Measures to boost energy security in S'pore may not lead to lower electricity prices now: Experts
SINGAPORE – The recent measures taken by the Energy Market Authority (EMA) to safeguard energy security in Singapore amid the global energy crunch may not immediately translate to lower electricity prices here, experts told The Straits Times.
This is because the measures announced by EMA on Tuesday (Oct 19) – which include the establishment of standby fuel facilities that generation companies here can draw upon if needed – would entail purchasing natural gas at current prices.
“Procuring spot liquefied natural gas (LNG) cargoes now means paying record high prices for them,” said OCBC Bank economist Howie Lee.
More than 95 per cent of Singapore’s electricity is generated by burning natural gas. All of this is imported, either through pipes from Singapore’s neighbours or in liquefied form from all over the world.
But the world is facing a global gas crunch, driven by multiple factors including higher demand from post-pandemic economic activity and the need for cooling during winter months. Yet at the same time, severe weather events and a series of gas production outages have disrupted supplies of the fuel.
Mr Lee said: “While not all of (the higher prices) will be passed on to consumers, a fair degree would be expected to be borne by end-users until gas prices normalise. I expect the local electricity tariffs to remain elevated until the second half of next year at least.”
The current electricity tariff is 25.8 cents per kilowatt hour (kWh).
Months ago, households on fixed price rates from certain electricity retailers were enjoying rates as low at 16 or 17 cents per kWh.
A number of these retailers have since folded. iSwitch and Ohm Energy announced their departures last week, while Best Electricity did so on Tuesday.
EMA has assured affected households that their electricity supply will not be impacted, although they would face higher electricity prices when signing up with a new retailer.
In the longer-term, however, the measures taken by EMA can help to reduce the volatility of gas prices, Mr Lee added.
Other than establishing standby fuel facilities, EMA has also informed generation companies (gencos) in Singapore to contract sufficient fuel to at least meet the demands of customers of their retail arms.
Gencos which are looking to sell their excess natural gas supply must also first provide other gencos and EMA with the first right of refusal, before they can divert or onsell the excess gas to other parties, the authority said Tuesday.
It added that it will also direct gencos to generate electricity using fuel from the standby facilities if needed to maintain system stability.
The first right to purchase provision among gencos here will help create supply continuity and bolster consumer confidence in the market, said Dr David Broadstock, a senior research fellow and lead energy economist at the National University of Singapore’s Energy Studies Institute.
“However, each of the new measures will take time to implement and time for market participants to adapt to,” Dr Broadstock said.
“Until details unfold, it will be challenging to establish when the benefits of the efforts will come to fruition, and importantly whether additional price hikes for electricity consumers will be avoidable in the near term.”
Despite the uncertainties in electricity prices, experts said that EMA’s move to implement these measures were prudent and in the interest of national security.
OCBC’s Mr Lee said he expects countries around the world to perform similar stockpiling. “This means even after winter is over, gas prices are unlikely to return to pre-crunch levels for a while,” he added.
Mr Tan Tsiat Siong, a lecturer at the Singapore University of Social Sciences’ School of Business, noted that the reliability of Singapore’s electricity network is one of the highest in the world.
He said: “Singaporeans never had to worry about power outages. The three steps that have been proposed by EMA are certainly reassuring to the people that the Government is stepping in and prioritising the energy security that we have always enjoyed.”
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