Businesses fret over potential higher costs from EMA proposals to reduce power retailer failures

SINGAPORE – The Energy Market Authority’s (EMA) proposed safeguards to help Singapore withstand significant volatilities in the global energy market are necessary, but businesses are increasingly concerned about the cost burden that will likely be passed to them.

Even though the tariffs of grid operator SP Group and the standard price plans of several power retailers have dropped slightly in recent months, many small and medium-sized enterprises (SMEs) continue to wrestle with hefty electricity bills as contracts under mostly lower old rates expire.

F&B brand PastaMania, which paid for electricity under a contract with the landlord of a swimming complex in Jurong, had to close its outlet there in November 2022 after its monthly power bill more than doubled from $3,000 to $7,000.

Mr Brian Stampe, chief operating officer of Commonwealth Concepts whose brand portfolio includes PastaMania, Swissbake and The Marmalade Pantry, said: “While we are starting to see a decrease in electricity tariffs, prices are still high, and they are unlikely to drop to pre-pandemic levels.

“In 2022, our central kitchen saw electricity prices increase more than 3.5 times. Certain retail locations have also seen a near-doubling of electricity rates. While the rates have tapered off at present, they are still high at over 30 cents per kWh.”

He anticipates that more of his mall-based outlets may see higher electricity bills in 2023 as several landlords may have to recontract with power suppliers at higher rates when contracts expire.

To top it off, he is now concerned about potentially higher costs arising from EMA’s proposed measures. “Beyond these safeguards, what are the Government’s plans to try to reduce energy costs? Is ensuring that retailers have enough capital and don’t close shop suddenly sufficient to protect consumers?” he asked.

On Feb 1, EMA proposed tightening licensing conditions for retailers and enhancing protections for consumers, after a surge in wholesale electricity prices in 2021 drove nearly half of Singapore’s 15 retailers to shutter, affecting 9 per cent of all consumer accounts here.

EMA is looking at raising retailers’ hedging requirements, requiring them to have a minimum paid-up capital or tangible net worth of at least $1 million, and considering making retailers compensate consumers for losses arising from early contract termination.

It has launched a public consultation that will run till March 3, to seek views on its proposals.

At issue is striking a balance between tougher requirements to reduce the risk of retailers going bust and the cost burden of these measures that will likely be passed on to consumers. Already, the difference between SP’s tariff and the fixed-price plans of some retailers has shrunk to less than 2 per cent, compared with savings of up to 30 per cent at one point after the liberalisation of Singapore’s electricity market in 2018.

Requiring retailers to compensate consumers for losses arising from early contract termination may discourage them from offering price plans with large discounts, said Dr David Broadstock, a senior research fellow at the National University of Singapore’s Energy Studies Institute.

“This is because the larger the discount, the higher the costs of compensation that the retailer would be liable for,” he pointed out.

Responding to queries from The Straits Times, an EMA spokesman said: “The pricing of the retail products is a commercial decision by the retailers. Consumers can choose to stay on the regulated tariff. Presently, almost 60 per cent of residential consumers buy electricity through SP Group.”

EMA noted that although global fuel prices have dropped in recent months, there is still an ongoing energy crunch. Energy costs have remained elevated due to factors including the Ukraine war and China’s reopening, it added.

To ensure energy security, EMA has, since October 2021, introduced measures including setting up a Standby LNG Facility which power generation firms can tap to replace disrupted supplies, and requiring companies to keep sufficient fuel for power generation.

It is also reviewing whether to extend measures, including the Temporary Electricity Contracting Support Scheme, beyond March 2023. This scheme cushions the impact of volatile prices in the wholesale electricity market on large electricity users.

Mr James Chong, head of the commercial division at Senoko Energy, said it is already meeting most of the proposed new requirements.

“For example, Senoko has always hedged above the EMA’s stipulated level to avoid market volatility, thereby ensuring the resilience of our retail business.”

But Mr Chong noted that with better safeguards and security, the cost of retailing electricity will inevitably increase. “With higher entry barriers for new entrants, prices are also expected to rise, but this is a small price to pay for stability, certainty and energy security,” he added.

Mr Ling Ting Ming, founder and chief executive of robotics company Otsaw, said potential higher costs could be passed on to consumers and SMEs when power retailers hedge their risks. 

But he noted that “if retailers cannot make it more competitive, they will be out of business as well. The entire programme must create certain value in terms of cost savings and stability in service delivery”.

He added that the recent drop in tariffs has helped to lower his power bill by about $400 a month. “But it is not significant enough to offset other increased costs and inflation,” he said.

While the volatility in the global energy market has moderated in recent months, the fact remains that electricity costs are significantly higher than before the Covid-19 pandemic, said a spokesman for the Restaurant Association of Singapore.

On top of that, food and beverage operators have to grapple with increased rent, freight, raw material and labour costs, it added. 

Select Group, whose brand portfolio includes Peach Garden and Texas Chicken, saw its power bill soar up to 2.5 times compared with during the pre-pandemic period, said founder and managing director Vincent Tan. “Although our energy costs have stabilised in the past three months, they are still very high. If energy prices continue to soar, it may further drive up food prices,” he added.

Rasel Catering Singapore, whose three central kitchens consume about 30,000kWh of electricity a month, saw a 42.8 per cent jump in its monthly power bill to $20,000 from $14,000 after it switched power retailers in July 2022.

“We had to raise food prices by about 8 per cent because we also face higher manpower and ingredient costs. And if energy costs go higher because of the Ukraine war and China’s reopening, it will be tough for all of us,” said Rasel founder Alan Tan.

Fortunately, he added, business picked up between June and December 2022 because of Singapore’s reopening.

“And with the Singapore Tourism Board’s efforts to bring in more Mice (meetings, incentives, conventions and exhibitions) events, we should be seeing a further increase of about 10 per cent to 15 per cent in business,” he said.