default pricing can have a noticeable financial impact.

The experience serves as another reminder that choosing an electricity retailer isn’t just about securing the lowest rate today. It’s about selecting a retailer with the financial resilience and market strategy to help minimise the risk of disruption tomorrow.

Looking Beyond the Price Tag

The ZEN Energy collapse is unlikely to be the last time an electricity retailer exits the market. Australia’s energy sector is complex, competitive and continually evolving, with retailers facing changing wholesale prices, regulatory requirements and shifting market conditions.

For businesses, the key takeaway isn’t to avoid risk altogether. Every commercial decision involves some level of uncertainty. The goal is to understand where those risks exist and ensure they’re being appropriately considered before entering into a multi-year electricity contract.

Price will always be an important part of the decision, but it shouldn’t be the only one. The financial strength of the retailer, their procurement strategy, their approach to managing wholesale market exposure and their long-term sustainability all contribute to the value of the contract.

The ZEN Energy collapse serves as a timely reminder that the cheapest offer isn’t always the lowest-risk option. Looking beyond the headline rate can help businesses make more informed decisions and reduce the likelihood of unexpected disruption over the life of their electricity agreement.