Why are electricity providers in Singapore exiting the scene?

Singapore

ON Oct 13, Singapore's fourth-largest electricity retailer iSwitch Energy said it would cease retail operations from next month. iSwitch had a market share of some 13 per cent of Singapore's Open Electricity Market (OEM) as at end-April this year.

Two days later, Ohm Energy also headed for the exit. At least two other retailers for the household segment are contemplating doing the same.

The Business Times breaks down why this is happening, and the broader implications for Singapore's electricity scene.

What is the open electricity market?

Singapore's opening up of the retail electricity market has been a gradual one that first began in 2001 with larger businesses.

The OEM is an initiative by the Energy Market Authority (EMA) that gives consumers a choice of their electricity provider. This initiative was progressively rolled out nationwide from November 2018 to May 2019.

Previously, SP Group was the only supplier of electricity to households in Singapore. The OEM liberalised the market in Singapore to allow all households the ability to buy electricity from a retailer.

There are two types of retailers: independent retailers which do not generate their own electricity, and "gentailers" that generate and sell power.

Higher spot electricity prices

Spot prices in Singapore's electricity market have seen higher levels of volatility 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 hit multi-year highs many times in the past 3 months.

In July, the USEP rose to S$1,514.86 per megawatt-hour (MWh). The sustained high prices over two days pushed up July's average USEP to a six-year high of S$167.04 per MWh.

On Oct 12, the USEP hit S$3,008 per MWh as the supply cushion in the wholesale electricity market reached a low of 10.9 per cent. Anything below 20 per cent signifies tight supply conditions. At the daily level, the USEP averaged S$1,597 per MWh on Oct 12. This is the highest daily level since the start of the National Electricity Market of Singapore (NEMS) in 2003.

The Energy Market Authority (EMA) said higher than usual electricity demand and outages in several generation units are some factors that have driven up prices.

Other contributors to the price spikes are gas curtailment from Indonesia's West Natuna and "low landing pressure" of the gas supplied from South Sumatra, added EMA.

Higher LNG prices

Nearly all of Singapore's electricity is produced from natural gas. Gas has typically been imported through pipelines from Indonesia and Malaysia. These prices are linked to oil prices, as gas is often sold under long-term contracts linked to the prices of oil.

But there have lately been more liquefied natural gas (LNG) imports into Singapore. LNG has become increasingly spot traded, and its price is more volatile.

Also, LNG spot prices have risen due to high demand across Europe, South America and Asia on the back of economic recovery and energy transition.

Last Friday (Oct 15), Singapore LNG Corp - the operator of Singapore's LNG terminal - was reported to be making enquiries about buying LNG cargoes from the spot market in what was termed a "rare move" as the company explores options to increase inventory at its terminal.

A breakdown in hedges

Retailers make agreements with homes and businesses to deliver electricity at an agreed price. These agreements must be met even if the price of electricity in the spot market surges.

To protect themselves in case spot prices move against them, electricity retailers hedge their positions in the futures market.

With spikes in spot electricity prices, retailers have been unable to hedge adequately due to the lack of natural sellers. Companies are also at risk of losing customers if they are unable to price their packages competitively.

READ MORE:

• Ohm Energy is the latest to switch off on Singapore's electricity retail ops
• EMA cites high demand, gas supply curbs for sharp spikes in Singapore's spot electricity prices
• Lights dim for 3 more power retailers amid record wholesale prices
• Singapore's largest independent electricity retailer iSwitch powers down