Singapore Open Electricity Market: Consumer Benefits and Market Structure Analysis

Background on Open Electricity Market Implementation

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 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.

Consumer Response to the Open Electricity Market

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.

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.

In this essay, you are going to analyse the market structure in consumer electricity market in Singapore. You may relate your answer to the characteristics of various market structures by focusing on the following questions.

1, Before the nationwide roll-out of the Open Electricity Market, what type of market structure was the consumer electricity market? Justify your answer by giving at least 3 reasons.

2, After the national wide roll-out of the Open Electricity Market, it is observed that many consumers have been paying less for electricity. Explain why there is such a change. (Tips: you may answer the question by researching and analysing the change of market structure and cost structure in supplying electricity)

3, In view of the number of independent electricity retailers, do you think offering a low price to consumers is sustainable? Justify your answer.

4, Based on your answer for the questions 1 to 3, give critical comments on if the Open Electricity Market is a good move and if the government should intervene in some way.

1. Conduct research on consumer electricity market, such as the cost structure of electricity retailers, etc.

2. Apply economics models to analyse the above questions.

3. Format your case study in essay format.

4. Restrict your word limit within 1000 words, excluding reference list and appendix.

5. Case study must be typed in 12 point Time New Roman font, double spaced and 2.5 cm margins. Insert tables and graphical displays of your data analysis in the text where appropriate and make sure you interpret them properly in the main text.