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Licensing requirements to be enhanced after 5 electricity retailers quit Singapore market in 3 weeks: Tan See Leng

SINGAPORE — The foundations of the open electricity market (OEM) have to be strengthened, with the recent exit of five electricity retailers showing that some of them were ill-prepared to weather the storm triggered by an unprecedented energy crunch, said Second Trade and Industry Minister Tan See Leng.

Licensing requirements to be enhanced after 5 electricity retailers quit Singapore market in 3 weeks: Tan See Leng

More electricity retailers may exit or re-enter the market, depending on the severity and duration of the energy crunch, said Second Trade and Industry Minister Tan See Leng.

  • The foundations of the open electricity market have to be strengthened, and licensing requirements will be enhanced, said Cabinet minister Tan See Leng
  • In the last three weeks, five retailers announced their exits from the Singapore market
  • The Government is helping the remaining nine retailers hedge against future price volatility
  • More retailers may exit or re-enter the market, but there is no “magic number” needed to sustain it, said Dr Tan
  • The Government has been working on pre-emptive measures to further secure Singapore’s fuel, power supply

 

SINGAPORE — The foundations of the open electricity market (OEM) have to be strengthened, with the recent exit of five electricity retailers showing that some of them were ill-prepared to weather the storm triggered by an unprecedented energy crunch, said Second Trade and Industry Minister Tan See Leng.

The five retailers — iSwitch, Ohm Energy, Best Electricity, UGS Energy and SilverCloud Energy — supplied energy to about 9 per cent of Singapore’s electricity consumers.

The requirements imposed on licensees were also found to be inadequate when it comes to withstanding a severe stress test, such as the one Singapore is facing, Dr Tan told Parliament on Monday (Nov 1).

He said that licensing requirements would be enhanced, though he did not give details.

In the midst of this crisis, the authorities are leaving nothing to chance after the five retailers announced plans to leave the market in the last three weeks, said Dr Tan, who is also Manpower Minister.

By the end of last month, about 140,000 households and 11,000 business accounts had to be transferred to another retailer or back to utilities firm SP Group, which charges consumers regulated tariffs.

Dr Tan told Parliament on Monday that the authorities would work with the remaining nine retailers in the OEM, launched in 2018 to give consumers more options, to weather the storm caused by the energy crunch.

More retailers may exit or re-enter the market, depending on the severity and duration of the energy crunch, he said.

On whether the Government will review the number of electricity retail licensees needed to sustain the OEM, Dr Tan said that there was “no magic number” and the market remained competitive.

He was answering questions from Members of Parliament (MPs) who, in the wake of the retailers’ departures, asked how their exit would affect the electricity retail market, among others.

At present, energy retailers are vetted and must satisfy stringent requirements before they are licensed to serve consumers in the OEM.

For example, retailers must demonstrate that their management team has relevant experience in energy retailing or trading, and consistently hedges at least half their wholesale-electricity price risk.

Aside from that, the Energy Market Authority (EMA) also monitors retailers’ financial health by requiring them to submit financial statements.

“In hindsight, these are necessary but insufficient to withstand a severe stress test, such as the one we are currently facing. Some retailers were ill-prepared to weather the storm,” said Dr Tan.

Ms Foo Mee Har, MP for West Coast Group Representation Constituency, asked whether the authorities have a timeframe for rolling out a new regulatory framework.

Dr Tan did not give one, but he said: “EMA will enhance the licensing requirements for the OEM retailers and strengthen protection even more for consumers moving forward.”

As for the nine retailers that remain, Dr Tan said that EMA was helping in their efforts to hedge against future price volatility. These include the sale of electricity-futures contracts between retailers that are exiting the retail market and those that are staying.

Dr Tan said that EMA would also be tying up with the Singapore Exchange to “incentivise more market-makers to participate in the electricity-futures market”.

WHAT COULD A TIGHTENED FRAMEWORK LOOK LIKE?

Mr Tan Tsiat Siong, a lecturer from the Singapore University of Social Sciences’ business programme, said that tightened licensing rules could entail revising the hedging requirement.

But instead of raising the current 50-per-cent hedging requirement to another fixed rate, there could be some flexibility, said Mr Tan, whose research interests include energy and environmental economics.

For example, if energy prices are expected to rise or face increased uncertainty, the hedging requirement could be raised temporarily in that quarter and reviewed later.

"This will also provide a price signal for retailers, who can then either increase their hedge or revise their price plans, in light of increased market risk," he said.

This will also protect industry players and consumers against future shocks, which will inevitably recur.

"At the same time, it will not increase costs and can even lower costs in normal times," he said.

If gas prices are expected to fall, it is also possible to reduce the hedging requirement to below 50 per cent, which Mr Tan said would benefit consumers by lowering prices.

Retailers could also be made to provide larger collateral, which will be penalised if they fold without enough notice.

"This penalty needs to be large enough to dissuade excessive risk-taking by retailers," he said.

THE FOUR SHOCKS

In Parliament on Monday, Dr Tan emphasised again that the entry and exit of retailers were features of an open and competitive retail market.

The “unusually high number” of exits, however, reflects the severity of the global energy shock.

The global energy market is facing a conflation of four shocks, said Dr Tan.

The first is an unexpected surge in demand for energy as economies begin to recover after Covid-19 curbs ease.

The second are unusual weather events that have hit the generation of wind and solar power in Europe.

The third and fourth shocks are lower-than-expected coal production and a series of gas-production outages worldwide.

“The shocks have been most intensely manifested in the market for natural gas, which is a fallback fuel for electricity generation in many countries,” said Dr Tan.

As a result, he said spot gas prices have risen by around five-fold, since March. 

While most consumers will not see an immediate increase in electricity prices, they may see a rise next year with energy prices climbing globally, Dr Tan said.

MEASURES TO SECURE POWER-GENERATION CAPACITY

That said, Singapore has in place measures to secure the country’s access to fuel supplies.

Since 1999, Dr Tan said that Singapore has had long-term supply contracts for piped natural gas from Malaysia and Indonesia.

Negotiations are under way to renew some of these contracts, and by and large, the supply of piped natural gas has been relatively stable.

Even so, he noted that because of an incident at an upstream gas production facility in July, gas supply from Indonesia’s West Natuna gas field to Singapore had been affected.

This resulted in a fall in overall gas supply by about 3 per cent since September.

While Dr Tan did not elaborate on the July incident, the Reuters news agency reported last month that the disruptions were blamed mainly on an unplanned shutdown at the Anoa field and planned maintenance at the Gajah Baru field, both in Natuna.

Dr Tan said that the drop in supply was likely to last until the end of the year as the West Natuna facility undergoes repair and upgrading.

EMA, meanwhile, is working with gas importers to stabilise the supply of piped natural gas.

Supplementing this is a liquefied-natural-gas terminal built in 2013 to allow Singapore to tap gas sources from farther afield.

“The liquefied-natural-gas terminal has sufficient capacity to meet all of Singapore’s gas needs, should piped natural gas be unavailable,” said Dr Tan. 

At present, natural gas accounts for 95 per cent of Singapore’s power generation.

Dr Tan added that the authorities also require power-generation companies to stockpile at least 60 days of fuel reserves, in case of disruptions to Singapore’s natural gas supply.

Taking into account planned and unplanned outages, Dr Tan said that Singapore needs to maintain spare generation capacity, or a reserve margin of at least 27 per cent above peak electricity demand.

The reserve margin stands at 52 per cent, significantly above 27 per cent.

“In short, we have sufficient fuel supplies and generation capacity,” he said.

Still, the authorities are “leaving nothing to chance”, given the unprecedented scale of the energy crunch.

“EMA has been working closely with industry stakeholders on pre-emptive measures to further secure Singapore’s fuel and electricity supply, and ensure energy resilience and reliability,” he said.

For instance, standby fuel facilities have been set up for generation companies to draw on to generate electricity if needed, and EMA has told the companies to contract enough fuel to at least meet their customers’ demands.

“In the extreme event that generation companies are not willing to draw on gas reserves to generate electricity, perhaps due to risk aversion, EMA will engage generation companies directly to generate electricity using fuel from the standby facilities,” he said.

Dr Tan separately urged consumers to use energy prudently.

“Our market is now being tested by an unprecedented storm in the global energy market.”

Related topics

Open Electricity Market electricity consumption gas supply market liberalisation

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