Households could pay less for power as electricity market opens up to competition

Households could pay less for power as electricity market opens up to competition

Jeffrey Tan
10/07/17, 01:57 pm

SINGAPORE (July 10): Type “compare mobile plans Singapore” in Google’s search box and you will get about 2.1 million results. Numerous articles and websites are devoted to helping consumers figure out whether they should take an M1 mobile plan or one from upstart Circles.Life; whether Singapore Telecommunications or StarHub has the better mobile-cum-TV package; and which telco charges the least for data.

By next year, it may be possible for consumers to make similar comparisons for electricity prices. In 2H2018, the country will implement full retail competition (FRC) in the electricity market. Households will no longer be forced to purchase electricity from Singapore Power Services (SPS). Instead, they will have the option of buying electricity from many different electricity retailers. Importantly, these retailers are expected to offer lower tariffs. Small industrial and commercial consumers will enjoy the freedom to choose their electricity retailers.

Currently, only those with an average monthly consumption threshold of at least 2,000kWh can do so. They are known as contestable consumers and number about 35,000, according to regulator Energy Market Authority (EMA).

“With the introduction of the FRC in the second half of 2018, the remaining small consumers [mainly households] will be able to choose their electricity retailers and price plans. This will empower them to choose a retail package that best meets their needs. Those who prefer to stay with SPS and purchase electricity at the regulated tariff will still be able to do so,” EMA tells The Edge Singapore via email.

This is probably welcome news for households, as electricity tariffs have been on an uptrend since April last year. For 3Q2017, SPS has set the tariff at 20.72 cents, up 7.5% from 19.27 cents in the same quarter last year. However, it is down 3.1% from 21.39 cents in the preceding quarter. In a June 30 statement, grid operator SP Group — the parent company of SPS — says the q-o-q reduction was due to the lower cost of natural gas.

Still, the average household is now expected to pay more as the average monthly usage is expected to be higher. The bill would amount to an average of $94.22 for an average monthly usage of 454.74kWh, says SP Group. This is up 4.1% from $90.54 for an average monthly usage of 423.28kWh in the preceding quarter.

So how can competing retailers expect to offer lower electricity tariffs to households? Where will the cost savings come from?

How tariffs are currently regulated
The electricity tariff for Singapore households is currently regulated and determined by EMA. It is calculated using a sophisticated formula that accounts for several costs.

According to SP Group, the 3Q2017 electricity tariff for households consists of four components.

The biggest, accounting for 72.4% of the tariff, is energy costs. This is adjusted on a quarterly basis.

Network costs account for 25.6% and are payable to SP PowerAssets. This is reviewed annually. SP PowerAssets owns and maintains the transmission system.

The third component is the market support services fee, which is payable to SPS and also reviewed annually. It comprises only 1.8% of the tariff.

The final component is the market administration and power system operation fee, which is less than 1% of the tariff. This is paid to the Energy Market Company (EMC) and Power System Operator (PSO). The former operates and administers the wholesale market, while the latter ensures electricity supply to consumers.

This fee is reviewed annually to recover the costs of operating the electricity wholesale market and power system.

Power plant or generator owners sell electricity on EMC’s wholesale market. Retailers buy electricity from the wholesale market and then sell it to contestable consumers. SPS also buys electricity from this market, but sells it to households and other non-contestable consumers.

This structure makes the electricity market somewhat different from the mobile telecoms market. In the latter, the three telcos own and operate significant network infrastructure of their own. They also invest in technologies to optimise network usage and performance, and are able to offer ancillary services on top of network coverage.

As resellers of power, what do electricity retailers have to offer?

Optimising usage
EMA says the reliability and quality of electricity supply to consumers will remain the “same” regardless of which retailer they choose to buy electricity from. Most retailers who spoke to The Edge Singapore expect to compete effectively on price.

Andrew Koscharsky, general manager for wholesale and trading at electricity retailer iSwitch, says his company will be able to offer an electricity package that is cheaper because it is tailored to the usage activity of average households.

He explains that, generally, electricity rates would be higher in the day because that is when industrial and commercial consumers use more electricity. In contrast, it is mostly households that consume electricity at night as people return home from work.

“So, for example, we could offer cheaper off-peak rates that encourage heavy appliances to be used at night,” says Koscharsky. “They could do their washing during that period rather than in the day.”

At Best Electricity Supply (BES), deputy general manager Terence Neo says his company is able to offer households lower tariffs because it has lower costs. SPS, on the other hand, has to recoup the investments it has made in the electricity grid and infrastructure. Neo says BES will also offer electricity packages that cater to the behaviour of household usage.

“As ordinary households typically consume more electricity during the evening and night time, we will introduce a residential electricity package that is quite different from the current commercial and industrial consumer’s electricity package,” he says. “The residential electricity package will definitely be lower than the SPS tariff, hence households can expect the electricity savings once FRC commences.”

Other retailers are considering fixed rate plans, which would allow households to consume as much electricity as needed but at a fixed price.

“[The] customer only needs to pay a fixed price throughout the tenure of the contract to hedge against tariff volatility, which [currently] changes every quarter,” says Jack Chong, Sunseap Energy’s assistant manager of sales and partnership. Sunseap will offer this option under its Ecofix plan.

Households will also be able to opt for solar power packages. These are offered by Sun Electric, which generates electricity from local rooftop solar generators installed within the SolarSpace programme. “Guaranteed solar plans can be up to 20% [cheaper than] the tariff rate, depending on the customers’ solar power content,” says CEO Matthew Peloso.

Buri Energy managing director Jomar Eldoy says, however, that retail prices will still depend on activity in the wholesale market. And it is difficult to say what the market will be like once FRC is implemented.

“If [FRC] were up and running today, the electricity packages will probably be 10% to 15% cheaper than current rates,” he says.

As these retailers appear to compete on price, aggregator site Electrify sees an opportunity to help consumers find value. The platform, which compares different electricity packages offered by retailers, plans to partner telcos, internet service providers and ride share apps to offer a suite of bundled services. These electricity packages could come bundled with cheaper data and internet plans, and ride-share discounts.

“With cross-industry partnerships, we plan to deliver more value to the consumer by forming an ecosystem that translates customer loyalty into tangible returns,” says Julius Tan, co-founder and CEO of Electrify. According to Tan, Electrify will make it easier for households to compare and buy electricity packages.

The platform uses its proprietary algorithm called Fibonacci to generate the available electricity package that best suits a household’s consumption profile. “With a few clicks, we present a snapshot of the most popular energy plans available in the market.”

Meanwhile, SPS will continue to sell electricity to households. It will also, in its role as the market support services licensee, continue to provide centralised services such as meter reading and data management, and facilitate customer transfers between retailers.

EMA says it is working closely with SPS and retailers to review and streamline business processes. It is also developing safeguards to protect consumer interests in FRC. EMA adds that SPS is currently developing an online platform that will enable households to make comparisons of electricity packages offered by retailers.

With all this in the pipeline, this time next year, the electricity market might become a lot more interesting.

* The Energy Market Authority has clarified its statement on contestable consumers. There are 35,000 commerical and industrial consumers who are eligible for contestability. Out of these, the sonsumers who choose to buy electricity from a retailer of their chocie are termed contestable consumers.

This article appears in Issue 787 (July 10) of The Edge Singapore which is on sale this week.

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