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27 September 2011, Today Anomalies in retail electricity market since liberalisation The Energy Market Authority (EMA) has, since 2000, opened up the retail electricity market to full competition among private energy retailers, with the objective, as stated on its website, of promoting the efficient supply of competitively priced electricity. Additionally, this introduction of competition among the retailers will “benefit contestable consumers with improved services, greater efficiency, competitive prices and innovative products”. It has been more than 10 years now and, for the past few years, retailers have found it increasingly difficult to offer consumers a competitively priced rate, one that is cheaper than the regulated tariff offered on a quarterly basis by SP Services. Often, price negotiations with the retailers have been protracted and tedious; the vagaries of oil prices and their volatility being the main culprit. If they quote a rate, it can be higher than SP Services’ regulated tariff since they do not want to risk offering a rate that might expose them to a loss in the future. Even then, the rate offered is often a short-term one. Retailers are business entities, and such reluctance and prudence are understandable. This begs the question of how successful such liberalisation of the retail electricity market is. The lofty intention of offering competitively priced electricity is now an anomaly, made ineffective by such uncertainties and by the retailers’ business decisions. Its original intention is now lost. Consumers are left questioning the need to switch if retailers are unable to offer lower rates than those quoted by SP Services. The current state of affairs is not tenable and sustainable. The EMA needs to look into the viability of this liberalisation exercise in the light of current experiences. The final phase of full retail contestability involving smaller businesses and household consumers can never happen if the current phase is peppered with such anomalies. Alfred Chia Yong Soong Reply From EMA Liberalisation has its benefits : EMA Natural gas-based production and more competitors led to savings, greater choice I refer to the letter “Anomalies in retail electricity market since liberalisation” (Sept 27), which asked about the benefits of liberalisation in the electricity market. Certainly, consumers and market participants here have benefitted. Industry restructuring in 2001 allowed entry of new generation companies and retailers. Market competition then incentivised generation companies to shift away from oil-fired steam plants to cleaner and more cost-efficient gas-fired combined cycle plants. The share of natural gas electricity production increased from 28 per cent in 2001 to 76 per cent this year, while the share of oil-fired steam plants decreased from 68 per cent to 17 per cent. If we had continued to use steam plants, the electricity tariff today would be at least 15 per cent higher. In addition, a price regulation framework was put in place, which encourages the grid company to operate more efficiently. As a result, transmission charges have fallen by 27 per cent since 2001, which translates into savings for all consumers. Currently, some 10,000 contestable consumers (those who use more than 10,000 kWh of electricity each month) in the commercial and industrial sectors have the option of buying from a retailer of his choice or from the wholesale electricity market. The retail market is a contestable sector, and retailers have the flexibility of offering different packages to meet their customers’ needs. Likewise, contestable consumers can choose from a variety of packages from different retailers. For instance, consumers who prefer to hedge against price volatility can ask for “fixed price” packages; others could ask for “variable pricing” options that better meet their requirements and consumption patterns. The Energy Market Authority will continue to promote market competition to bring about greater benefits to consumers. This would include facilitating the entry of new players in the generation and retail markets as well as the planting of new generation capacity, especially after the liquefied natural gas terminal is ready in 2013. We are also studying the feasibility of introducing an electricity futures market here which will provide retailers and consumers with more options. Ms Juliana Chow |
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