Why electricity retailers in S'pore are shutting down & why you may have to pay more for electricity

You may not know it, but the world is potentially facing an energy crisis.

Jason Fan | October 24, 2021, 10:45 AM

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Over the last week, three electricity providers in Singapore announced that they will be exiting the Singapore market.

On Oct. 13, iSwitch announced that it will be pulling out of the Singapore market, effective Nov. 11, 2021.

Two days, later, on Oct. 15, Ohm Energy also announced its departure from the Singapore market.

Finally, on Oct. 19, Best Electricity became the third energy retailer in a week to announce their exit.

In addition, a fourth electricity retailer, Union Power, also announced that it will be closing the accounts of about 850 customers, although it will remain in the market with a portfolio of approximately 20,000 accounts.

So what's going on with Singapore's electricity providers?

The short answer: unfavourable market conditions, brought about by the recent surge in the price of natural gas across the world.

Given that most of Singapore's electricity comes from natural gas, these three companies simply could not take the heat, and likely had no choice but to exit the market.

Unfavourable market conditions

The unfavourable conditions faced by our electricity providers are not restricted to Singapore alone, as experts worldwide report that the world is currently facing an energy crisis.

Oil prices are currently rising, but the real problem is the price of natural gas, which is up fivefold in Europe, and about 1.5 times in U.S. and Asia, according to CNBC.

And while the situation is certainly serious, with Forbes comparing it to the Arab oil embargo of the 1970s, the roots of the current crisis is far from opaque, with several factors in play.

Europe's move towards green energy left them vulnerable

There is currently a resurgent demand for energy in Europe, as the continent approaches a post-Covid-19 state.

While demand for energy was at an all-time low in 2020, with airports remaining mostly empty, and millions of individuals working from home and not travelling as much on motor vehicles, the demand for energy has bounced back quickly this year.

While a sharp increase in demand for energy will certainly lead to an increase in prices, demand alone is not enough to cause a crisis.

Indeed, according to Forbesa number of other factors also contributed to Europe's current crisis, including extreme weather conditions, supply chain disruptions and poor regional and global stockpiling.

With the price of natural gas being five times higher than 2020, Europe is currently in an uncomfortable situation.

To make matters worse, the crisis is ill-timed, given that Europe has been moving away from traditional sources of energy, like gas, coal and nuclear, to greener, more renewable forms of energy.

For example, Germany began shutting down its first nuclear power plant in 2019, and vowed to start decommissioning all 17 of its nuclear energy facilities by the end of 2022.

The Netherlands has been gradually reducing output in Groningen field, which was once Europe's biggest producing gas field, and will not change its policy even amid the current crisis.

And while these efforts towards more sustainable sources of energy is certainly admirable, it is undeniable that these very efforts have made Europe more vulnerable to disruptions in energy supply.

In 2018, a heat wave that hit the UK suppressed windy conditions within the country, severely impacting the amount of energy produced by windmills, according to The Guardian.

And now, with the global energy prices increasing steeply, Europe has fewer tools to fall back on, and many countries are contemplating a temporary return to traditional fossil fuels, should the crisis worsen.

Some claim that Russia is behind Europe's energy crisis

While the crisis brews in mainland Europe, Russia is largely unaffected, as it is one of the world's top producers of crude oil and natural gas.

In fact, many have pointed their fingers at Russia, claiming that the energy giant is responsible for the current crisis.

According to BBC, Russia supplies about 50 per cent of the EU's natural gas imports, although overall gas exports from Russia fell during the Covid-19 pandemic, due to the fall in demand.

And while demand for energy has begun to pick up, the supply of oil from Russia has remained on a downward trend, leading to the depletion of energy stockpiles in Europe.

Although BBC reported that Russia has met its contractual obligations to its European customers thus far, the International Energy Agency recently estimated that Russia could supply 15 per cent more gas if it wanted to.

But what incentive does Russia have to withhold gas supplies?

The theory, according to several analysts, is that Russia wants to pressure Europe to approve the usage of the recently constructed Nord Stream 2, a natural gas pipeline from Russia to Germany.

According to a separate report from BBC, the pipeline was completed in September 2021, although it still needs to be certified by Germany, a process that could take up to four months.

Existing pipelines go through Ukraine, and the nation relies on it for income.

The new Nord Stream 2 will likely be a crushing blow on Ukraine's economy; the Ukrainian presidency described it as a "dangerous geopolitical weapon".

Supporters of the project see it as a way to ensure European energy security, critics argue that it only increases the continent's dependence on Russia for energy.

Whether you believe Russia is manipulating the current energy crisis for its own means, or that Europe's crisis is one of their own making, the end result remains the same.

With Russia holding one of the world's largest natural gas supplies, it will be in a favourable position to cash in, as the crisis continues to unfold.

China is facing a coal shortage

On the other side of the globe, China is facing its own problems.

According to Financial Times, coal accounts for about 70 per cent of China's electricity needs, which is a significant portion.

However, the nation has faced a number of disruptions to its supply of coal in recent times.

An anti-corruption campaign in the coal industry in Inner Mongolia disrupted China's coal supply since last year, and mines were closed to allow the sky to clear for significant events like the 100th anniversary of the Communist Party, and the September national games in Shaanxi.

This is particularly vital given that most of the nation's domestic coal supply originates from the two regions.

In addition, China also imposed sanctions on Australian coal in 2020, after Australia called for an investigation into the origins of Covid-19.

The disruption to coal supply has had immediate effects on China.

According to Forbes, power rationing for factories and business is in effect for more than a dozen provinces, with some provinces ordering factories to halt all production for a few days a week.

Some factory owners have also started turning to diesel generators to keep their businesses running.

China has reacted to this crisis in a swift manner, by ordering a rapid expansion of coal production, giving approval to over 100 mines to expand production.

As winter approaches, and coal being the main source of winter heating in China, it is literally a matter of life and death for China to quickly resolve its coal crisis.

Forbes also reported that extreme weather this year has also disrupted the supplies of renewable energy such as hydropower and wind, further worsening the energy crisis.

Naturally, with China being the second largest economy in the world, anything that affects China will have a corresponding effect on the rest of the world, and the prices of other energy sources, like crude oil and natural gas have increased as a result.

Open Electricity Market: How it works

But how does this affect Singapore?

In 2018, Singapore launched the Open Electricity Market, allowing consumers a choice of retailer when buying electricity.

Previously, everyone had to buy their electricity from SP Group at the regulated tariff rate.

How it works is simple: Individual retailers purchase their electricity from the seven main power generation companies (gencos) in Singapore, who burn natural gas imported into the country for energy.

The gencos then bid to sell electricity on a half-hourly basis to the retailers, who come up with different price plans and sell them to households.

With the global prices of natural gas soaring, the price of procuring gas for gencos has increased, leading to a spike in electricity prices.

The three retailers who had to exit the market likely could not continue to buy electricity at the increased prices and sell them to consumers in a financially sustainable manner, leading to the closure of their operations.

Those affected will continue to have electricity via SP Group

With the exit of the three electricity firms, nine retailers remain, besides SP Group.

If you have contracts with one of the three retailers that have exited, your contract will be automatically transferred to SP Group, although you will no longer be paying the same rates as your previous contract, as SP Group will simply charge you the regulated tariff rate.

However, you are free to make a switch to another retailer, if that's your choice.

SP Group also reassured members of the public that their electricity supply will not be disrupted, as it will work with the individual retailers to ensure a smooth transfer of services to SP Group.

For more information, you can see a list of frequently asked questions here.

Electricity prices may continue to rise

In a nutshell, due to the number of different reasons, energy prices have soared worldwide, and Singapore is not immune to these changes.

The current quarterly household tariff stands at 24.11 cents per kWh (before GST), which is the highest it has been for more than two years.

With about 95 per cent of Singapore's electricity being generated using natural gas, prices of electricity are likely to rise in the short-term, especially if the price of natural gas globally continues to surge.

In fact, Minister for Trade and Industry Gan Kim Yong recently encouraged Singaporeans to use electricity prudently as fuel prices increase, noting that Singapore will be impacted significantly by price movements in the global energy market.

Perhaps it's time to turn off the air-con, and open the windows.

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