Lights dim for 3 more power retailers amid record wholesale prices
AT least 3 more electricity retailers in Singapore may turn off the lights and exit operations as staggering spikes in spot electricity prices and an inability to hedge adequately sent their businesses reeling.
The Business Times (BT) understands that Ohm Energy and Best Electricity - relatively smaller independent retailers with collectively less than 50,000 household accounts - are considering to cease or sell their electricity retail operations in Singapore. Diamond Electric is also believed to be contemplating an outright exit.
This follows hot on the heels of BT's earlier report that iSwitch Energy has decided to call it a day on its retail operations effective next month, citing "current market conditions".
iSwitch, Singapore's largest independent electricity retailer, is believed to hold 90,000 out of 1.4 million household accounts under the Open Electricity Market (OEM), the sector's liberalisation plan that began in phases 3 years ago and covered nationwide in May 2019.
Household consumers impacted by the exits of electricity retailers will see their accounts transferred by default to SP Group, the national utility, or they can opt for another retailer before the transfer.
In what must be a sign of hard times for many retailers, Ohm Energy and Best Electricity have in fact stopped taking in new customers or renewing contracts since Monday (Oct 11), BT understands.
Spot prices in Singapore's electricity market have swung wildly since July this year.
The Uniform Singapore Energy Price (USEP), which reflects the real price of electricity and varies half-hourly depending on demand-supply dynamics in Singapore's wholesale market, has shot through the roof, hitting multi-year highs on several occassions in recent months. Retail prices move in tandem with the USEP.
On Tuesday, the gyrations continued with USEP topping the daily price level since the start of the National Electricity Market of Singapore (NEMS) in 2003. Thursday was no different with prices surging even higher to S$3,811 per MWh (megawatt-hour) in the late morning's half-hourly session, according to data provided by the Energy Market Company.
In short, the past 3 months have been the most volatile in the history of Singapore's electricity market with prices hitting multi-year highs.
Electricity retailers undertake hedging in the futures market to mitigate the risks from volatile prices; so on their own, high spot prices - as unusual as their movements have been recently - are not the most immediate headache.
Most players have been caught in a bind because they are unable to hedge adequately amid sustained high prices as there are a lack of natural sellers and market makers have "pulled their prices" in the Singapore Exchange's electricity futures market, according to insiders.
As long as further hedging options are off the table, an executive from one electricity retailer said his firm's hands are tied and it can't take in new customers. The firm has also lost customers as it has been unable to price its packages competitively in the current climate.
"This is the problem. If I don't believe there are hedging possibilities or we can get to more normalised spot prices, then we are never going to be able to compete or stay in the market...we are not going to be able to price our packages above the regular tariff," said the executive who declined to be named.
When contacted, SGX's head of commodities William Chin told BT that volumes in the electricity futures market have risen, particularly in July and August as spot electricity prices started to jump. However, he added that in September and so far this month, the heightened volatility in NEMS and uncertainty had led to "reduced market depth in futures, particularly offer prices as the market trended up."
The volatility could persist even longer. According to Chin: "The electricity futures market is pricing in higher prices across the curve, and projecting volatiity going out to Q1 next year. We are working with the EMA to attract more liquidity to the futures market to help with the ongoing spot market volatility".
BT also understands that a group of retailers have been holding regular discussions with industry regulator, Energy Market Authority (EMA) on the matter.
It is still not immediately clear what has triggered the sharp fluctuations in electricity prices that continue to rile market players. EMA has said it was investigating July's sharp spike.
Electricity retailers in the residential consumer segment are not the only ones feeling the heat in this high-price environment. At least two retailers serving commercial or industrial consumers businesses, namely SilverCloud Energy and ValuEnergy are throwing in the towel too on the retail business, according to sources.
The episodes threaten to mar Singapore's liberalisation of its electricity market which was rolled out with much fanfare as households eagerly looked forward to slashing their bills as high as 30 per cent if they switched out of SP, the incumbent and picked one of the then, 13 retailers.
With iSwitch bowing out (it had also acquired a retailer ES Power's contracts in the early months of Singapore's full sector liberalisation), there will be 11 OEM retailers. This is likely to shrink further as other players also bow out.
Savings was the OEM's biggest incentive with 1 out of 2 households making the switch as of Apr this year. According to results of a consumer satisfaction survey published by EMA 6 months ago, a majority or 80 per cent of respondents cited "attractive price plans" for signing up with their retailer of choice.
That savings sweetener is gradually souring as retailers raise their fixed-price plans for consumers by 10 to 20 per cent to cushion the impact of high costs as a result of surging electricity prices.
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