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Open electricity market slow to gain traction in Jurong soft launch; retailers still positive

Jeffrey Tan
Jeffrey Tan • 8 min read
Open electricity market slow to gain traction in Jurong soft launch; retailers still positive
SINGAPORE (Apr 23): This month, Joshua Loke switched his electricity service provider. Instead of Singapore Power Services, Loke now buys electricity from Keppel Electric. He will pay about 20% less than what SPS currently charges, he says.
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SINGAPORE (Apr 23): This month, Joshua Loke switched his electricity service provider. Instead of Singapore Power Services, Loke now buys electricity from Keppel Electric. He will pay about 20% less than what SPS currently charges, he says.

Loke lives in Jurong, where the Energy Market Authority has soft-launched the open electricity market. Since April 1, households and businesses whose premises have postal codes starting with 60, 61, 62, 63 or 64 can buy electricity from a retailer of their choice. The OEM will be extended to the rest of the country in 2H2018.

Not everyone has been as quick as Loke in making the switch. Mrs Koh is adopting a “wait-and-see” attitude, as is her mother-in-law, who also lives in Jurong but in a separate household. “No one wants to be the guinea pig,” Koh says, adding that SPS has done a good job so far. “People trust the government more.” While electricity plans that offer discounts on tariffs may be enticing, Koh thinks that these could be just a temporary marketing ploy. She says she and her husband will only consider switching to a different retailer when more people have switched.

Is Koh’s scepticism an early indicator of the difficult road ahead for the OEM? Or are more Singaporeans like Loke, looking out for a deal? How can electricity retailers hope to differentiate a service that is the same from one retailer to the next? All the electricity retailers buy power in bulk from the same wholesale market. Their competitive strategy is largely dependent on being able to take on the risk of price fluctuations in the wholesale market, which happen every 30 minutes, and earning the difference through innovatively priced plans.

Differentiating a commodity

To entice retail consumers, electricity retailers have rolled out a variety of these plans. The most common plans give end-consumers a discount on the regulated tariff or a better tariff at a certain time of the day. For the quarter to June 30, the SPS tariff increased 2.8% q-o-q to 22.15 cents per kWh.

Geneco — a consumer brand under Seraya Energy, the subsidiary of YTL PowerSeraya — is offering its customers significant discounts of between 10% and 40% on the regulated tariff. Its Good Night plan is priced at 10% below the SPS tariff from 6am to 11.59pm, and at 40% below the SPS tariff from midnight to 5.59am. For those who want a fixed rate throughout the day, Geneco is offering an 18% discount to the SPS tariff for a 12-month plan or a 20% discount to the SPS tariff for a 24-month plan. And for consumers who want a fixed rate for a much longer period, Geneco is charging 17.8 cents per kWh for 12 months or 16.8 cents per kWh for 24 months.

Other retailers are dangling freebies. Consumers who sign up for Senoko Energy’s ­LifeEnergy and BizEnergy plans will enjoy three months of free electricity initially, subject to its fair-use sustainability policy. Best Electricity’s BEST Home Saver Upfront electricity plan allows consumers to enjoy all the savings from a 24-month contract upfront instead of on a monthly basis.

To better differentiate themselves, retailers are also collaborating with other consumer-facing brands. For example, Senoko Energy is partnering with NTUC Link. “Residential consumers who are Plus! Cardholders will earn LinkPoints for every dollar of their electricity bill spent with us. Residential consumers do not need to pay a security deposit, making the switch as seamless and low cost as possible,” says Stefano Boscaglia, senior vice-president of SME and consumer sales at Senoko Energy. The company has also launched a special rebate programme with OCBC Bank, allowing customers to earn rebates when they set up recurring payments using their OCBC credit or debit cards.

Peerer Energy is giving away cash rebates and Peerer Coins to customers of Lazada, Zalora and GoFresh. The coins can be used to offset electricity bills with Peerer. “We are trying to prove that a single household can pay zero dollars on its electricity bill based on our business model,” says Peerer founder Joe Poon.

Sembcorp Power is bundling its electricity plans with its recycling and waste management services for business consumers. Companies that want to go green can opt to receive electricity generated from solar energy. “Sembcorp, as one of the region’s leading independent renewable energy companies, also has the capability to integrate the suite of services they will need. Other Sembcorp products that we can bundle for our industrial customers include natural gas, steam and wastewater treatment,” says Sembcorp Power general manager Valerie Lee.

Hesitance understandable

The plethora of power plans available would be enough to confuse even very astute consumers. In fact, one start-up is already hoping to take advantage of the market’s complexity by acting as an online adviser (see “Aggregator site ELECTRIFY aims to help consumers compare electricity plans” on Page 10). It may take more than novel price plans to convince some consumers to change provider.

Tsin Li Chua thinks her father, who is the decision maker of the household, is oblivious to the OEM. And even if she were to tell him about it, Chua says he is unlikely to switch the household’s electricity purchases to a different retailer because he might find the process “troublesome”. She feels that awareness of the OEM is still poor. Though she has read about it briefly in the news, she is “still not very sure what it is”.

Sembcorp Power’s Lee is well aware of this. “The OEM is still quite new to Jurong residents and small businesses, and many are still learning about the savings that switching power providers can bring,” she says. “Our observation is that some consumers are taking their time to look for the plan that best suits their needs. Our team will continue to listen to what our customers want and roll out innovative plans to encourage them to switch to Sembcorp [Power].”

Nevertheless, some participating retailers tell The Edge Singapore that they are seeing a positive response. Ohm Energy managing director Jomar Eldoy says: “Response has been surprisingly encouraging. We find that what motivates customers to switch are sufficient savings, discounts and the ease of switching in a fuss-free manner without much disruption to what they are used to. For us, our referral scheme has also been very successful.” Ohm Energy was previously known as Buri Energy.

Sharon Ng, associate professor of marketing and international business at Nanyang Business School, says uncertainty and hesitance are natural in new markets. “In the short term, there will be some consumer confusion on the differences between the different service providers and how [switching] will impact their bill or the reliability of electricity supply,” she says. “[But] opening up the market will definitely be beneficial to consumers as they have more choices and are not locked into a particular service provider. Competition may also lead to lower prices.”

A market to watch

Gilles Pascual, Asean power & utilities transaction leader at EY, reckons the electricity market will develop in two distinct phases. At the start, retailers will embark on aggressive and innovative marketing to win customers. This may include partnering with consumer brands to gain access to consumers, he says. In the next phase, Pascual expects the market to consolidate as customer switching slows. Retailers will begin to focus more on customer retention than acquisition.

Ng of Nanyang Business School says at that point, market share will become more important. “Greater market share will lead to lower cost for the service provider. Thus, a few players should emerge as the key [retailers] over the long run,” she says.

Over the long term, the opportunities for retailers and consumers are “immense”, says Sharad Somani, Asia-Pacific head of power utilities at KPMG Singapore. As technology advances in software and hardware, better offerings can be created for consumers. “We are seeing innovations such as Evergen in Australia, [which] offers intelligent storable solar power. [It] optimises consumers’ investment in solar and batteries by monitoring solar generation, battery use and energy costs in real time,” he says.

The key to a smooth transition to the OEM is careful planning, says Jaime Ruiz-Cabrero, partner and managing director at BCG Singapore. Liberalising the electricity market can have unintended consequences, he says. In California, wholesale electricity prices multiplied fivefold over the turn of the millennium while retail electricity prices remained fixed. Some retailers were bankrupted. In the UK, retail electricity prices surged by a third following liberalisation in 1991 as the market was a duopoly. Prices dropped only after more competition entered the market.

Says Ruiz-Cabrero: “If carefully planned and managed, including ensuring the right level of competition, we believe in the benefits of opening the markets to foster competitive energy prices, attract investments for required capacity growth and bring mechanisms to ensure system sustainability.”

This article appears in Issue 827 (Apr 23) of The Edge Singapore which is on sale this week

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