EMA explains electricity tariff-fuel price link

NARAYANA Narayana asked about the relationship between electricity tariff and fuel prices ("Oil prices, electricity tariffs don't tally": BT, Oct 3).

The electricity tariff consists of two main components - the fuel cost component and the non-fuel cost component. The latter includes capital and operating costs of generation companies and grid charges, while the former refers to the cost of natural gas which is the dominant source of fuel for power generation in Singapore. In the Republic and other Asian countries, the cost of natural gas is linked to oil prices.

Based on the published methodology, the fuel cost component for Q4 2014 is calculated by taking the average of the daily gas prices from July 1 to Sept 15, 2014, converted from US dollars into Singapore dollars. It is not correct to only compare two data points using spot crude oil prices, one at the start of the period and one at the end. As fuel-price movements have fluctuated between July 1 and Sept 15, the overall reduction in the average daily gas prices is only about 3 per cent, and not the "over 10 per cent" figure which Mr Narayana had used in his calculations. This, in turn, translates into a proportional reduction of 1.6 per cent in the Q4 2014 electricity tariff, since fuel costs make up about 50 per cent of the tariff.