Wednesday, 23 January 2019

Why are SP Group's electricity rates higher than retailers'?

Why electricity retailers' rates are better in the Open Electricity Market

Mr Albert Tang in his letter (Why are SP Group's rates higher than retailers'?; Jan 16) asked why electricity retailers are able to offer lower rates than the regulated tariff in the Open Electricity Market.

The regulated tariff, charged by SP Group and approved by the Energy Market Authority, reflects the long-term costs of producing and delivering electricity in Singapore, such as the costs of building and operating the power plants and maintaining the power grid.

On the other hand, the electricity rates offered by retailers typically reflect the current market conditions, level of competition and short-term costs of producing electricity.

Under current market conditions where electricity production capacity exceeds demand for electricity, we can expect market prices to be lower than the regulated tariff.

However, this may change over time based on market demand and supply.

Consumers should be aware that while the price plans offered by retailers are fixed for the duration of each contract, retailers, like all businesses, may adjust their prices and discounts over time.

Consumers who have switched to other retailers can also switch back to buying electricity at the regulated tariff from SP Group.

They should check with their retailers if there are any applicable charges when making this decision.

In the Open Electricity Market, consumers can also benefit from more choices and innovative offers, such as electricity generated from solar power, as well as value-added packages through bundled products and services.

Dorcas Tan (Miss)
Market Development and Surveillance Department
Energy Market Authority
ST Forum, 23 Jan 2019

Why are SP Group's rates higher than retailers'?

I appreciate the Energy Market Authority's (EMA) response (Open electricity market gives consumers choice; Jan 14) to Mr Hoe Lye Soon's concerns regarding the Open Electricity Market (OEM) (Keep buying of electricity simple; Jan 5).

I acknowledge that it is always good for consumers to have more choices.

However, I have a seemingly simple question that has yet to receive a satisfactory answer from the electricity retailers I have asked.

Given that electricity retailers are looking to make a profit, have spent a significant amount on marketing costs and are still able to offer consumers electricity rates that are a good 20 to 30 per cent lower than SP Group's, why doesn't SP Group just offer consumers these lower rates in the first place?

Many of the 13 or so retailers participating in the OEM do not generate their own power, instead claiming to buy in bulk from power plants to sell to consumers.

As the largest bulk buyer of electricity, SP Group should benefit the most from economies of scale, and be able to pass the savings on to consumers.

It is hard to understand the logic behind creating the OEM and getting so many retailers to compete for consumers, when SP Group is in a position to bypass this step to sell electricity directly to consumers at more competitive rates.

I doubt I am the only consumer puzzled by this, and hope that EMA can give a satisfactory explanation.

Albert Tang
ST Forum, 16 Jan 2019

Open electricity market gives consumers choice

We thank Mr Hoe Lye Soon for his letter on the Open Electricity Market (OEM) (Keep buying of electricity simple; Jan 5).

The OEM aims to give consumers more choices when buying electricity.

Consumers who prefer to buy electricity from SP Group at the regulated tariff can continue to do so as it is not compulsory to switch and there is no deadline for switching.

Regardless of their choice, consumers will continue to enjoy the same reliable electricity supply.

There is strong competition in the Open Electricity Market.

Electricity retailers have to minimise costs and offer competitive price plans.

Consumers who have switched pay an electricity rate which is on average about 20 per cent lower than the regulated tariff.

Those who wish to switch can start by comparing the standard price plans offered by the electricity retailers using the Price Comparison Tool available at

When they are ready to sign up, they can do so online through the retailer's website.

The retailer will then work with SP Group to effect the switch.

Household consumers can also choose to use an advanced meter to monitor half-hourly electricity consumption data via a mobile application.

Retailers will be able to advise customers on this option.

The Energy Market Authority will continue to engage consumers to help them make informed electricity purchase decisions.

Dorcas Tan
Market Development & Surveillance Department
Energy Market Authority
ST Forum, 14 Jan 2019

Keep buying of electricity simple

It is odd that only 30 per cent of eligible consumers have switched from the current incumbent SP Group to the electricity retailers (1 in 3 eligible consumers switches to electricity retailer; Dec 30, 2018).

The Energy Market Authority (EMA) expects this take-up rate to stay the same as the roll-out stretches across the island.

For a scheme that is touted to reduce consumers' electricity bills, this surely cannot be right; one expects the take-up rate to be more than 50 per cent as a minimum. This could mean consumers either are indifferent, or cannot understand or see the purpose of the scheme.

A pertinent question is: What value do the 13 electricity retailers bring to the table, especially as they do not produce electricity and are also not responsible for the reliability and performance of the electricity supply?

With 13 retailers, it would be logical to conclude that operating, administration and marketing costs would actually increase and the burden is going to fall on the consumers.

In a liberalised market, certainly large organisations including the larger estates will seek group discount rates, resulting in multi-tier rates with the smaller estates or individuals paying top-tier rates.

Let's keep the buying of electricity, a non-differentiated and essential product, simple.

Consumers want a simple system without having to spend much time trying to search for the "best rate".

In this Internet age, I reckon what consumers want is real-time monitoring of their electricity usage. Perhaps EMA could look into the replacement of the electricity meters that have remained the same for ages.

With real-time metering, we eliminate the need for a person to read the meter and, more importantly, the massive data collected (down to the individual households) will be a treasure trove for economic and other applications.

Hoe Lye Soon
ST Forum, 5 Jan 2019

How do electricity retailers charge lower prices than SP Group? 5 questions answered
By Ian Cheng and Chew Hui Min, Channel NewsAsia, 10 Feb 2019

With the roll-out of the Open Electricity Market in November, consumers now have more choice and many have been paying less for their electricity.

But people also wonder if this is tenable in the long run and why SP Group, formerly the sole retailer of electricity in Singapore, could not offer the same discounts as its emerging competitors.

Wouldn’t it make things a lot simpler if consumers could have smaller bills from SP Group instead?

We put these questions to the Energy Market Authority (EMA), SP Group, energy retailers and an expert.

Why doesn’t SP Group offer consumers electricity at lower rates?

In a nutshell: Because it doesn’t set the electricity tariff paid by consumers.

SP Group is required by the Government to supply electricity to all consumers in Singapore.

Electricity tariffs are not set by the group, but are regulated by EMA to “recover the long-term costs of producing and delivering electricity to consumers”. This includes fuel prices, building and operating power plants as well as maintaining the power grid.

SP Group gets a fixed component out of the tariff for operating and maintaining the power grid, and providing services such as billing and meter reading. This regulated rate has been stable for the past decade, says EMA.

According to the rates in Q1 2019, SP Group is paid 5.71 cents per kWh, out of 23.85 cents per kWh paid by households. This comes to about 24 per cent of the tariff.

What else are we paying for in our power bills apart from the SP component?

Most of the tariff goes to power generation companies, while a small percentage goes to the Energy Market Company and EMA.

The energy cost, or cost of imported natural gas, is tied to oil prices by commercial contracts, which change depending on global market conditions. It is based on the average price of oil and the average SGD/USD exchange rate in the previous quarter. This component, paid to the power companies, is adjusted quarterly.

The market administration and power system operation fee is paid to the Energy Market Company, which operates Singapore’s wholesale electricity market, and EMA for operating the power system. This fee is reviewed annually.

How can electricity retailers offer cheaper electricity than SP Group?

Retailers in the Open Electricity Market are either the retail arm of power generators or independent retailers which buy electricity in bulk from power generation companies in a wholesale market where prices change every 30 minutes depending on demand and supply.

Between 2005 and 2012, the wholesale market price “trended upwards”. Until 2013, it tended to be higher than the regulated tariff.

About five years ago, the electricity generation capacity began to exceed consumption. As a result of overproduction, wholesale prices dipped to below that of the regulated tariff.

The wholesale electricity price reached an all-time low in 2016 due to “excess generation capacity in the market and declining oil prices”, said EMA. In 2017, it increased as oil prices recovered.

Currently, the fuel cost in the regulated tariff is 18.1 cents/kWh, while the wholesale electricity price currently fluctuates in the range of 10 cents/kWh.

Consumers can now also purchase power from SP Group at the wholesale price, but they will be subject to the constant price fluctuations. 

Why can retailers vary the rates offered to customers, especially when they are buying from the same pool of power generators?

Retailers can vary their prices and business strategies to adapt to current market conditions, and can also select their target consumer groups, like businesses or families.

Union Power, a subsidiary of home-grown bottled-gas supplier Union Energy, focuses on customers who are already using its liquefied petroleum gas.

ES Power, on the other hand, is hoping to differentiate itself with its carbon-neutral electricity, banking on the demand for green energy.

Retailers are also able to customise price plans, including the bundling of other services or products, and can impose contract lock-in periods or early termination charges.

For example, Geneco offers six plans, including a peak and off-peak option targeted at consumers who wish to monitor their own consumption.

“Generator-retailers like Geneco, and independent retailers ... are allowed to set their own rates, which takes into account current market conditions, shorter-term costs of producing electricity, and competition levels,” said Mr Low Boon Tong, Geneco’s executive vice-president of retail.

Retailers like Ohm Energy and Geneco also cut down on overhead costs by shifting their operations online, as well as automating their systems.

How might prices and the market pan out in the long run?

As with energy markets overseas, several retailers are likely to be successful in the long run, said Professor Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore's Nanyang Technological University.

Companies have to innovate and offer differentiated services in order to adapt as the market evolves, he added.

“I see the market continuing to evolve and offer new ideas and new services; some energy related (for example: Internet of Things, apps, energy saving appliances) and others will offer bundled services,” he said.

However, demand for electricity is likely to increase, with changing lifestyles as well as the electrification push as seen in the rise of electric vehicles, port electrification and energy efficiency in industries.

The prices offered by retailers will change as the underlying cost of energy changes.

“While price may seem the most important factor for now, consumers must understand that lower prices today are not a given in the long term regardless of whether you stay on the current scheme or change to a new retailer,” said Geneco’s Mr Low.

Open Electricity Market: All households, firms to get choice of power retailer from 1 November 2018

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