How is the Cost of Electricity Kept Competitive?

Just like a commodity in the stock market, electricity is hedged to promote efficiency and competition in the electricity market for consumers’ benefit. This is done through the following 2 avenues:

Vesting Contracts between Electricity Generation Companies and SP Services

Vesting contracts are aimed at curbing the exercise of market power by electricity generation companies to promote efficiency and competition in the electricity market.

The vesting price is set based on the long run marginal cost of the most efficient generation technology that accounts for at least 25 percent of the total electricity demand in Singapore.

With vesting contracts, electricity generation companies are committed to selling a specified amount of electricity at a specific price. This prevents them from exercising their market power by withholding electricity to push up prices.

Electricity Futures Market

The Electricity Futures Market was launched by the Energy Market Authority in partnership with the Singapore Exchange (SGX) and the electricity industry. This is part of EMA’s ongoing efforts to encourage market competition, keep electricity retail prices competitive and provide more retail options. EMA reported that a study they commissioned showed that based on consumer data from Australian and New Zealand, the equivalent net consumer benefits could amount to about $2.20/MWh, or S$435 million over 5 years.

With the Electricity Futures Market helping electricity retailers to hedge their risks, consumers can benefit from:

Competitive Pricing

A larger number of independent electricity retailers are entering the market as the Electricity Futures Market helps them to reduce their risks. The increased number of retailers increases market competition, which keeps electricity retail prices competitive.

More Retail Options

Electricity retailers can now offer customised retail packages according to consumers’ needs. There are now even retail packages using clean energy sources. These new retail packages include:

  • Rooftop leasing plans, where businesses lease out their rooftop space for solar panels to be installed.

  • Green tariffs, which are pricing plans where consumers can choose the amount of green energy they require.

Greater Price Transparency

With electricity futures prices available on the SGX website, companies can assess if the prices offered by their retailers are competitive.