Study on Retail Electricity Market Liberalisation’s Benefits to Households

14 Mr Muhamad Faisal Bin Abdul Manap asked the Minister for Trade and Industry whether there is any study conducted to ensure that the liberalisation of the retail electricity market will benefit household consumers.

The Senior Minister of State for Trade and Industry (Dr Koh Poh Koon) (for the Minister for Trade and Industry): Mr Speaker, the Open Electricity Market, or OEM, completes the Government's efforts since 2001 to progressively liberalise the retail electricity market for all consumers. In deciding when and how to implement this liberalisation, the Government conducted studies and international reviews of other markets, to ensure that consumers are able to benefit from greater choice, competitive pricing and innovative offers with no change to the reliability of their electricity supply.

Following the successful soft launch of the OEM in Jurong, EMA commenced the nationwide zonal roll-out of the OEM in November last year. By May this year, all business and residential consumers will be able to choose who to buy electricity from.

The nationwide launch of the OEM is progressing well. We observed that more households are choosing to switch. Zone 2 has seen a switch rate of about 19% in the first month, compared to 16% and 11% in the first month of Zone 1 and the soft launch in Jurong respectively. So, there is an increasing trend of more households switching.

Households value the choice offered by the OEM, and are actively choosing the retailer and price plan that best meets their needs. Households who are looking to switch can benefit from a wide range of competitive offers, incentives, and promotions, such as referral programmes, loyalty programmes and bill rebates. Retailers are also offering value-added services and products through tie-ups with third-parties such as banks, telecommunications and home insurance companies.

Going forward, EMA will continue to work closely with the retailers to roll out the OEM to the remaining zones, and actively engage consumers to raise awareness of the OEM and help them make informed choices.

Mr Muhamad Faisal Bin Abdul Manap (Aljunied): I thank the Senior Minister of State for his reply. I would like to ask one supplementary question. Basically, the new vendors are offering up to 30% discount for the electricity charges. What I understand is that there are some concerns about this on the ground, where some segments of the population made a claim that it shows that SP Group has been profiteering in the past. The rationale is that after the 30% discount, the new vendors can still earn an income. So, I would like to get Senior Minister of State's view on this.

Dr Koh Poh Koon: Mr Speaker, the regulated tariff charged by SP Group and approved by EMA reflects the long-term costs of producing and delivering electricity in Singapore, such as the cost of building and operating the power plants. On the other hand, the electricity rates that are offered by retailers typically reflect the current market conditions, the level of competition as well as the short-term cost of producing electricity and under this current market condition where the capacity exceeds the demand for electricity, we can therefore expect market rates to be lower than the regulated tariff.

However, this may change over time, based on market demand and supply, and consumers should be aware that while the price plans offered by retailers are fixed for the duration of each contract, retailers, like all businesses may adjust their prices and discounts over time. So, consumers who have switched to other retailers can also switch back to buy electricity at the regulated tariff from SP Group should they feel that the prices at a different point in time may be more favourable to switch back. They should check with their retailers if there are any applicable charges when making that decision.

So, the key here is to give options to consumers to choose a price plan that best meets their needs. I think the underlying difference between SP Group and the other retailers is that SP Group has to take into account the long-term cost of infrastructure.

Assoc Prof Walter Theseira (Nominated Member): Mr Speaker, I would like to ask the Senior Minister of State if there are specific and defined criteria for measuring the benefits from the Open Electricity Market such as switch rates, electricity cost savings or market competition indices. To what extent have these criteria been met thus far and are there any plans to further develop the market to meet these criteria?

Dr Koh Poh Koon: Mr Speaker, from what data we have so far from the roll-out, household consumers who have switched, generally pay electricity rate of about 20% to 30% lower than the regulated tariff. So, in itself, this is a very good outcome from the consumers' perspective.

As this is early phases in the roll-out, we will continue to monitor the take-up rate. As I said before, with each zone of roll-out, it seems the increased take-up rate has gone from 11% to 16% to 19%. So, probably, it will stabilise around the 20-something percent level but over time, based on the market fluctuation, as electricity prices fluctuate, perhaps with different bundling as well, the take-up rate may again change. So, this is something that the regulators will watch very closely.

Mr Png Eng Huat (Hougang): I just want to seek a confirmation from the Minister. Does this mean SP has been supplying electricity at market rate all this while? Is that a yes or no?

Dr Koh Poh Koon: Mr Speaker, SP's regulated tariff takes into account the long-term cost of producing and maintaining infrastructure. In the absence of competition, in the past when SP was the sole monopoly provider, what EMA does is regulate the amount of profit that SP can make, and this is benchmarked across electricity providers in other jurisdiction which also operates on the similar structure of a monopoly. And that is benchmarked across all other jurisdictions.

Today, with liberalisation by encouraging competition, we allow the market to, therefore, compete based on supply and demand, and bring forth benefits to consumers. But at the end of the day, SP Group will continue to be the provider of last resort. Should any retailers fail, SP will continue to be the one that will provide electricity for all consumers, so that there will be no disruption to the electricity supply.

Assoc Prof Walter Theseira: Given the fact that, in some areas, the switch rates are still rather modest, and there are obviously very large savings to consumers who choose to switch, would the Ministry consider implementing switching on an opt-out basis, perhaps with assignment to a panel of open electricity retailers appointed on, let us say, a competitive tendering basis, because this may allow more consumers to realise the benefits immediately rather than waiting for them to switch?

Dr Koh Poh Koon: As I explained earlier, I think it is a difficult call for the Government to impose opt-out basis because, as I said earlier, price plans do fluctuate over time. If you look at this in the similar vein to telcos and how they operate by proposing different price plans, bundling with broadband, with your cable TV, for example, the plans change over time, and I think it is hard for us to do a kind of opt-out mechanism in which consumers may then find that they are locked in to something and cannot change when they have to. Whereas this is an active mechanism which allows consumers to make an active choice on who they want to give the contract to and get service from.

So, this is where the market must play its part. EMA, therefore, emphasises a lot on the education of the consumers. Through this zonal roll-out process, staging it zone by zone, giving enough time to educate the public so that they are aware what the price plans entail, what the price plans mean for their own consumer needs, so that over the longer time, consumers will make better informed decisions and choices, and that again will also influence the behaviour of the retailers as well.