Potential for competition electrifies power market

Singapore

COMPETITION in the electricity market is heating up as Singapore gears up for the sector's full liberalisation.

Attracted by the potential for change, independent retailers are entering the once-staid market in droves.

Meanwhile, power-generation firms - all of which have their own retailing arms - are drawing up new plans for household consumers, who will be free to choose who they want to buy electricity from come mid-2018. In the works are plans for green electricity (generated with solar power) and reduced rates for consumption during off-peak hours.

The liberalisation of Singapore's electricity market has been happening gradually since 2001. Steadily more consumers have been given the freedom to switch from buying electricity at the regulated tariff from SP Services to, for example, buying from an electricity retailer who offers packages at different price plans.

At the start, the largest consumers, that is, industrial users, were given contestability status, or this freedom to choose. To qualify, they had to meet certain consumption requirements, which have been slowly reduced; these thresholds were last cut from 4 megawatt an hour (MWh) to 2MWh last July, giving some 33,000 commercial and industrial consumers more say over the cost and supply of their electricity.

Another 1.3 million consumers, mainly households, will enjoy this flexibility by the second half of 2018.

Together with the proposed use of smart meters and demand-side management initiatives unveiled last year, the electricity sector is set to be transformed.

Already, the number of electricity retailers has jumped from only seven in 2013 to 21 at present, said the Energy Market Authority (EMA).

Red Dot Power, formerly known as CPvt Energy Asia, is among the new players, having entered the fray in 2014.

Vijay Sirse, its founder and chief executive, said: "When you look back five years, the retailers' job then was only to supply electricity. Today, the retail model is changing."

Independent retailers - so called because they do not have a power-generation arm - are banking on technology for a competitive edge over the incumbents.

Red Dot Power, for instance, offers electricity demand-management solutions, which enable consumers to cut back or move their power usage to periods outside peak-demand times - and pay lower electricity tariffs for doing so.

Besides reducing stress on the power grid during peak periods, these solutions make the electricity market more efficient, thus removing the need for more power-generation plants to be built to meet peak demand.

Mr Sirse said: "If demand continues to grow in Singapore, we have to develop more power plants - which means we'll need land and then gas.

"Why not we do the opposite? Rather than generating more, we try to reduce demand through optimal solutions because it is easier to reduce demand (than to increase generation capacity)."

Demand management is not a new concept here, but the take-up has been slow.

To spur its progress, the EMA recently launched a pilot programme with 16 partners, including education institutions, government agencies, electricity retailers and private companies. Called Project Optiwatt, it aims to test various demand-side management technologies and business models with different players, so they can gain wider acceptance.

Another new independent retailer, iSwitch, is tapping consumption data to offer cheaper electricity. Key to this is the adoption of smart meters, which the authorities have indicated will be part of the future electricity landscape here.

Last October, the government said it was calling for proposals for the design of smart meters for electricity, gas and water supply. Electricity meters in Singapore are now read manually every two months, along with gas and water meters. Smart meters will enable consumers and electricity retailers to track their electricity use in real time.

Besides paving the way for more accurate billing, smart meters mean iSwitch can draw up a more accurate picture of how much its customers are consuming at any one point. This enhances risk management, which in turn leads to lower prices, said iSwitch general manager Andrew Koscharsky.

"Because we have such high-quality data, we don't have to pass on additional risks to our customers like other retailers might... (We can) sell our customers only what they truly need, instead of adding premiums because of potential unknowns in their behaviour."

iSwitch said it won nearly 1 per cent of the contestable market in five months by offering customers as much as a 25 per cent discount off the regulated electricity tariff. The group is now beefing up its capability to handle greater volumes as the date for full liberalisation nears.

The entry of new players into the market adds further stress for power-generation firms, which are already bleeding from massive overcapacity in the market.

As at end-March, Singapore had a generation capacity of 13,405 megawatts, more than twice its peak-system demand of 6,909 megawatts.

But the generation companies are not sitting on their hands. With their sights trained on the longer term, some are adding extra manpower ahead of full market liberalisation.

Tuas Power, which has the largest share of the power-generation market, plans to significantly bump up its 50-strong retail team to handle the increased volumes.

Michael Wong, its general manager, said: "We believe that in the long term, differentiation in services will bring us market presence. That's the important part. It's not a hit-and-run."

Early last year, Tuas Power started offering its commercial-building customers the option to switch to smart meters, which enable them to monitor and therefore reduce consumption. "(Electricity) pricing is volatile and out of our control, but even more important is the consumption part," said Mr Wong, adding that reduced consumption leads to more sustainable cost savings for customers.

The firm plans to build on its experience in serving the commercial-building sector - it says it has more than half the contestable market there - to develop services for households.

"The key thing is for us to keep (being) relevant and to tap into the latest trend or lifestyle to see how we can fit in," he said. He foresees the day consumers will be able to buy electricity packages through online shopping platforms such as Taobao.

Senoko Energy, which holds the second-highest market share for electricity generation in Singapore, started an energy-solutions business a year ago to explore the new offerings it could provide.

Its chief executive Paul Maguire said this naturally took the firm down the path of looking at renewable energy, especially for customers without the rooftop space to install their own solar panels.

Senoko Energy is now in discussions with infrastructure suppliers and property players, he said, but qualified that the project is still a work in progress.

The market is a tough one for generating companies now, he said.

"But you can't just dwell on your troubles all the time. Otherwise you'll be very depressed. So you just have to look at the future, look at the things you need to do, how you need to position your company."

All in, however, the ultimate winner will be the consumer.

He said: "From a market perspective, it's a good idea that you've got people coming into the marketplace and continually challenging the ways you are doing things. It's how innovations are created."