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Published on: 04/06/2017

A Discussion on Electricity prices in 3 Parts: Part 1 – SP Tariff Prices

 

In light of Singapore’s Open Electricity Market (OEM), we’ve released a series of articles focused on the energy market. Through this journey, we’ll understand how we consume and buy electricity better, and where to get the best prices. In this Part 1, we focus on SP Tariff Prices, which affects Discount Off-Tariff price plans directly.

On the last day of every quarter, a media bulletin on SP Tariff Prices will be released by SP Group. First, through their own website then the mainstream media. The arrangement will always be the same. “For the next quarter: electricity tariffs will [increase/decrease] by [a certain percentage], the [increase/decrease] is largely caused by the cost of natural gas for electricity generation, which [increased/decreased] by a [certain percentage]”.

Unless you’re in the electricity industry, most people will probably struggle to answer the first degree of “why” questions. Why did gas prices increase? How does it compare to oil prices? If I compare electricity generated with oil and with that of gas, would one be cheaper than the other? Why do I need to know what “SP Tariff Prices” mean?

However, that’d be a topic too heavy and boring for the ELECTRIFY.SG blog, perhaps irrelevant to you, the savvy consumer. What we will be focusing on instead are the factors that drive electricity prices in Singapore.

Essentially, the questions we’ll answer over this 3-part series are these: what could happen in the next 12 months that will determine how [increase/decrease] is checked off? And how will it determine the mythical [certain percentage].

Along the way, we’ll cover certain aspects of the electricity industry to explain why certain things do or don’t matter. But I promise the dry bits will be kept to a bare minimum.

 

Shale vs OPEC

The bout is between American-speaking (I know it’s really English) and non-English-speaking oil. It’s time for a history lesson, and it’d be a lot easier—and funnier—to understand if we translated this tale of SP Tariff Prices into carrots.

Our story begins with OPEC, a group of farmers selling carrots for the past 50-odd years. This group of farmers really made their money in the 1970’s when the Yom Kippur War broke out in 1973. This led to them proclaiming an embargo against the US, then the world’s biggest consumer of carrots, for supporting Israel in the conflict. Since then, entire economies have been built on carrot money. With the world so reliant on carrots and OPEC collectively sitting on the world’s biggest carrot farms (or market).

This all started to change from 2014. Farmers were enticed by high carrot prices to increase harvesting, creating a general oversupply of carrots. Coupled with the resumption of Iran as a carrot farmer and marketplace, these changes led to prices crashing to $30/basket. At this time, the role of US carrot farms changed from purely domestic consumption to export, made possible with fracking. In carrot terms, fracking is like a giant vacuuming technology allowing US farmers to access previously-inaccessible carrots buried underground. Carrots that were farmed through fracking are termed “Shale”.

Shale carrot harvests, though smaller than OPEC carrot harvests, are now sizeable enough to have an impact on global carrot prices. In December of 2016, the OPEC group of farmers announced that they were cutting their carrot supplies in a bid to prop carrot prices back up again with little success. Whatever gains that were made by these farmers disappeared by March 2017. Not only had Shale carrot farming been on the rise but their reserves were also at an all-time high, effectively negating the OPEC carrot cut. It also didn’t help that some OPEC farmers did not fully comply with their assigned reduction amounts. That was understandable, as carrot prices recovered slightly so the more carrots they sold, the more money they’d make.

The sentiment now is that the OPEC cut will be extended from June 2017, so carrot prices now have taken that into account. Shale production isn’t going to be slowing down anytime soon. Shale carrots are also a lot cheaper to harvest, so Shale farmers are more comfortable with current prices than OPEC farmers. Should OPEC collectively decide to reverse their decision and end the cuts or should compliance with the cuts be a lot less stringent this time around, you can expect carrot prices to take a dip for the worse; or better. Well, that depends if you’re a carrot farmer or consumer.

When it comes to choosing your price plans, Discount Off-Tariff plans present a direct discount of 15 – 20% off SP Tariff Prices. This allows immediate savings for you regardless of fluctuations in oil and gas prices. To learn more about Discount Off-Tariff and other price plans, visit ELECTRIFY.SG today.

In Part 2 of this series on Opening the Black Box, we discuss the impact of geopolitics, both global and regional, on electricity. Click here for Part 3, where we close the series off with a history of electricity generation in Singapore.

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