Open electricity market remains viable but foundations need to be strengthened: Tan See Leng

To date, about half of all Singapore households or around 746,000 accounts buy electricity from retailers. PHOTO: ST FILE

SINGAPORE - The open electricity market remains viable despite the recent exit of retailers, but its "foundations" will need to be strengthened, said Second Minister for Trade and Industry Tan See Leng on Monday (Nov 1).

He was responding to questions filed by MPs in the wake of five electricity retailers - iSwitch, Ohm Energy, Best Electricity, UGS and SilverCloud Energy - announcing over the past three weeks their plans to leave the market.

The five supply to about 9 per cent of all electricity consumers.

As at the end of last month, about 140,000 households and 11,000 business accounts will either be transferred to another retailer or back to SP Group, said Dr Tan. There are nine remaining retailers in the electricity market.

Dr Tan noted that some retailers may exit the market or some who had left may re-enter depending on the severity and duration of the energy crunch.

He said the benefits of the open electricity market remain, pointing to increased choice and flexibility for consumers when buying electricity as well as cheaper retail price plans.

"To date, about half of all households, or around 746,000 households accounts, have switched to buying electricity from electricity retailers," he added.

On whether the Energy Market Authority (EMA) will be reviewing the number of retailers needed to sustain the electricity market, Dr Tan said "there is no magic number".

He added that there is sufficient competition in the market today, and the EMA will remain committed to ensuring this.

Currently, all retailers are vetted and have to satisfy a stringent set of requirements before they are licensed to serve consumers in the electricity market, Dr Tan said.

They have to show that their management team has relevant experience in energy retailing or trading, consistently hedge at least 50 per cent of their wholesale electricity price risk and submit financial statements to EMA, he added.

"In hindsight, these are necessary but insufficient to withstand a severe stress test, such as the one we are currently facing," he said, adding that EMA will carefully consider suggestions from MPs on how to strengthen these requirements and the futures market.

The electricity futures market is one way in which retailers can offset price fluctuations, as players can fix their costs or revenues at a pre-determined price for a period of up to two years. This will help maintain stable prices and cancel short-term fluctuations.

Responding to Ms Foo Mee Har (West Coast GRC) on when a new regulatory framework can be rolled out and what hedging strategy will have to be undertaken, Dr Tan said EMA will enhance licensing requirements for electricity retailers but did not give a timeframe.

However, these safeguards have to be practical and realistic as it is not "feasible or economically prudent" for the Government to put in place safeguards to cover "every potential eventuality", he said. Doing so will lead to significant costs for consumers, he added.

Dr Tan noted that several retailers who left the market were under-hedged when global energy shocks and disruptions to Singapore's piped natural gas supply caused wholesale electricity prices to spike.

"These retailers now find themselves having to buy the unhedged portion of electricity at the high wholesale electricity prices and sell them at much lower contracted rates to consumers," he added.

"Liquidity in the electricity futures market has also been affected. Given the huge volatility, market makers were not prepared to take on significant positions. This is similar to the situation in other commodity markets," said Dr Tan.

The retailers that could no longer sustain their operations have chosen to exit the market, he noted.

Affected customers who have transferred to SP will need to pay the same regulated tariffs as all other households and small businesses.

Explaining why SP cannot honour the prices and terms of existing contracts, Dr Tan said the regulated tariff reflects the price SP pays to the generating companies for the electricity.

"Thus, for the transferred customers to pay less, the other consumers with SP will have to pay more than the regulated tariffs to cross-subsidise them," he said.

Measures have also been put in place to ensure the transfer to SP is "as seamless as possible", he added.

Workers' Party chairman Sylvia Lim (Aljunied GRC) asked how many affected customers have stayed on with SP and how many have opted to switch to the remaining retailers.

Dr Tan replied that no data is available yet.

Join ST's Telegram channel here and get the latest breaking news delivered to you.