Current and Year-to-date Marginal Cost and Long-run Marginal Cost of Producing Electricity
Ministry of Trade and IndustrySpeakers
Summary
This question concerns the short-run marginal cost (SRMC) and long-run marginal cost (LRMC) of electricity production compared to the Uniform Singapore Energy Price (USEP). Minister for Trade and Industry Gan Kim Yong reported that between January and October 2022, SRMC and LRMC averaged $157 and $202 per megawatt hour respectively. He stated the USEP averaged $300 per megawatt hour, reflecting surged fuel costs and supply-demand factors that make it incomparable to oil-indexed regulated tariffs. Minister for Trade and Industry Gan Kim Yong explained that the wholesale market is influenced by the global energy crisis and fluctuates significantly within each day. He concluded that consumers seeking price certainty should utilize the Open Electricity Market or SP Group’s regulated tariff rather than the wholesale energy market.
Transcript
4 Mr Chua Kheng Wee Louis asked the Minister for Trade and Industry what is the current and year-to-date short-run marginal cost and long-run marginal cost of producing electricity, as compared to the Uniform Singapore Electricity Price.
Mr Gan Kim Yong: The short-run marginal cost (SRMC) and long-run marginal cost (LRMC) have averaged at $157 per megawatt hour and $202 per megawatt hour respectively for the period January to October 2022. SRMC reflects the variable costs, including fuel, while LRMC reflects both the fixed costs and the variable costs.
The Uniform Singapore Energy Price (USEP) is the wholesale price of electricity determined in the Singapore Wholesale Electricity Market. The USEP fluctuates every half-hour and is determined by various factors. Besides fuel costs, which have surged over the past year due to the ongoing global energy crisis, the USEP is also influenced by prevailing demand and supply conditions which may fluctuate significantly within the day. It is not meaningful to compare the USEP to the regulated tariff, which is served by long-term gas supply with fuel costs indexed to oil prices. Between January and October this year, the USEP has averaged at around $300 per megawatt hour, which reflects the higher fuel costs and prevailing demand and supply conditions.
The vast majority of consumers do not buy electricity in the wholesale market at the USEP. Consumers who prefer greater price certainty can consider buying electricity from a retailer in the Open Electricity Market or, in the case of households and smaller consumers, at the regulated tariff from SP Group.