Letter from EMA, Straits Times Forum 13 Oct 08;
I REFER to last Tuesday's letter, 'Make it fairer, more transparent' by Mr Wong Weng Fai, and the editorial, 'Power shock: Bring retail competition sooner', on the increase in the electricity tariff.
Mr Wong suggested the price of natural gas imported into Singapore should be determined through market competition. In fact, this is happening today.
The gas companies buy natural gas from abroad and sell it to the power generation companies (gencos). The price of this gas is not regulated by the Energy Market Authority (EMA). It is pegged to the fuel oil price through commercial negotiation and contracts. In other words, the fuel oil price reflects the actual cost of the gas used to generate electricity in Singapore.
The gencos also compete to sell electricity to the market. Large consumers can choose from a range of electricity retailers. But for the domestic household sector, which is not yet open to competition, SP Services will buy electricity from the gencos at cost and sell it to consumers at the same price.
This price sets the electricity tariff, which EMA regulates. It is revised quarterly to reflect changes in the fuel oil price. SP Services publishes the basis for the tariff calculation each time it is updated. For example, it used the forward fuel oil price in April of US$83 (S$112) a barrel to set the tariff for July to September, and the price in July of US$115 (S$155) a barrel to set the tariff for October to December. This 38 per cent increase in the fuel oil price between April and July is the reason for the spike in the electricity tariff. The Straits Times editorial suggested the EMA should intervene to hold the tariff constant, despite this increase in the cost of electricity. But this is no different from a fuel subsidy which has proven to be unsustainable in many countries.
We agree with Mr Wong on the need for transparency, and will put out more information to help Singaporeans understand how electricity is priced. We are also taking further steps to liberalise the electricity market for households. We have developed the prototype Electricity Vending System (EVS), which allows households to buy electricity from competing providers and price plans. Feedback from the upcoming EVS trial run will allow us to evaluate and improve the system, and ensure its smooth implementation.
Jenny Teo (Ms)
Director, Corporate Communications
Energy Market Authority
