What is the Open Electricity Market (OEM)?
For the longest time, we Singaporeans have gotten our electricity from Singapore Power (SP). SP is like the SMRT of electricity; it is a corporatised entity more or less owned by the government, and it monopolises the market. When there are hikes in tariff rates (much like hikes in MRT ticket prices), we are left feeling powerless and have to grudgingly accept our fates (and skinnier wallets). However, the good news is that this is about to change in the second half of 2018, with the introduction of the Open Electricity Market (OEM)!
So, what is the OEM? It is an initiative by the Energy Market Authority (EMA) that enables households to buy from commercial electricity retailers. Currently, there are 14 retailers fighting to give you your electricity, and the good news is that you will be able to pick any one you fancy.
Of course, it is not compulsory to make a switch, and if you prefer SP, you can always remain on the existing tariff rate.
Why would I switch to a retailer?
- Lower cost:
Is that not all the reason you need? Prices will be cheaper because those 14 retailers will be fighting tooth and nail for market share (just like Uber vs Grab during the 2015-2017 period), and will have no problem hitting below the belt by offering discounted rates and special promos.
Already, firms like iSwitch offer a free iPad bundled with their 36-months plan, and more boons like these can be expected from competitor firms.
You can choose plans that best suit your needs, which may result in having to pay less per month for electricity.
In addition to lower costs, the service provided by retailers is likely to be of an enhanced standard. This is also a result of the competition for market share, where firms try to differentiate themselves from each other. This is definitely beneficial for consumers (say goodbye to having to listen to 2 hours’ worth of please-hold-classical-music).
Sounds good! What are my options?
Right now, retailers generally offer 3 types of standard price plans:
- Fixed Price
Think of this plan like a fixed rate mortgage. For the Fixed Price plan, once you lock in a rate with a particular plan, it does not change regardless of how much the tariff fluctuates. As such, when the tariff is high, you gain because you pay less. But when the tariff is low, you might lose out because you have no choice but to keep paying the higher fixed rate.
- Peak and Off-peak
This plan also has pre-agreed rates, but the rates vary according to the time electricity is used. Essentially, the plan will offer lower rates during “off-peak” timings, while higher charges will apply during “peak” timings. Matching a plan to your household electricity usage can result in significant savings if your household’s peak usage occurs during a plan’s “off-peak” times.
- Discount Off Regulated Tariff
The Discount Off Regulated Tariff is something like a floating rate mortgage, whereby payment rates are pegged to certain industry rates. For this plan, the rates are pegged to tariff rates, albeit with a perpetual discount. You will therefore always pay less than if you were to buy electricity directly from SP.
Which is best for me?
None of the plans offered are a one-size-fits-all solution. For the Fixed Price plans, it is suitable for those who are savvy and well-versed with natural gas prices. This is because natural gas prices affect tariff rates, which determines whether you gain or lose. If you have no interest and time to bother about such things, it is best not to take up a Fixed Price plan.
For Peak and Off-peak plans, it is only worth it if the plan coincides with the household’s power usage patterns. It is therefore more suitable for singles or elderly living alone, whereby heavy power usage occurs at set times depending on their lifestyles. It is also easier for them to adjust their power usage habits to match a particular plan if it can save them more money.
For Discount Off Regulated Tariff, it is probably the straightforward option for most, because it does not require you to monitor natural gas prices or plan out your power usage. It is more suitable for larger families as compared to the Peak and Off-peak plans, because electricity usage for these families tend to peak at different times throughout the day; children may use more power during the afternoons after school, while their parents use more power during the night.
Are there any downsides to switching?
Although retailers generally do provide lower rates as compared to the tariff charged by SP, you should read the contract carefully and find out if the retailer passes on any third-party charges to you.
This would mean that rates are actually not as low as what the plans have illustrated. These are some examples of third-party charges that you might end up paying for:
- Transmission Loss Factor (TLF)
As electricity is sent to your house, some of it will be lost along the way as heat energy or other waste energies. The TFL takes into account how much electricity is lost relative to the amount of electricity delivered. Unfortunately, you may still need to pay for the wasted energy. Not all retailers require you to pay for TFL, but if they do, it will be an additional 3.493% to the monthly bill.
- Market Development and Systems Charge (MDSC)
The MDSC is levied by EMA. It is basically to fund initiatives that will, according to EMA, “enable both commercial and residential electricity consumers to enjoy more competitive electricity prices, increased retail options, and greater price transparency”. An example of such an initiative is the Electricity Futures Market, launched by EMA and Singapore Exchange (SGX). As of 1st April 2018, the MDSC charge is 0.3984 cents per kWh.
- Carbon Tax
The carbon tax was announced during the recent Budget 2018 and will be implemented from 2019 onwards. The purpose of the tax is to reduce the national greenhouse gas emission rate by compelling heavy emitters to reduce their emissions. The tax will be $5 per ton of greenhouse gas emissions, and will likely increase to between $10 to $15 per ton of emissions by 2030. The tax will probably be passed on to consumers, so be prepared to pay higher fees in the near future.
- Cancellation charge
An additional charge to take note of is cancellation charges that retailers are likely to have. These charges may be hefty, so it will be wise to know what they are in case you have to cancel a plan before its contract expiration date for whatever reason. If you want to avoid this, Ohm Energy offers a no-contract plan whereby you essentially pay as you use.
Retailers also face something that SP does not: the risk of failure. As the firms compete for market share, some will inevitably be squeezed out. This will be reminiscent of the battle between Uber and Grab, where both sides kept offering loss-making deals just to entice consumers, and whoever could take the most pain prevailed. In that case, this may negatively affect consumers who have subscribed to plans with a firm that buckled under the competition.
What is the verdict?
The best course of action now will be to switch to retailers, once the OEM is available island-wide. However, it will probably be better not to take up longer term plans offered by retailers, so that you will have the flexibility to change to a more attractive plan. Also, it will be a good idea not to lock yourself into a single firm long term because that firm may not survive the initial market struggle.
For now, the rates offered by retailers will definitely be less than the tariff rates charged by SP, and it will be cheaper to get electricity from a retailer (especially since tariffs recently rose from 21.56 cents per kWh to 22.15 cents per kWh for this quarter).
The negative aspects of OEM will be well-managed by the authorities, so these downsides are not a good reason to choose not to switch. For example, the SP has stated that no matter which retailer households select, the electricity supply will continue to be reliable because SP Group will still be the one operating the national power grid.
Also, EMA has in place the Enhanced Consumer Protection Framework that regulates the retailers, to ensure fair market practices. For example, the retailer cannot abruptly cut off a consumer’s electric supply. Even though there is a risk of retailers failing, SP will always be an available option, and will likely step in in the case of a company default.
All in all, the OEM is an extremely good initiative for Singaporeans (and their bank accounts), at least in the immediate future. As to whether this will necessarily lead to permanently lower electricity costs for households, only time will tell.