1) Update: 18 December 2021 New Energy Prices
Updated 2nd December 2021
Abstract:
There is a price hike in LNG recently due to a global supply and demand issue. This has caused the oil price to rise slightly. According to EMA, the Electricity price in Singapore should always track the oil price but this was not the case recently since 4 October 2021. Singapore's wholesale electricity price has gone up by about 5 times whereas oil price hardly has any increase. This article will try to find out why. It also discusses how best we can "invest" in this turbulent electricity market.
"Invest" in Electricity Market?
Some will ask, "I am on electricity fixed rates, what electricity market are you talking about?". The answer is, irrespective of whether we are on fixed-rate, monthly-rate, or otherwise, we are always inside the electricity markets so long as the country has de-regularised the electricity business and we are having an open electricity market. Electricity supply on fixed-rate, monthly-rate is just the type of electricity packages in the electricity market. We must always know how the oil price or natural gas price is affecting us.
Oil Price?
Again, some will say, "We are using mainly natural gas, will oil price matter?"
In some countries like the US, oil prices and gas prices are separately fixed by different markets. They might have different prices. Even in Asia, we also have different pricing for LNG. However, in many other countries, like Singapore, gas price is often pegged to oil price for some reasons The gas prices used for generating power in the latter will fluctuate with the oil price. Therefore, the open market electricity price in these countries will fluctuate as much as the oil price depending on the supply and demand.
What Supply and Demand?
In an open electricity market, the electricity price is always determined by a market called "The electricity market". This market, regulated by the local Electricity Authority will have the generating companies supplying and selling the electricity and the big consumers like the Municipal Electricity Board and the big electricity consumers, bidding and buying the electricity. Because the market is so small with a few players, the market, unlike the usual stock market, will have special rules to encourage pricing competition (see Appendix2). One thing is for sure, the price will fluctuate wildly at times especially when demand outstrips the supply.
What we will have to do?
Whether or not we are on fixed-rate or wholesale rates quoted by electricity retailers or Municipal Electricity Board, the price would be affected by the electricity market unless we are buying electricity at the usual regulated price. We must always assess the oil or gas price before we buy electricity. This is because energy price is always the biggest component in any electricity pricing.
How?
Oil or gas Futures prices either at the US's Chicago Mercantile Exchange (CME) or local stock market will always determine and affect the energy price. Some Asian countries might have energy prices indexed with the Asian LNG market depending on the energy policy. One must know how the energy price will move. This is essential if one really wants to judge whether to enter the electricity market on a fixed price or wholesale price or just stick with the regulated electricity price. There are also other things to watch out for.
It will be riskier to jump to a conclusion just because one electricity supplier can supply the cheapest price for some reason. If that is the case, it would be better for one to stick to the usual regulated electricity price. The electricity market is not for us.
Why?
The Electricity Market, in one way or another, works like a stock market except it is heavily regulated. Unless one is familiar with a stock movement, their business background, etc, one would not buy the stock of that company just because it has the cheapest price in the market. Similarly, an electricity retailer can go burst, applying the unfavorable terms in the contracts and selling us electricity at an unreasonable price without the blessing of the regulating bodies. It is then left to ourselves versus the electricity retailer to settle the problem. The regulator might be acting just as the Arbitrator if the retailer did not break any rules.
Then How?
The following can be used as reference:
1) Shortlist the electricity suppliers in terms of their business background to assess if they are trustworthy and can remain in business within the contract period;
2) Find out which among the shortlisted can supply you the electricity at the cheapest and cost-effective rate. Some will have special offers that are better than others;
3) As to whether to take up long term or short-term contract or just a % discount from the usual regulated price, one will have to assess what energy price will be likely within the contract period. If one expects the energy price to go up and up, then it will be good to sign a long-term contract; otherwise, just sign a short-term one or even take up the % discount or just the usual regulated price; then, wait for the energy price to drop to the bottom before signing up for a long-term contract.
What is the Energy Price Now in Singapore?
a) The Brief
The electricity price in Singapore is always fixed by the EMA's Electricity Market. Gencos, the generating companies, will offer every half-hour to sell the electricity into the spot market. Rightly speaking, large electricity consumers, electricity retailers will bid or buy the electricity. Presently, there is no consumer bidding per se in the market. The Power System Operator (PSO), governed by EMA, will provide the demand load for each period based on the collected information. The power generating companies (Gencos) will then offer their selling price based on these demand load and their operating cost of which, energy price will be the main component.
90% of Singapore's power generation is using natural gas. In the past, Singapore's natural gas for power generation are imported through piped gas from Indonesia. That gas price is pegged to oil price according to the supply agreement until 2023 (see reference 4). LNG began to supply in 2013. Because of this, there was this speculation about the Gencos in Singapore are using LNG prices when they offer their selling prices in the EMA's Electricity Market.
Singapore used to have an LNG Futures Market in SGX Exchange Board that supposes to fix the price of LNG but now it has been replaced by the Electricity Future's Market. The LNG price in Asia is now fixed by the LNG Japan/Korea Marker PLATTS Future - (JKM).
Anyway, EMA believes that the natural gas price that is used for power generation is still pegged or indexed to the oil price. EMA claimed that "This is the market practice in Asia for natural gas contracts". Therefore, this article will be using only oil price and SGX electricity future price as guides to assess the future energy prices in Singapore.
If the price is not pegged to the oil price, the trend would be a lot different in the energy pricing today because there is a global demand and supply issue presently lingering around the natural gas pricing. More countries are converting their coal or oil-fired to natural gas-fired power plants & also, there is a natural gas supply shortage globally.
b) SGX Electricity Future (Chart to be updated regularly)
From the December 2021 Contracts and the Contracts beyond, it would appear that the electricity price has gone over the peak of 522 on October 14. It is around 356 on Nov 25 and is slowing dropping towards 185 for the December 2022 contracts. It is likely the trend of the electricity price is falling going forward. Note that this chart will be updated regularly.
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c) Asian LNG Price
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Update: 30 December 2021
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