In his address to the National Press Club last week, prime minister Malcolm Turnbull called out that families across the nation need not just reliable but affordable power. For lower income earners who spend up to five times as much of their disposable income on energy than higher income earners, this is very welcome.

However, the federal government’s focus on energy generation – the cost of coal versus renewable energy – ignores the reality that it is the failure of retail competition that is hitting households’ hip pocket. If governments want to make energy more affordable, making competition work for the community rather than the industry would be the sensible first step.

Victoria was the first state in Australia to embark on the experiment of allowing households to choose their energy retailer. Other states have followed suit. The theory goes that different energy retailers will compete on areas like service offerings and value for money to keep prices down to a minimum. This has not played out.

There are a number of problems. First, in most competitive markets, as long as there are a sufficient number of people shopping around, prices are kept down for everyone. Think about a supermarket – if there are a number of us looking around at the differences between a loaf of bread at Coles, Woolworths and Aldi, the supermarkets take notice and limit prices as much as possible. This benefits all shoppers, even those that a loyal to a particular supermarket.

In energy, retailers are easily able to discriminate between those that shop around and those that don’t. Those that switch retailer are offered “discounts” of up to 30%. But these discounts only last a limited “benefit period”, usually 12 months. After that, the contract commonly continues but the price jumps back up to a very high rate. The difference between the discounted rate and the worst rates are significant. In a report late last year, the St Vincent de Paul Society estimated a difference in Victoria of up to $830 per annum for electricity and $480 for gas.

Second is the issue of discounts. These discounts – which are the basis for much of the advertising by retailers – are not set from a uniform price across the energy market. Rather, each retailer sets its own base price. This means that the published discount is useless for anyone trying to compare offers by different retailers and is unlikely to achieve anything other than misleading the community. In 2015, the Australian Energy Market Commission found that “some offers with discounts of less than 5% are better than those with discounts of more than 20%”.

Most discounts are also conditional on paying on time, so in reality they operate as a very hefty late payment fee for those least able to afford their bills. The Victorian government banned late payment fees on electricity and gas back in 2005. However, these “discounts” can mean a penalty of over $100 if you pay your quarterly electricity bill one day late.

In practice, to get a good rate, you have to shop around every year and pay on time. This is unrealistic for most households. Even for those households that are interested in seeking out a better offer, shopping around is easier said than done. The lack of comparability of energy offers is a key issue for customers trying to work out what plan is best for them. The proportion of the bill that is fixed is different between retailers, and multi-rate tariffs, make comparison a challenge. High fixed charges, which retailers appear to be pushing up, also lessens the impact of any efforts to be more energy efficient.

While the government has established a website to help Victorians compare prices, usage of this website remains low. Moreover, many of us just don’t have the mindspace or time required to investigate which offer is best. While there may be benefits in switching to a different deal, it can be put in the “too hard basket”. If you’re on a low income and think that you might have difficulty paying on time, it might not even be a good idea to switch.

The result is that that energy retailers are profiting from the more disengaged and vulnerable in the community. Various analyses have shown that while the cost of energy generation and distribution has stabilised or come down, it is the retailer margins that have pushed up Victorians’ energy bills. This is a failure of competition.

What should be done? The Victorian government is to be congratulated for kicking off an inquiry headed by former ministers John Thwaites and Terry Mulder. This cross-party review is an ideal opportunity to develop some real fixes.

The first thing that should be done is to ban fake discounts, including those late payment penalties that masquerade as discounts for paying on time. For discounts to be used in marketing, they should be unconditional and be based on a reference price that is applicable across all providers. That way, marketing will be clearer.

We also need to recognise that energy is an essential to health, wellbeing and inclusion. That means that the disengaged or those that lack the capacity to shop around should not be disadvantaged. Our laws governing energy recognise that market regulation should benefit all consumers, including lower income and vulnerable groups. This is not how it plays out in practice.

One solution being trialled in the United Kingdom is a requirement on retailers to tell their customers who haven’t switched for some time the availability of better deals being offered by other energy retailers. Another option could be a type of social tariff for those that receive a concession or are otherwise disengaged. This social tariff could be equal to the retailer’s best offer, rather than leaving the worst off on the most expensive deal. This would potentially benefit all of us, by operating as a readily understood default price.

The political debate seems determined to focus on the “cost” of coal versus solar or wind power. However, there are other solutions to benefit the community. Making competition fairer and making it work for the community offers us the best chance of limiting the cost of power.