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Electricity retailers could be taking precautionary measures amid an uncertain global climate, analysts said.<\/p>\n
The primary cost driver of electricity prices in Singapore is fuel and power generation, which account for over 75 per cent of the electricity tariff, noted Mr David Chew, a senior consultant at Rystad Energy.<\/p>\n
The fuel cost component of the tariff rate is calculated using the average of daily natural gas prices in the first two-and-a-half-month period preceding the quarter, according to EMA.<\/p>\n
In terms of Singapore\u2019s power mix, around 95 per cent of electricity is generated from natural gas, either piped from neighbouring countries or imported as liquefied natural gas (LNG).<\/p>\n
The conflict in the Middle East persists with no clear resolution. While there are mitigating measures in place, such as fuel stockpiles, there will still be some exposure to rising fuel costs, which will ultimately feed through into electricity prices, Mr Chew added.<\/p>\n
\u201cThe impact on global oil and gas flows is unprecedented, and there is no established playbook for retailers to follow. As a result, decision-making is increasingly forward-looking, with retailers needing to factor in downside scenarios and prepare for further deterioration.<\/p>\n
\u201cThis precautionary approach is driving quicker adjustments, ensuring they remain resilient if conditions worsen,\u201d he said.<\/p>\n
Dr David Broadstock, a partner at energy consultancy The Lantau Group, said that electricity retailers are unlikely to be trying for a profit grab.<\/p>\n
Instead, retailers are likely cushioning against the increase in costs.<\/p>\n
\u201cNo company wants to naturally increase their price by a large quantity because it’s just discouraging for customers. And that tells you it’s strategically important for them to do so,\u201d he said.<\/p>\n
For example, a 10 per cent increase in a two-year fixed-price contract indicates that the company believes it is going to cost about 10 per cent more on average, over those two years, in order to provide the electricity, he said.<\/p>\n
On the removal of discounts from tariffs, Dr Broadstock said the increased cost uncertainty could make such contracts riskier.<\/p>\n
The increase ahead of the next tariff adjustment in April is notable.<\/p>\n
Experts previously said it typically takes three to four months for global energy price increases to be reflected in electricity prices, in line with the regulated tariff adjustment every quarter.<\/p>\n
Retailers typically benchmark their rates against the tariff rate, charging just below it to attract customers, Dr Broadstock said.<\/p>\n
\u201cAnd so in normal times, when the market is just murmuring along, it’s not very obvious whether the tariff is going to go up a couple of percentage points or down a couple of percentage points. So retailers just don’t make many changes,\u201d he said, adding that any changes are relatively small.<\/p>\n
The current rates available are almost on par with the tariff rate of 29.11 cents\/kWh, including GST. \u00a0<\/p>\n
The quicker response is similar to conditions in 2022, where retailers responded to spot market conditions, Dr Broadstock said.<\/p>\n
At the time, fossil fuel shortages triggered by Russia’s invasion of Ukraine sent electricity prices surging. A year before, six electricity retailers had exited the Singapore market within weeks amid global energy price spikes.<\/p>\n
\u201cWhat we are observing is that the retailers are confident they don’t need to wait to see what the tariff is going to do,\u201d he said, noting that retailers have flexibility, unlike the regulated tariff.<\/p>\n
The government has said electricity prices are expected to go up. On Mar 4, EMA warned that some consumers may see an increase in electricity prices at the point of retail contract renewal.<\/p>\n
If fuel costs remain elevated, there would be higher regulated tariffs in subsequent quarters, EMA said then.<\/p>\n<\/div>\n