With Electricity Prices Rising, Should I Switch Back to SP Group or Renew My OEM Plan?

The other day, I was sent a notice from Tuas Power informing me that my three-year fixed price plan was up for renewal.

FYI: This article is not sponsored but Tuas Power; I just happened to sign up for their plans three years ago while I was not working for Seedly, as they were offering attractive sign-up benefits and a chance to lock in the price.

In hindsight, that was one of the best personal finance decisions I’ve made recently, as Tuas Power was offering electricity at a rate of $0.168/kWh before Goods and Service Tax (GST) and $0.179/kWh after.

This saved me a ton of money over the years, and I’m thankful for that.

But, I was not ready for what was going to happen next.

Tuas Power offered me a renewal offer of $0.292/kWh after GST, which was a 63.12 per cent increase in price. Thankfully, there’s the new $1.15 billion support package with the additional $100 one-off utilities credit.

Despite the higher rate, I still signed the offer to renew my contract before next Friday (1 July 2022),

Why this date? Well, the Singapore Power (SP) Group sets the electricity tariff and reviews it every quarter. This tariff is also regulated by the Energy Market Authority (EMA) to reflect the actual cost of electricity.

As such, I would like to explain to you why I made that decision.

I’ll also evaluate the different options available to us as consumers on the Open Electricity Market (OEM) be it going back to the Singapore Power (SP) group or renewing your OEM Plan.

TL;DR: Should I Switch Back to SP Group or Renew My OEM Plan?

Singapore Electricity Tariff

For the past five quarters, Singapore’s electricity tariff has gone up:

Most recently, the electricity tariff for Q2 2022 (1 April – 30 June 2022) increased from 25.44 cents to 27.94 cents per kilowatt-hour (kWh). This is a 9.9 per cent increase from Q1 2022 (1 January to 31 March 2022) and the fifth quarter in a row the electricity tariff has increased.

This amounts to 29.90 cents per kWh if you factor in the prevailing 7 per cent Goods and Services Tax (GST).

One factor that explains the soaring electricity tariffs in the past year or so is that about 95 per cent of Singapore’s electricity is generated using natural gas.

Experts interviewed by Today in a piece dated 14 May 2022 stated that (emphasis are mine):

One reason for the rising electricity tariffs for the past two years is that 95 per cent of electricity in Singapore is generated by natural gas, a byproduct of crude oil, said Associate Professor Chang Young Ho, head of the business and management minor at the Singapore University of Social Sciences (SUSS).

Recovery from COVID-19 has also increased energy demand from industries, while the Ukraine-Russia war has affected oil prices, resulting in the hike, he said.

Dr David Broadstock, a senior research fellow and the head of the Energy Economics Division at the National University of Singapore’s (NUS) Energy Studies Institute, said the decision by Europe and other countries to stop purchasing natural gas from Russia has forced them to search for new gas suppliers.

“At the same time, there are limits to how much gas supply chains can scale up without major new infrastructure development, which would also take some years to provide.

“This is a perfect recipe for natural price increases for natural gas, as those countries which are willing and able to pay higher prices may choose to do so to ensure a secure energy supply,” said Dr Broadstock.

He also noted that China’s demand for natural gas has been consistently growing as it searches for a cleaner fuel option as compared to coal. This is especially so during the winter season, which has created long-term pressure on markets.

Electricity prices would take about a year to stabilise, experts estimated.

On April 4, Second Minister for Trade and Industry Tan See Leng spoke in Parliament about mechanisms to help Singapore stabilise prices and ensure sufficient supply, such as a standby liquefied natural gas facility and requirements imposed on power generation companies.

They were introduced after “upstream production issues in Indonesia’s West Natuna gas field and gas pressure issues from South Sumatra in the fourth quarter of 2021 caused disruptions to our piped natural gas supplies,” said Dr Tan, who is also Manpower Minister.

EMA has also modified market rules, allowing the agency to direct power generation companies to use gas from its standby facility, to manage the cost impact on consumers.

So the main takeaway from this is that natural gas prices will remain volatile as demand for natural gas is soaring, and the supply is limited and would take time to scale up.

Thus, according to the experts, we will see volatility in the electricity prices in the short term.

Before we begin exploring our options as consumers, here’s a quick recap on what is available for us as consumers in Singapore.

SP Group Tariff vs SP Group Wholesale Plan vs OEM Fixed Plan vs OEM Discount Off Regulated Tariff (DORT) Plan

Got that?

Now let’s explore the options.

Option 1: SP Regulated Tariff

If you are currently on this plan or your OEM plan’s contract is about to expire, you could stick with the SP-regulated tariff or switch from your OEM plan to SP’s offering.

First, let’s explore the benefits of this plan.

The good thing about this price plan is that there is no lock-in period or contract you have to sign.

Currently, most of the OEM retailers offer plans that are slightly cheaper compared to the SP-regulated tariff, save for these few outliers:

You will want to stay with SP if you believe Singapore’s Electricity tariff rate will go down over the next few quarters.

Since the shortest contract for these OEM plans is six months, you can wait things out and enjoy the fall in electricity price rather than locking yourself into an extended OEM plan with a long contract and higher electricity rate.

Option 2: SP Wholesale Electricity (WEP) Plan

On top of the regulated tariff, the SP Group offers a non-standard price plan where customers can buy electricity directly from the wholesale electricity market.

The good thing about this price plan is that there is no lock-in period or contract.

This means you can switch back to the SP-regulated tariff plan or sign up for an OEM plan without penalty.

But, note that the wholesale electricity price (WEP) varies every half hour depending on the prevailing demand and supply situation in Singapore’s wholesale electricity market.

Thus you will have to bear the risk of price fluctuations if there are any abrupt changes in electricity demand and supply.

You can refer to the table below to get an idea of the WEP:

Source: Energy Market Authority. Figures provide an equivalent charge per kWh under a WEP plan. The actual calculation of charges will be presented in detail in customers’ bills. Figures have factored charges such as grid charge, transmission loss and 7% GST but exclude Meter Reading and Data Management Charge ($2.18 per meter) and Vesting Debit/Credit (if applicable) for the quarter. You may visit the Energy Market Company’s website to view the historical and current WEP.

To illustrate how crazy these prices are, I would use my bill as an example.

As my household consumes about 315kWh of electricity every month, our electricity bill would hover around $56.62 based on the fixed rate of $0.179/kWh with GST.

Now let’s take the average of the lowest half-hourly WEP rate and the highest WEP rate. This rate would be $2.24/kWh!

If I had signed up for the wholesale plan, I would have paid about $705.60 for electricity last mo; that’s about 12 times more!

This is probably why the OEM is warning consumers to ‘consider the WEP plan carefully given that the electricity rate that you pay is uncertain and volatile‘, explaining that:

The sharp rise in the WEP observed in Q4 2021 stemmed from several factors, including the global energy crunch which resulted in high spot natural gas prices, production issues in Indonesia’s gas fields which led to piped natural gas supply disruptions, and unplanned outages of power generation plants. (Read EMA’s media release for more details.)

Option 3: Switch to a Discount Off Regulated Tariff (DORT) Plan

Alternatively, if you want an ‘upgraded’ version of the SP-regulated tariff for the same reasons, you could opt for an OEM DORT plan now.

Currently, the only electricity retailer offering this plan is Senoko Energy with its LifeSave12 plan that would give you a three per cent discount off the SP tariff throughout the length of the 12 months contract.

Also, don’t forget the bill rebate when you sign up.

Note that when you sign up for this plan, you are locked into a contract with Senoko for 12 months.

This means that you cannot switch to the SP tariff if the tariff price goes down, or you will have to pay an early termination charge of $321 if you terminate the plan within the first 12 months from the contract start date.

Option 4: Renew or Sign up For a Fixed Price Plan

Last but not least, you could choose to sign up for or renew your OEM Fixed Price plan, which means you will pay a fixed rate for electricity throughout the length of the contract. Beware of the early termination charge.

You will be locking in your current OEM plan’s rate before it changes next Friday (1 July 2022) and hedging the electricity rate for the length of the contract you sign.

The plan will be extended by the contract you sign.

This is the option I have chosen as I have secured a cheaper rate than the SP tariff. I also believe that for the next year or so, the price of electricity will only go up and not drop significantly. This is why I have chosen to lock in this price and signed the shortest contract at 18 months. But that’s just me.

If you are convinced, here are the cheapest OEM Fixed Price plans which are that are cheaper than the SP tariff with Open Electricity Market (OEM) to consider: