In a span of one week, ISwitch (13 Oct 2021), Ohm (15 Oct 2021) and Best Electricity (19 Oct 2021) has publicly announced they will be exiting the Singapore’s Power Market. Union Power (18 Oct 2021) ceased 850 retail accounts but emphasized it is not exiting the market.
All of them have assured there will no disruption to the power supply. The affected accounts will be transferred back to SP Group.
In my Wealthdojo’s Telegram group where I share one financial tip a day for readers, I shared about the raising oil prices in the recent months and raised the concern that inflation might creep in. I have been monitoring oil prices over the years and I was concerned about the spike in prices recently. Never would I have guessed that this would directly impact the energy scene in Singapore.
Some Background
I have written on Open Market Electricity Cost Saving Guide previously and I would like to expand on the guide.
95% of Singapore’s electricity is generated from imported natural gases. Fun fact: The prices of natural gases are indexed to oil prices. This is according to the Energy Market Authority (EMA) which describes it to be the “market practice” in Asia for natural gas contracts.
As a result, a movement in oil prices will have a impact on natural gases prices.
Charts are obtained from Rigzone. Broadly speaking, you can see a simple co-relation between Brent Crude Oil and Natural Gas prices. As oil and natural gas are a form of commodities, they are cyclical in nature.
Why Are Prices Increasing Now?
I am not a commodities expert. Take this paragraph with a pinch of salt. In my limited economic experience and studies, commodities are heavily influenced by demand and supply factors.
Demand Factors
#1: The rebound from COVID-19 ramped up demand from Asian Economics, especially China. China have already ordered banks to ramp up funding to coal and energy companies.
#2: Heatwaves and drought in other regions of the world kept energy need high in the summer where supplies would be replenished normally.
Supply Factors
#1: Production of liquefied natural gas (LNG) is lower due to unplanned outrage.
#2: Additional capacity has been delayed by COVID-19 movement restrictions.
There potentially could be more factors. The increase in demand and the decrease in supply inevitability caused energy prices to go higher.
Is Business Really That Bad?
In the commodities market, I would expect that retailers have some kind of hedging. It is like our National Carrier, Singapore Airlines. It would be common sense to hedge against the price increase of oil.
In my research, I have discovered that the EMA requires all electricity retailers in the Open Electricity Market to hedge at least 50 per cent of their contracted load against wholesale electricity prices.
Even if the prices were to go up, it should already have been pre-planned.
My best guess is that the forward looking prices are too high to sustain future margins. Even if they can survive now, they don’t expect to survive in future.
Final Thoughts
I would expect higher electricity bills in the months to come. You can consider getting a retail package for your electricity bills. You can get a discount off regulated tariffs or a fixed price plans by going to this website.
Which will you choose? The discount off regulated tariffs or the fixed price plans? Let me know in the comments below.
Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.
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