SINGAPORE - The extension of a scheme allowing large electricity users to purchase electricity at fixed prices for three more months will bring some relief to small and medium-sized enterprises (SMEs) hard hit by the global energy crisis.

Five SMEs told the Straits Times last week that the sharp spike in electricity prices brought about by the global energy crisis comes on the back of dealing with supply chain shocks, the impending goods and services tax hike and rising operation costs.

For some, electricity prices have increased three to five times over the past few months.

Such prices started skyrocketing from China to Europe after a global energy crunch that began last year.

Singapore imports almost all of its energy and cannot be insulated from such developments in the global market.

In Parliament on Monday (Feb 14), Second Minister for Trade and Industry Tan See Leng said Singapore had been enjoying artificially low electricity prices for several years due to an investment in capacity and fuel by the power generation companies.

Noting that this practice was below the cost of generating electricity and thus not sustainable, he said the current electricity price correction is unavoidable and has been precipitated as well as exacerbated by the global energy crunch.

Since October last year, the Energy Market Authority (EMA) has implemented measures to enhance national energy security and stabilise the Singapore Wholesale Electricity Market.

But around 11,000 business accounts, or 1 per cent of consumers, currently purchasing electricity directly from the wholesale market - where prices change every half-hour - still bear the brunt of the electricity crunch.

These are those consuming at least 4,000 kilowatts per hour, or 4MWh, and have not been able to secure a long-term fixed price plan that can guarantee stability.

Such commercial consumers are large electricity users that can buy electricity only from the wholesale market or retailers, and cannot pay for electricity at the regulated tariff offered by SP Group.

Responding to Workers' Party MP Gerald Giam (Aljunied GRC) who asked if concessions could be made for SMEs between 4MWh and 20MWh, which includes coffee shop owners, to tap regulated tariffs so operational costs do not skyrocket, Dr Tan said doing so would cause regulated tariffs to rise for all households and small business consumers who do not have the bargaining power to negotiate for better retail prices.

To protect businesses from the recent volatility in wholesale electricity prices, the EMA launched the Temporary Electricity Contracting Support Scheme (Trecs) in January. Under the scheme, commercial users can pay for electricity at a capped rate.

On Jan 28, the authority made more contracts available to these users after the scheme was fully subscribed for January and February.

The latest move extends Trecs to March, April and May.

The option of a fixed price package will primarily benefit businesses in energy-intensive industries exposed to the volatile wholesale market, some of which have been unable to secure a fixed price contract after their electricity retailer exited the market last year.

Those indirectly exposed to the wholesale market through their landlords, such as hawker stalls in coffee shops and SMEs in malls, also stand to benefit from the greater stability.

Dr David Broadstock, a senior research fellow at the National University of Singapore's Energy Studies Institute, said inspecting the data casually suggests that policy intervention since October 2021 has depressed the most severe uncertainties, yet the remaining level of wholesale market price instability would make the removal of Trecs difficult to justify right now.

The provision of mechanisms such as Trecs to shield consumers against short-term extreme price volatility will help reduce the risk of any such temporary price increases being passed on to their customers, he added.

Some SMEs, however, would prefer longer contracts that allow them to better engage in cost and fiscal planning, said business lecturer Tan Tsiat Siong from the Singapore University of Social Sciences, but he noted though that one-month fixed price contracts is a big improvement over half-hourly trading in the volatile wholesale market.

The knock-on effects of electricity price spikes on the cost of living may still be felt, especially if current energy prices remain, fixed price plans under old rates expire and some businesses unable to deal with the costs pass them to consumers.

And there are emerging questions including what becomes the relevant triggers for ending Trecs, said Dr Broadstock, as well as whether medium- or long-term market measures are warranted in its stead.

There is also uncertainty about the impact of the Ukraine crisis on Singapore, which may further extend instability in the gas market.

Nevertheless, association representatives and industry observers said the extension is an encouraging move as it shows the authorities are being pro-active to current market conditions.