Singapore energy regulator freezes new entrants, mulls rules to minimise power retailer failures

SINGAPORE’s energy market regulator is mulling tightening licensing conditions for electricity retailers that may require players to raise their physical hedging and capital positions and possibly even, provide performance bonds, after last year’s staggering spikes in spot electricity prices drove nearly half a dozen of them to close shop.

The Energy Market Authority’s (EMA’s) review of the electricity retail licensing regime to improve the resiliency of retailers and further protect consumers may also require retailers to conduct regular financial stress-testing, EMA’s director of market development and surveillance Jesse Chin told The Business Times.

“We aim to complete this review by the end of the year. Pending the completion of our review, EMA has not approved any new retailer licences,” Chin said, adding that the regulator was studying the matter and drawing lessons and insights from other jurisdictions and relevant sectors.

He also stressed that EMA has to strike a balance between setting more stringent requirements to reduce the risk of retailers failing versus the higher cost that these measures introduce, which will be passed on to consumers. The review will involve a consultation process with the public and industry stakeholders.

Last year was a tumultuous year for Singapore’s electricity sector. Mid-2021 onwards saw wild price swings in spot electricity prices here as a result of unplanned gas curbs owing to supply disruptions while demand soared as activity rebounded from pandemic lows. An unprecedented global energy crunch exacerbated the dilemma.

Amid volatile prices and inability to hedge risks on the local bourse’s futures market as liquidity dried up, 5 electricity retailers who were then supplying electricity to 140,000 households and 11,000 business accounts - about 9 per cent of all electricity consumers in the city state - exited the industry.

The shocking exits in October last year, led no less by iSwitch, which was then the largest independent retailer, was a big blow to Singapore’s liberalisation efforts under the Open Electricity Market (OEM) which had taken off with much aplomb and promised consumers savings of up to 30 per cent on their electricity bills. Such sweet savings had eventually come undone on the back of soaring electricity prices.

Other players, namely Best Electricity, Ohm Energy, Silvercloud Energy and UGS Energy, also called it quits all within a span of weeks. Three among them - Best Electricity, Ohm Energy, and UGS Energy - made ex-gratia payments or private settlements to ease their consumers’ transition, according to EMA. Following these exits, 9 electricity retailers remain in Singapore’s OEM space. 

In November last year, Second Minister for Trade and Industry Tan See Leng acknowledged, in response to parliament questions, that the foundation of the OEM will need to be strengthened as the existing licensing requirements proved “insufficient” for retailers to withstand a severe stress test. He added that some retailers were ill-prepared to weather the storm and that suggestions to further strengthen the framework will be carefully considered.

In response to BT queries, EMA’s Chin said: “Our gas and electricity markets have been subject to unusually high volatility in the past few months due to an unprecedented global energy crunch as well as the ongoing conflict between Russia and Ukraine. Electricity retailers who had under-hedged their positions were exposed to price volatility in our wholesale electricity markets and chose to exit the market, while retailers that were fully physically hedged were able to continue operations and were unaffected.”

The Electricity Futures Market on the Singapore Exchange was developed as one possible avenue for market participants to hedge their positions and to provide forward price transparency. EMA had required retailers participating in the OEM to hedge at least 50 per cent of their retail contracts.

Chin pointed out that the exit of electricity retailers is not unique to Singapore as the global energy crisis that has driven electricity prices higher has also prompted such exits in the UK, Spain and Japan.

To protect affected OEM consumers, EMA required exiting retailers to refund all security deposits from household consumers after offsetting outstanding charges. They were also not allowed to charge consumers an early termination fee.

For businesses exposed to the volatile wholesale prices and were looking for retail price plans, EMA introduced the Temporary Electricity Contracting Support Scheme (TRECS) and worked with generation companies and retailers to offer monthly fixed price plans as well as longer-term retail price plans with significant fixed price components. With the Russia-Ukraine conflict worsening the global energy crunch, EMA has extended these support measures till June 2022.