Since a year ago, the global energy market has been grappling using a “ ideal storm ” of demand and supply factors, ranging from serious weather events all over the world to a recovery in economic activities from your COVID-19 pandemic.
Locally, the domestic market has been hit by unexpected reductions in the availability of piped natural gas from Indonesia, while electrical power demand was more than usual.
As a result, the Uniform Singapore Energy Price (USEP), or the half-hourly rate at which retailers buy electricity in the at wholesale prices market, spiked alongside huge volatility in the second half of a year ago and led to instant exits by 5 electricity retailers.
Such price spikes eat into the margins of retailers whom sell electricity in order to consumers at fixed prices, while marketplace volatility makes it difficult to get companies to hedge effectively .
Not much has changed within the global market environment, experts said. In fact , the onset of the Russia-Ukraine war offers stirred concerns regarding further supply interruptions.
“We carry on and see high fuel prices. We have seen an extended duration associated with average USEP settlement values exceeding the particular tariff rate, plus electricity futures agreements are no different, ” said Dr David Broadstock, senior research fellow in the National University of Singapore’s Energy Research Institute.
“We are seeing market conditions where merchants cannot rely easily on either the location or the futures market to obtain electricity to sell on to their clients at or beneath the tariff rate. This appears to be the situation all the way out to Sept 2024. ”
With the Ukraine battle adding new difficulty to global gasoline markets and elevated demand, it will be more difficult to secure long-term supplies at low prices, he added.
UNSUSTAINABLE BUSINESS MODEL?
Dr Broadstock noted that will having rates along with minimal difference to the regulated tariff “does not seem to be the sustainable business model” for electricity suppliers.
“Electricity consumers have seen the recent market exits associated with retailers and remember the particular troubles this caused for those needing to secure new contracts, ” he told CNA.
“So whenever examining two quite closely priced options, but concerned the fact that retailer might take the choice to exit the marketplace like others have in the past, the contract price rate becomes a fairly attractive option. ”
That said, this case can also be interpreted as retailers expecting SP’s regulated tariff to maintain rising for some time.
This means that while the prices offered by retailers right now do not seem appealing, they may “in fact turn into a discount-off price over the contracted period”, said Dr Broadstock.
Asked if more customers probably switch back to SP hence possibly leading to another string of market exits, Prof Mhaisalkar said cost is not the only way to attract customers.
“For example, the particular OEM retailer may bundle their offerings with other unique providers or have innovative offerings in green energy. I think consumers will take the total offerings because when making their choices. ”