EMA moves to protect electricity consumers in S’pore

SINGAPORE - Steps are being taken to ensure that consumers are protected should their electricity retailers close shop unexpectedly.

The Energy Market Authority (EMA) also wants to make sure that electricity retailers are resilient enough to withstand market volatility. It has proposed tightening licensing conditions to avoid a repeat of 2021, when a surge in wholesale electricity prices

drove nearly half of Singapore’s 15 retailers to shutter

and affected 9 per cent of all consumer accounts here.

EMA is considering whether retailers should be made to compensate consumers for losses arising from early contract termination.

It is also looking at raising the hedging requirements for retailers and requiring them to have a minimum paid-up capital or tangible net worth of at least $1 million.

At issue is striking a balance between tough requirements to reduce the risk of retailers going bust and the higher cost of these measures, which will likely be passed on to consumers.

The difference between SP’s tariff and the fixed-price plans of some retailers has already shrunk to less than 2 per cent. Consumers were promised savings of up to 30 per cent when Singapore’s electricity market became fully liberalised in 2018.

EMA on Wednesday launched a public consultation, which will run till March 3, to seek views on its proposals, which come after recent upheavals in the retail electricity market exposed several gaps.

When wholesale electricity prices spiked in the fourth quarter of 2021, some retailers had to buy the unhedged portion of electricity at high prices and sell at much lower contracted rates to consumers.

As a result, six retailers – iSwitch, Ohm Energy, Best Electricity, SilverCloud Energy, UGS Energy, ValuEnergy – could not sustain their operations, while another two prematurely terminated consumers’ contracts. About 140,000 households and 11,500 business accounts were either transferred to another electricity retailer or to SP Group.

EMA also pointed to insufficient protection for consumers. “Retailers typically do not have any contractual obligations to compensate consumers if their contracts are prematurely terminated by the retailer. This stands in stark contrast to the fact that most consumers are required to pay an early termination fee if they choose to prematurely terminate contracts,” it said.

Retailers who impose early termination charges may be required to compensate consumers at least as much as the penalties they levy. This is because early terminations may lead to some consumers having to buy electricity at higher rates.

But EMA noted that while this will benefit consumers, it could lead to significant costs for electricity retailers, which may affect their viability.

The Consumers Association of Singapore (Case) welcomed proposals to enhance consumer protection against premature contract termination by retailers.

Since 2019, Case has received 56 such complaints, which account for 7.5 per cent of all complaints against retailers.

“While this number may seem low compared to all complaints received, the impact to consumers in low to middle-income households is not insignificant,” Case president Melvin Yong said.

The retailer may also not be permitted to unilaterally terminate the contract as long as there is no payment or contractual default, even if the consumer is insolvent, bankrupt or deceased.

Dr Victor Nian, co-founder and chief executive of the Centre for Strategic Energy and Resources think-tank, said this will help ensure that the rest of the household can continue with the existing contract till its expiry, instead of being penalised if the electricity account holder is deceased or bankrupt.

To ensure retailers have sufficient financial standing, they will be required to have a paid-up capital or tangible net worth of at least $1 million. The existing nine retailers – Geneco, Keppel Electric, PacificLight Energy, Sembcorp Power, Senoko Energy, Sunseap Energy, Tuas Power Supply, Diamond Electric and Union Power – will have to meet this requirement, among others, for their licence to be renewed.

This is in addition to current requirements for license applicants to show that its management has at least five years’ experience in energy retailing and/or commodity trading, and to submit a comprehensive business plan.

To ensure they are headed by competent and honest individuals, retailers will have to seek EMA’s approval to appoint key appointment holders. They include the company’s Accounting and Corporate Regulatory Authority-registered directors and chief executive or managing director.

Existing licensees will have to comply with this requirement for any change in their key appointment holders, when the proposed changes come into effect.

To make retailers more resilient, EMA plans to require both open electricity market (OEM) and non-OEM retailers to hedge at least 80 per cent of their retail contract quantity on a rolling 24-month forward basis, and provide a performance bond to cover the unhedged quantity.

There are currently no hedging requirements for non-OEM retailers. OEM retailers are required to hedge at least 50 per cent of their OEM retail contract load that are not indexed to wholesale electricity prices on an ongoing forward basis, EMA said.

Dr David Broadstock, a senior research fellow at the National University of Singapore’s Energy Studies Institute, said the increased hedging requirement could “limit how much the Singapore wholesale electricity market can transfer unpredictable price risk to retailers”.

The requirement for a performance bond on unhedged electricity supply should help ensure that retailers will have capital set aside to endure short-term shocks, Dr Broadstock said.

Mr Ernst Westendorp, chief commercial officer of renewable electricity supplier Flo Energy Singapore, said the non-OEM retailer already hedges risk associated with offering fixed price plans to its business clients, even though it is not required to do so.

That, along with prudent risk and management policies, has helped Flo, which currently supplies businesses that use more than 4,000 kWh per month, to stay financially healthy.

“But the (increased) hedge requirement, together with the performance bond obligation, may result in retailers having more hedges than required during part of the day, which could be costly,” he noted.