The demand in Singapore’s electricity generation sector “has weakened” as “more industrial users pursue energy efficiency” such as solar power, in addition to a slowdown in Singapore’s economic growth, reported The Business Times in Apr last year.
While Singapore’s power generation sector presently has a total capacity of 13,350 MW, the highest demand averaged only 7,000 MW up to Mar 2017.
“Last year, for instance, Singapore’s electricity consumption grew only 1.4 per cent over 2016 – the slowest growth rate in six years – despite the country’s GDP growth of 3.6 per cent,” BT added.
Quoting the most recent available data from the Accounting and Corporate Regulatory Authority (Acra), BT reported that the electricity industry “recorded losses of S$357.1 million after tax in 2016 compared to a profit after tax of S$558.3 million in 2013”.
“Even the lone profitable generation company, YTL PowerSeraya which is owned by Malaysian YTL Group, has seen profit after tax plunge 89 per cent since 2013 to a low of S$25.3 million in 2016, though this has recovered to S$41 million in 2017,” BT added.
The overcapacity plaguing the power generation sector at present began in 2012 when high prices encouraged gencos to increase capacity, according to associate director at IHS Markit’s power, gas, renewables and coal practice Chong Zhi Xin.
Mr Chong told BT that “these vesting contracts assured the gencos of a certain stream of income (by providing a specified price for a specified amount of electricity), in return for building new capacity that would use LNG as a fuel”.
Independent consultant Martin van der Lugt told BT that the present-day overcapacity can be pinpointed “to the introduction of these LNG vesting contracts”, which have led the gencos to “add nearly 3,000 megawatts (MW) in capacity between 2012 and 2014”.
“These 3,000 MW were not necessary,” he said, adding: “Overcapacity and non-performing asset operations normally lead to under-investments in the sector, particular in peak supply capacity.”
The Uniform Singapore Energy Price (USEP) – the wholesale price for electricity in the Republic – only managed to recover last year with an average of S$81 per megawatt hour (mWh) compared to S$63 per mWh three years ago due to a rise in fuel oil prices and increasing consumption.
In contrast, the USEP in 2011 was S$215.
Mr van der Lugt opined, however, that “the rise in wholesale electricity prices reflects the increase in short term marginal costs (such as higher feedstock gas prices) and does not help gencos to cover their fixed costs”.
BT reported chief executive officer of troubled Hyflux Olivia Lum as saying last February: “If the whole industry is losing more than a billion dollars every year, it makes the whole industry very vulnerable. I feel that it’s just not sustainable.”
Hyflux owns the Tuaspring power plant.
Consequently, EMA has been progressively reducing vesting contracts, which will be fully removed from July 2023.
BT reported EMA as saying that that while “investments in generation capacity are commercial decisions taken by companies themselves”, it believes that maintaining “a well-functioning and sustainable market for both suppliers and consumers” is also crucial.
An EMA spokesperson told BT: “We are thus facilitating the industry’s efforts to alleviate the current situation, and exploring other temporary measures to assist the gencos in the short term, where appropriate.
“We will continue to monitor the situation closely, to ensure continued system reliability.”
At the same time, electricity tariff rates will be reduced by an average of 1.2% per kilowatt hour (kWh) in Q1 this year following the gradual hike in electricity tariff rates from Q4 2017 to Q4 last year.
Temasek Holdings-owned utilities company SP Group announced on 30 Dec 2018 that “electricity tariffs before 7% GST will decrease by an average of 1.2% or 0.28 cent per kWh” in Q1 this year compared to Q4 last year “due to the lower cost of natural gas for electricity generation” in Q1 2019.
For households, the electricity tariff (before 7% GST) will decrease from 24.13 to 23.85 cents per kWh for 1 Jan to 31 March 2019. The average monthly electricity bill for families living in four-room HDB flats will decrease by $1.00 (before 7% GST).
Source: SP Group
SP Group, alongside 13 electricity retailers under the Open Electricity Market (OEM), is regulated by EMA.
EMA, a regulatory body under the Ministry of Trade and Industry, is responsible for reviewing the tariff set by SP in each quarter every year “to reflect the actual cost of electricity”.
“About 95 per cent of Singapore’s electricity is generated from imported natural gas, the prices of natural gas are indexed to oil prices. This is the market practice in Asia for natural gas contracts,” stated EMA.
BT reported that “some 28 per cent of the retail market remains with SP Services”.
Previously, the increasing rates of SP’s electricity tariff reportedly became a cause for concern, given that SP’s annual net profit averaged approximately $1 billion yearly, from 2005 to 2017.
Given that there has been a long period of lowering demand due to greener consumer mindset and growing capacity in the energy generation sector, the question arises as to whether the rise in electricity tariffs in the years prior to Q1 this year was a protective measure against the collapse of many energy generator firms in Singapore and not a reflection of the price fluctuation expected in the energy price for consumers.
