Intellasia East Asia News – Prices of electricity retail plans now almost on par with SP tariff

Rising prices of electricity retail plans have narrowed what was once a double-digit difference with SP Group’s regulated tariff to less than 1 cent per kilowatt hour (kWh), as the global energy market continues to face uncertainties.

A search on the Open Electricity Market’s price comparison website on Thursday (August 4) showed the cheapest fixed price plan offered by a retailer was 31.30 cents per kWh, for a contract period of 24 months. This rate includes Goods and Services Tax (GST). In comparison, SP’s electricity tariff for households stands at 30.17 cents per kWh for the third quarter. With GST, the rate which is reviewed every quarter by the national utility group is 32.28 cents.

Other fixed price plans, with contract durations of between six and 24 months, ranged from 31.60 cents per kWh to 48.15 cents per kWh.

No discount-off-tariff plans where retailers give a fixed discount off SP’s tariff are available currently, based on the same search done by CNA.

This means that the difference between the cheapest price plan offered by an electricity retailer versus SP is just 0.98 cents a stark difference from four years ago when retail rates were up to 30 per cent cheaper.

“With all the uncertainties in supply and demand, it is not surprising that the energy retailers are being conservative with their offerings,” said Professor Subodh Mhaisalkar, executive director of the Energy Research Institute at Nanyang Technological University.

“I think the Open Electricity Market (retailers) are playing the waiting game to see how the global energy market moves.”

Since last year, the global energy market has been grappling with a “perfect storm” of demand and supply factors, ranging from severe weather events around the world to a recovery in economic activities from the COVID-19 pandemic.

Locally, the domestic market was hit by unplanned reductions in the supply of piped natural gas from Indonesia, while electricity demand was higher than usual.

As a result, the Uniform Singapore Energy Price (USEP), or the half-hourly rate at which retailers purchase electricity in the wholesale market, spiked alongside huge volatility in the second half of last year and led to abrupt exits by five electricity retailers.

Such price spikes eat into the margins of retailers who sell electricity to consumers at fixed prices, while market volatility makes it difficult for companies to hedge effectively.

Not much has changed in the global market environment, experts said. In fact, the onset of the Russia-Ukraine war has stirred concerns about further supply disruptions.

“We continue to see high gas prices. We have seen an extended duration of average USEP settlement values exceeding the tariff rate, and electricity futures contracts are no different,” said Dr David Broadstock, senior research fellow at the National University of Singapore’s Energy Studies Institute.

“We are seeing market conditions where retailers cannot rely easily on either the spot or the futures market to obtain electricity to sell on to their customers at or below the tariff rate. This appears to be the case all the way out to September 2024.”

With the Ukraine war adding new complexity to global gas markets and elevated demand, it will be harder to secure long-term supplies at low prices, he added.

UNSUSTAINABLE BUSINESS MODEL?

Dr Broadstock noted that having rates with minimal difference to the regulated tariff “does not seem to be a sustainable business model” for electricity retailers.

“Electricity consumers have seen the recent market exits of retailers and remember the troubles this caused for those needing to secure new contracts,” he told CNA.

“So when examining two very closely priced options, but concerned that the retailer might take the option to exit the market like others have in the past, the tariff rate becomes a fairly attractive option.”

That said, this situation can also be interpreted as retailers expecting SP’s regulated tariff to keep rising for some time.

This means that while the rates offered by retailers now do not seem attractive, they may “in fact turn into a discount-off rate over the contracted period”, said Dr Broadstock.

Asked if more customers are likely to switch back to SP hence possibly resulting in another string of market exits, Prof Mhaisalkar said price is not the only way to attract customers.

“For example, the OEM retailer can bundle their offerings with other unique services or have innovative offerings in green energy. I think consumers will take the total offerings in view when making their decisions.”

SUPPORT MEASURES TO CONTINUE

But in view of persistent uncertainties, Prof Mhaisalkar expects support measures for the sector to remain in place for a while longer.

The Energy Market Authority in October last year rolled out a series of measures to safeguard Singapore’s energy supply, including setting up a standby fuel facility for generation companies to draw from to generate electricity when their natural gas supplies are disrupted. These have been extended to end-March next year.

These measures have since helped to ensure uninterrupted energy supply and stabilised wholesale electricity prices, without the need to bring the electricity market under state control within the short to medium term, said Second minister for Trade and Industry Tan See Leng in Parliament on Tuesday.

Nevertheless, authorities will continue to monitor the situation closely and “will not hesitate to introduce new measures if necessary”, he added.

While support measures “appear to have had some positive results”, Dr Broadstock said the OEM remains “some distance away from a market that will attract new entrants”.

“This is quite important to appreciate, as the OEM builds around the principle that competition will help coordinate the market to offering the best value pricing to customers,” he added.

Prof Mhaisalkar noted that it remains key for all retailers, both big and small, to “go back to the fundamentals” to ride out the challenges.

“It boils down to whether the retailers have analysed the business conditions that they are operating in and volatility in the market properly,” he said.

“If their business policies are robust and sound, then there’s no reason why they won’t survive.”

https://www.channelnewsasia.com/singapore/sp-electricity-price-plans-difference-open-electricity-market-retailers-2853301

 

Category: Singapore


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