Published on: 10/05/2019
After the launch of the Open Electricity Market, many consumers are quick to make the switch to an electricity retailer. Since then, these consumers have been paying a lot less for their electricity.
On the other end of the spectrum, there also exists a different pool of consumers; consumers who feel hesitant about this initiative, as they wonder if it is sustainable in the long run. Why is SP Group, formerly the sole electricity provider in Singapore, unable to offer the same discounts as its emerging competitors?
Here’s what the Energy Market Authority (EMA) has to say about these concerns:
1. Why doesn’t SP Group offer electricity at lower rates?
Electricity tariffs paid by consumers are not determined by SP Group. Instead, they are regulated by EMA to recover long-term costs of generating and distributing electricity. This includes fuel prices, building and operating power plants, and maintaining the power grid.
SP Group supplies the electricity to consumers in Singapore, and get a fixed percentage out of the tariff for managing the power grid and providing billing and meter-reading services. Based on the tariff in Q1 2019, SP Group gets approximately 24% out of the 23.85 cents per kWh paid by households. This comes to about 5.71 cents per kWh.
(Graphic: Energy Market Authority)
2. What else goes into my power bills?
Besides the SP component, a large chunk of the tariff goes to power generation companies as energy cost, or the cost to import natural gas. This component is adjusted quarterly. The price of natural gas is tied to oil prices by commercial contracts, which change depending on global market conditions.
The rest of the tariff paid by consumers goes to the Energy Market Company and EMA, as market administration and power system operation fee. This fee is reviewed annually and is paid to the Energy Market Company for operating Singapore’s wholesale electricity market, and EMA for managing the power system.
(Graphic: Energy Market Authority)
3. How can electricity retailers’ offers be cheaper?
There are two types of electricity retailers: retailers that are the retail arm of power generators, and independent retailers. The independent retailers buy electricity in bulk from power generation companies at wholesale prices. These prices fluctuate every 30 minutes depending on demand and supply.
From 2005 to 2012, the wholesale price trended upwards, and eventually, exceeded the regulated tariff in 2013. In the following year, electricity generation capacity began to surpass consumption, causing wholesale prices to dip below the regulated tariff and hit an all-time low in 2016 due to overproduction and declining oil prices. However, as oil prices recovered in 2017, so too did the wholesale market prices.
As of today, fuel cost in the regulated tariff is 18.1 cents per kWh. Wholesale electricity price, on the other hand, fluctuates in the range of 10 cents per kWh. Having said that, consumers can also purchase power from SP Group at wholesale price but will be subject to constant price fluctuations.
(Graphic: Singapore Energy Statistics 2018)
4. Why do retailers vary the rates offered to consumers? Aren’t they buying from the same power generators?
Retailers determine their target consumer groups, such as businesses or household consumers, and adapt their prices and business strategies to current market conditions. To differentiate themselves from competitors, they also customise price plans, including the bundling of other products and services, and impose contract lock-in periods and/or early termination charges.
Ready to make the switch to cheaper bills? Compare plans at ELECTRIFY.SG now. If you’re looking for electricity plans for your business, submit your bill to us and we will get back to you with plans that suit your consumption needs.