singapore electricity retailers leaving

Should Singapore Power Cover The Price Differences From Electricity Retailers Leaving?

Multiple electricity retailers have been exiting the Singapore market as the prices of wholesale electricity increased greatly due to multiple market factors. The prices of wholesale electricity have seen spikes over sustained periods.


Source: Clip from Channel 8 News timestamp 19:30

I saw a segment on Channel 8 news of a consumer that called for Singapore Power to cover the difference of about 20% that he has to pay when his retailer left. Is it reasonable to ask Singapore Power to come in to pay the difference for these consumers?

Why Are There So Many Electricity Retailers?

In November 2018, the Open Electricity Market was extended to all Singapore consumers. This allows companies to come in to provide a service if they think they can either value-add or provide it at a cheaper price than SP Group. Moving from a monopoly to a competitive market, it can allow for better prices, products and services to emerge.

In 2019, 5 players, Red Dot Power, Energy Supply Solutions, SmartCity Energy, Charis Electric and Sun City dropped out due to fierce competition and a saturated market.

Here is the list of electricity retailers for residential consumers in Singapore, including the 3 that recently left. This has affected about 140,000 account holders.

Independent Retailers (Only sell power)

  • Best Electricity (Ceased on 19 Oct 2021)
  • iSwitch Energy (Ceased on 13 Oct 2021)
  • Ohm Energy (Ceased on 15 Oct 2021)
  • UGS Energy (Ceased on 27 Oct 2021)
  • Diamond Electric (Advised consumers to switch by 6 Nov 2021)
  • Sunseap
  • Union Power

Gen-tailers (Both generate and sell power)

  • Geneco
  • Keppel Electric
  • PacificLight
  • Sembcorp
  • Senoko
  • Singapore Power
  • Tuas Power

Energy Distributor (Only distribute power)

  • Singapore Power (SP)

The difference between SP and Independent Retailers is that SP gets power from power generation companies and distributes them at zero markups. SP make their money from running the power grid, market support services and more by taking a small cut out of your bill.

What Are We Paying For In Our Electricity Bill?

Although there are a few types of pricing plans, they consist of the same breakdown in costs.

electariffs updated 270919

Source: Energy Market Authority

Power System Operation And Market Administration Fees

This is paid to the Energy Market Company (EMC) and Power System Operator (EMA). It is used to cover the costs of operating the electricity wholesale market and power system.

Market Support Services Fee

This is paid to SP Services. It is used to cover the costs of billing and meter reading, data management, retail market systems as well as market development initiatives.

Network Cost

This is paid to SP PowerAssets. It is used to cover the cost of running the energy grid.

Energy Cost

This is the bulk of the costs and is paid to the energy generation companies. It is used to cover the cost of fuel and power generation.

Difference Between The Different Energy Plans

There are different types of energy plans that might fulfil the needs of different people and they are generally classified into the following.

Regulated Tariff

This is the price that all of us have been paying to SP Group before the energy market was liberalized. This is to reflect the actual cost of electricity from the point of generation to reaching our appliances.

Discount Off Regulated Tariff

discount off regulated tariff

Source: Energy Market Authority

Discount off regulated tariff is a fixed % off the regulated tariff prices. The prices will vary depending on the tariff prices. Retailers can charge a discount off the regulated tariff as they buy power wholesale. Wholesale power generally costs lower than the regulated tariff when demand and supply are stable.

Fixed Price

fixed price plan electricity

Source: Energy Market Authority

The retailer did their calculations and set a price that is high enough for them to make a profit over the entire contract period. There is a very big assumption made by the retailers when determining the price is that the wholesale prices will not move too much such that they will make a loss.

Wholesale

Under this plan, the user buys electricity at wholesale prices but is based on the demand and supply that is determined every 30 minutes. This price plan is generally only for independent retailers but consumers are now able to purchase this plan from SP. Independent retailers have the resources and ability to hedge their costs via contracts so that they won’t get hit that badly by the volatility in prices.

Generally, wholesale prices can be lower than the regulated tariff prices that we pay but in times of high demand and low supply, prices can spike to insane levels, hitting the consumers with an astronomical bill.

Source: Twitter

This happened in Texas during their winter early 2021 when a storm caused a statewide electrical grid failure. Griddy, a wholesale plan electricity provider, had its customers paying over US$5,000 for their electricity bill. The average price rose to US$9 per KWh, which is 75 times the average cost. Although consumers typically paid lower than average prices, they are not protected by surges like this.

What Caused The Volatility Of Recent Prices Of Electricity?

The volatility is caused by several factors.

Significant rise in LNG prices

Liquefied natural gas makes up about 95% of our total energy mix. The other 5% is made up of petroleum products, coal, solar and others. We should really start to look at diversifying our energy mix.

singapore energy mix

Source: Energy Market Authority

The rise in prices is due to higher global demand and limited global supply.

Higher Than Usual Domestic Electricity Demand

Due to staying at home more often from Covid and other factors, we have seen an increase in electricity demand with a peak demand of 7,667MW recorded on 12 October 2021.

Reduction In Supply Of Piped Natural Gas From Indonesia.

We will expect a lower gas supply from Indonesia, where production concerns in the West Natuna gas field have resulted in reduced output to Singapore, to remain till the end of 2021.

The gas pressure from South Sumatra has also decreased due to increased demand from both upstream and in Singapore.

How Bad Is The Increase In Prices?

USEP max average

Source: Energy Market Authority

If we look at Uniform Singapore Energy Price (USEP) from January 2020 to 13 October 2021, we can see a significant rise in prices. From January 2020 to September 2021, the average USEP ranged from S$46 – S$167 KWh. The average USEP spiked up to S$535 for the first half of October 2021. Looking at the peak USEP, we can also see that it has been increasing greatly since July 2021.

Why Are Some Electricity Retailers Not Affected?

EMA requires all electricity retailers in the Open Electricity market to hedge at least 50% of their energy sold to guard against increases in prices in wholesale prices.

Players that are under-hedged are facing the full force of the price spikes. It can be costly for smaller players to hedge more than 50% of their contracted load.

The bigger players should have more funds and a higher % of their contracted load hedged so they will not get affected as much and they can tide over the volatility with their higher amounts of financial reserves.

Those retailers offering fixed prices will be badly hit if they are severely under-hedged as they will have to provide electricity at the contracted prices while the costs have already ballooned.

So Should Singapore Power Cover The Price Differences?

As mentioned in the beginning, there are some calls to ask Singapore Power to cover the price difference of up to 20%.

Imagine if there is only one Cai Fan stall in Singapore at the beginning. They decide to allow more Cai Fan stalls to open all over Singapore. Some of these Cai Fan stalls have 20% lower prices than the original Cai Fan stall due to efficiencies or promotions. However, due to the increase in prices of the ingredients of gou lou yok, steamed egg and other dishes, these Cai Fan stalls have to close down as their businesses are no longer viable and are making a loss.

Do you think the original Cai Fan stall has the obligation to sell you their Cai Fan at the discounted price you had been enjoying at the other stalls (which have closed down)?

I understand that it can feel bad when you are used to the lower prices and now you have to pay up to 20% more. However, I don’t think it is reasonable to expect Singapore Power to continue providing electricity to these people at a loss. Singapore Power is a distributor and not a retailer. They have little control over the prices. If no other electricity retailer can charge the price that you were paying, maybe it means that it is not profitable to do so.

Consumers have enjoyed lower prices for the time these retailers were still in business. They have anchored their utility bills to the low prices they have been paying instead of the original SP prices. This is the reason why the sudden increase in prices has created such a reaction.

Mindset Framing

By staying with SP, a consumer might be paying S$100 a month.

If they switch to a non-SP retailer, they might be paying S$80 a month.

When the non-SP retailer shut down, you can think of your circumstances in two ways.

  • I have to pay S$20 more a month now
  • I have been already saving S$20 a month after switching, I am only now going back to the “non-promotional” price of S$100

Depending on how you frame the situation, you can have different feelings.

Consider reducing the use of electricity or looking for another provider that is more reputable as these are the only things we can control. Price should not be the only factor in choosing a provider. When you get some super cheap plan, you got to be aware of the consequences when the company goes bust. When you get used to a certain price or convenience, it is when sudden changes can start hurting you. Always be prepared to leave for an alternative and just enjoy whatever prices or conveniences you can now.

How Can We Better Protect Consumers?

Tan Tsiat Siong, a business lecturer from the Singapore University of Social Sciences, gave a few suggestions on how can we better protect consumers.

Regulating Fixed-Price Plans

As fixed price plans are the ones greatly affected by huge swings in energy prices, authorities can look to ensure these plans are offered in shorter contracts or have clauses to adjust prices in times of high volatility.

Raising Hedging Requirement

Since the 50% of hedging requirement is unable to protect some of the retailers, authorities can look to access the need to raise the requirement, balancing the protection of consumers and the barring of smaller players due to higher hedging requirements.

Managing Exit Of Retailers

Retailers could forfeit their deposit with EMA if they were to cease operation without enough notice. Deposits can also be increased or decreased based on the number of accounts with the retailers. The deposits will be used to compensate affected consumers.

TL, DR

The sustained spikes in the cost of electricity due to higher demand and lower supply have led to some electricity retailers leaving the market. This has affected about 140,000 account holders. These electricity retailers had to supply energy to these accounts on fixed-price contracts although the cost of energy has increased a few folds. These players were not able to hedge enough of their contracted load so they are no longer viable businesses in the current energy climate. Some have called for SP Group to cover the 20% savings they had been enjoying which I feel is unreasonable and unfair. As consumers, enjoy savings and promotions when we can and get ready to switch to an alternative when it no longer exists. Don’t get used to these prices and conveniences and be financially held hostage when they are gone.

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