While competition will bring down prices, consumers intending to make the switch still need to do their homework and look beyond price to pick the best plan, experts say.

SINGAPORE: For the past week, Ms Janet Wong and her neighbours have been discussing the merits of switching electricity providers.

This after the Energy Market Authority (EMA) on Sep 21 announced the nationwide roll-out of the Open Electricity Market, an initiative to fully liberalise the retail power market here.



Simply put, buying electricity will soon be like choosing mobile phone plans. Instead of getting power solely from SP Group at the quarterly-reviewed regulated tariff, consumers will be able to sieve through price plans offered by as many as 12 approved retailers.

“We are all very keen,” Ms Wong told Channel NewsAsia. “If it means savings for us, why not?”

The roll-out to include 1.4 million consumers across the rest of Singapore is set for Nov 1 and will be done in batches according to postal codes.

Households and business accounts with postal codes that begin from 58 to 78 will be the first, followed by the adjacent zone that has postal codes starting from 53 to 57, 79 to 80, 82 to 83 on Jan 1.



The third zone, marked by postal codes from 34 to 52, and 81, will be included in the initiative from Mar 1 2019, while the final area that comprises of codes from 01 and 33 will get their turn on May 1.

Ms Wong’s residence in Choa Chu Kang falls under the first zone.

“My company switched to a different retailer a few years ago and the electricity bill went down by nearly half,” said the 56-year-old. “Now, I want to do the same for my own bill.”

The Open Electricity Market will be rolled out across Singapore in batches. (Graphic: Energy Market Authority)

TO SWITCH OR NOT

The liberalisation of Singapore’s retail electricity market has been a gradual one that started in 2001 with larger businesses.

Since then, more commercial consumers have been given the freedom to go shopping for electricity as the contestability threshold – the amount of electricity one uses per month – was lowered progressively.

For now, this refers to businesses with monthly electricity consumption averaging at least 2,000 kilowatt hour (kWh), equivalent to a bill of about S$400. According to EMA, more than half of the 95,000 eligible business accounts have made the switch as of July.

Homeowners were given an option for the first time when the pilot test of the Open Electricity Market began in Jurong on Apr 1. Over the past five months, more than 30 per cent of consumers there have chosen to buy electricity from a different provider, with savings of about 20 per cent, the EMA said.

The agency also surveyed 400 people that have switched retailers; about 80 per cent agreed that the initiative has its benefits such as competitive pricing and innovative offers, while a similar percentage of respondents described the switching process as an easy one.

Mr Jason Low is among those who welcome the market liberalisation. Though he was “sitting on the fence” initially, the 35-year-old said he was convinced by “attractive discounts” during an EMA-organised roadshow in April.

Since signing up for a two-year fixed rate plan with Geneco, a brand under YTL PowerSeraya, Mr Low said the monthly bill for his family of four has gone down by more than S$40. “Going for something that helps to cut down household expenses seems like a practical thing to do.”

To be sure, there are many others in Jurong who remain undecided or prefer to stay on with SP Group.

EMA explained that this can be due to consumers having a “wait-and-see” approach for better deals or simply not having the urge to switch. Small households, in particular, may feel that “the savings are not worth the extra effort of figuring out the options”, said the agency’s chief executive Ngiam Shih Chun.

Mr Nazri told Channel NewsAsia that his parents, who live in Jurong, are among those that are not in a hurry to make a decision.

The 37-year-old, who stays in a four-room flat in Choa Chu Kang with his wife, will also be taking his time come November even as he is keen on a plan that can help trim his monthly bill to below S$100.

“There are quite a lot of players so I think we will want to compare carefully,” said Mr Nazri, while adding that he is unsure of what switching retailers may mean for electricity supply to his home, especially in the event of company closures.

PROTECTING CONSUMERS

On that, EMA has said that opting for a different provider will not affect supply reliability because SP Group will continue to operate the national power grid.

Even as retailers leave the Open Electricity Market, there will be no power disruptions, which is the case for consumers in Jurong who have signed up with Diamond Electric, Red Dot Power, Sun Electric and Sunseap.

These four retailers, which took part in the pilot test, have decided to sit out of the nationwide roll-out due to reasons, such as re-assessing business plans and system upgrades.

EMA also stressed that the initiative is not compulsory but to help those interested, a notification package and information booklet will be issued before each roll-out. A comparison website will also be updated with the latest price plans by Nov 1.

To further protect consumers, guidelines from the EMA require all retailers to present their customers with an advisory form and fact sheet, and obtain acknowledgement for both before proceeding with the switch.

Retailers are also required to safeguard each household’s security deposits, and are banned from making unsolicited calls, messages or door-to-door visits.

For each sign-up, electricity providers will work with SP Group to “ensure seamless transition”.

When contacted, SP Group said that it “supports” the Open Electricity Market and will help its customers to “switch seamlessly to a retailer should they choose to do so”.

DECIPHERING PRICES

SP Group’s spokesperson added that the “increase in competition for retail services does not materially affect” its operations. It continues to operate and maintain the power grid, while providing market support services such as billing and meter reading, the emailed response said.

SP Group is paid for these network costs and market support services at fees that are reviewed annually and regulated by the EMA. These fees form part of the regulated tariff, alongside energy costs, market administration fee and power system operator costs which go to the generation companies, Energy Market Company (EMC) and the EMA, respectively.

"Other than the SP component, SP Group does not benefit from the remaining tariff components," said the spokesperson.



Based on the recently announced electricity tariff for the fourth quarter, SP Group will receive 5.71 cents per kWh – an amount that has held steady for the past six months. For the first quarter of 2018, SP Group was paid 5.67 cents per kWh.

These fees will also be included in the electricity prices offered by retailers, as SP Group remains the power grid operator and supplier of meter readings, added the spokesperson.

“Regardless of whether consumers buy electricity under tariff, or through a retailer, the SP component collected from consumers will be the same."

For the fourth quarter of 2018, SP Group will be paid 5.71 cents per kWh for network costs and market support services that it provides. Electricity tariffs are reviewed quarterly based on guidelines set by the Energy Market Authority. (Graphic: SP Group)

As to how retailers are able to offer lower prices, EMA said the regulated tariff reflects the long-term costs of producing electricity in the market, including fuel costs.

Retailers, on the other hand, are allowed to set their own rates, which mirror short-term costs that are dependent on market conditions, such as supply and demand of electricity, and competition levels.

EMA said these factors may vary over time and there is no guarantee that rates offered by retailers will remain at the same levels.

For instance, discounts aimed at grabbing market share and the wholesale prices at which retailers buy their electricity from will play a part, industry experts and players told Channel NewsAsia.

Currently, all power generation companies compete to sell their electricity in a wholesale market operated by the EMC. Retailers, in turn, buy electricity in bulk from the wholesale market, where prices change every 30 minutes depending on demand and supply.

“If a retailer has the skills to determine the correct prices to buy and sell, then it will have a good business case,” said Professor Subodh Mhaisalkar, executive director of the Energy Research Institute at Singapore's Nanyang Technological University.

The electricity futures market, introduced by the EMA in 2015, also helps retailers without generation assets to compete in the retail electricity market.

For independent players like Ohm Energy, the futures market is “equally important” in helping it to hedge against the rise and fall in global crude oil prices, said its managing director Jomar Eldoy.

When asked if the Open Electricity Market will translate into long-term cost savings for consumers, Professor Mhaisalkar said yes though “how much that will be will depend on individual retailer’s price efficiency and business plans”.

“But the good news is, if consumers are unhappy with their retailer, they can always switch back to SP Power or go for another retailer and authorities will make sure that there is no deterioration in supply,” he added.

“So in that sense, consumers have a safety net.”

And as the market matures, Professor Mhaisalkar said consumers here can look forward to innovative offerings that involve, for instance, technological solutions as retailers aim to differentiate themselves beyond price.

But during the initial phase, consumers may need to contend with some uncertainties, such as the sudden exits of retailers, noted Mr Allan Loi, a research associate at the National University of Singapore’s Energy Studies Institute.

“This trend could be prevalent in the first one to two years after deregulation, especially when consumer tariff and environmental preferences are still unclear,” he said.

Consumers also need to do their research and compare beyond price before making the switch.

For instance, going for a two-year fixed price plan may cushion consumers from volatile movements in global oil prices but if the price of crude falls, they will not be able to reap the benefits.

Professor Mhaisalkar said: “Consumers will need to do their homework, be careful and make sure they pick a plan that they can stick to. Bear in mind that changing your mind halfway through the contract may incur penalties, which will not make monetary sense.”