Why is the Energy Market Authority Capping Wholesale Power Prices in Singapore?
The Energy Market Authority (EMA) of Singapore has implemented a cap on wholesale power prices starting July 1, 2023. This move is aimed at protecting electricity retailers and consumers from the impact of high and volatile liquefied natural gas (LNG) prices. Despite the recent decline in spot LNG prices, the past volatility has caused significant market disruption.
Impact of High LNG Prices
LNG is the primary fuel used for power generation in Singapore. In the fourth quarter of 2021, spot prices of LNG surged, leading to a spike in wholesale electricity prices. This aggregated pressure forced the closure of six electricity retailers in late 2021, unable to bear the cost.
EMA’s Temporary Price Cap
To address these issues, the EMA has introduced a temporary price cap based on a formula that references natural gas and generation costs. The EMA has not disclosed further details about its pricing formula. This decision follows months of increasing price jumps, which continue to threaten the sustainability of the electricity market in Singapore.
Consumer and Market Protection
The price cap is designed to cushion the impact of high fuel prices on electricity retailers and consumers. It also aims to promote investment in thermal generation units, which are crucial for ensuring an adequate supply of electricity. Additionally, the measures are intended to maintain a stable and predictable energy market, fostering competition and encouraging new entrants to compete with established providers.
Regulatory Response and Government Policy
The decision to cap wholesale power prices is part of a broader regulatory response to market volatility and potential risks of supply disruption. It aligns with the Singaporean government's objectives of promoting efficiency, consumer protection, and energy security. The EMA's actions also reflect a commitment to mitigating the risk of price manipulation and ensuring the affordability of electricity for both households and businesses.
Recent Market Trends
LNG Market: As of June 19, 2023, the Argus assessment for spot LNG deliveries to northeast Asia was 10.50/MBtu, marked a significant drop of about 67% compared to the same period last year. This trend continues to influence wholesale electricity prices, although some volatility remains.
Energy Retailers: Several major retailers, including iSwitch Energy, ceased operations in late 2021 due to LNG price volatility. Singapore LNG recently entered the spot market to secure two spot cargoes for the first time, indicating a changing market dynamic.
Consumer Protection: By capping wholesale power prices, consumers can be shielded from excessive price fluctuations, ensuring that electricity remains affordable and accessible. This measure is crucial for maintaining consumer trust and supporting the economic stability of Singapore.