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25 Dec 2022  (590 Views) 

Liberalization of the retail electricity market
Singapore introduced liberalization of the retail electricity market on in November 2018. 

It allowed consumers to choose their retail supplier (from a list of approved suppliers) and to choose between fixed rate and floating rates for electricity. Those who do not wish to move to another supplier continues to pay the regulated rates charged by SP Services, which was the sole supplier prior to liberalization. 

At that time, the wholesale price of electricity had fallen by a lot. The regulated price remained much higher. Consumers who moved to an alternative retail supplier were able to get a discount of about 20% on the regulated rates. 

The water supply continued to be centralized under SP Services. The consumers, who changed their retail supplier, have to pay two bills. Most do.

Right from the start, I felt that the liberatization was a unnecessary, unproductive and costly exercise. The government could reduce the regulated rate (charged by SP Services by 20% to follow the wholesale rate). Instead, they chose to "liberalize" the retail market to allow consumers to enjoy the lower price. 

The retail suppliers obtained the electricity from the national grid. This was the same source as SP Services. They were not able to serve a purpose in finding a "more efficient" supply.

Each retail supplier had to incur a high cost to set up a separate operation, implement an accounting and billing system, arrange to collect the monthly payments, etc.  They also have to engage a team of marketeers to enroll customers. This was also another costly exercise.

I opted right at the start to choose one retail supplier to enjoy a discount on the regulated rate.

Over the course of the following months, I have been approached by the marketeers (working for the retail suppliers,  including the one that I had already chosen) to switch to them. They approached me at the shopping malls, bus interchanges and other public places.

It was a big hassle for me as a customer. It was also costly for the retail suppliers to pay their marketeers for their time and effort. 

Each consumer had to go through a complex exercise to figure out the different pricing plans offered by the retail suppliers, as the competition was based on small differences in the pricing plans.  They also had to judge the trajectory of energy prices to figure out if they would benefit from a fixed or flexible price contract.

I do not know how ordinary consumers can make a decision that have baffled energy traders coping with a volatile market. 

The retailers that charge lower rates were probably willing to accept a lower margin, or to incur an operating cost.

A year or two later, the wholesale price of electricity increased. The retail operators that offered a fixed price contract (fixed for 2 or 3 years) suffered a large loss. They decided to terminate their operations and leave the market. Their accounts were transferred to SP Services and the customers had to pay the regulated rates.

This was most unfair to the consumers. If the electricity price had dropped, they were forced to pay the fixed price agreed in the contract that they had signed. If the electricity price increased (as it had), they could not enjoy the fixed price, as the retail operators ceased to operate. 

The affected consumers where not compensated adequately for the loss that they suffered. It is a case of "head, the retail operator wins" and "tail, the consumer loses".

What would have been a better arrangement in November 2018? This is what it should be:

a) The government could reduce the regulated price by 20% to follow the wholesale market. There is no need to "liberalize the retail market" to lower the price. 

b) If the government wishes to give consumers the opportunity to enter a fixed price contract, they could have asked SP Services to provide this option. This would be a more efficient way for consumers to smooth out their energy bills and be protected from big fluctuations. Over the term of the 2 or 3 year contract, they were expected to pay the average cost, as it was not intended for them to be subsidized or exploited.

The above issues were obvious to me right from the start. I am surprised that the ministers in the government (who made and approved the decision to liberalize the retail market) could not see the ramifications of their decision. This appears to be quite common sense, and should e easily understood by ministers who are the top scholars of our education system. 

Tan Kin Lian


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