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Govt raises electricity tariff when oil price goes up but forgets to adjust quickly with oil price comes down

During the National Day Rally on Sunday (19 Aug), Prime Minister Lee Hsien Loong said that electricity tariffs today cost less than 10 years ago, even though tariffs may have gone up recently.

He put up a chart showing that in 2008, the electricity tariff was 25.07 cents/kWh while presently, it is slightly lower at 23.65 cents/kWh.

"Unfortunately, we all remember vividly when the electricity tariff goes up, but when the tariff comes down, we forget quickly," he said to the laughter of the audience at the rally.

He also added that Singapore "cannot control electricity tariffs because we import almost all our energy". And because electricity is generated from natural gas, the cost fluctuates according to global oil prices, he said.

Oil prices in last 10 years

Since Singapore's electricity tariffs fluctuate according to global oil prices, let's take a look at the oil prices in the last 10 years:

Indeed, the oil price chart put up by PM Lee does mirror the online information shown above.

So, ten years ago on 19 Aug 2008, the crude oil price was US$113.9 per barrel. As of yesterday (21 Aug), it was US$72.7 per barrel.

What does this means?

It meant while oil prices, which our electricity tariffs were derived from, came down some 36.2%, our electricity tariffs came down a mere 5.7% (from 25.07 to 23.65 cents/kWh).

Somehow, the government remembers vividly to raise electricity tariff when oil price goes up but when oil price comes down, they forget to adjust quickly.

SP Power becomes less economical in distributing electricity

Delving into the matter further, it is noted that, according to the Energy Market Authority (EMA), Singapore's electricity tariffs are calculated based on 2 components - fuel cost and non-fuel cost.

The fuel cost, or cost of imported natural gas, is tied to oil prices by commercial contracts, which change depending on global market conditions, EMA said. "The non-fuel cost is the cost of generating and delivering electricity to homes," it added.

And in particular, the non-fuel cost, as revealed by EMA, includes:

  • Power Generation Cost - covers mainly operating costs of power stations, such as the manpower, maintenance and capital costs of stations.
  • Grid Charge - cost of transporting electricity through the power grid.
  • Market Support Services (MSS) Fee - costs of billing and meter reading.
  • Power System Operation and Market Administration Fees - costs of operating the power system and administering the wholesale electricity market.

Since oil prices have come down 36.2% over the last ten years but electricity tariffs only drops minimally (5.7%), one can only conclude that the cost of generating and delivering electricity must have skyrocketed.

It is further noted that the current Group CEO of SP Power, Wong Kim Yin, is a finance person from Temasek. It's not known if he has enough engineering background to manage a power generation and distribution company so as to efficiently supply electricity to Singaporeans economically, and help them better manage their cost of living.