Higher electricity prices for Singapore businesses as retailers raise rates, tariff climbs amid Iran war

[SINGAPORE] Businesses starting or renewing their electricity contracts are facing cost pressures, with electricity retailers’ prices and tariffs rising amid supply constraints due to the war in the Middle East.

Based on data from the Open Electricity Market (OEM), as at Apr 1, just under a quarter of businesses use retail price plans – which have become more expensive, in response to supply constraints.

Flo Energy primarily serves commercial and industrial customers – who are typically on bespoke contracts structured around operational requirements – and small and medium-sized businesses (SMEs), said its CEO Matthijs Guichelaar. (*see amendment note)

For SMEs with monthly consumption below 20,000 kilowatt-hours (kWh), it offers three fixed-price plans. Excluding GST, the 12-month plan is now priced at S$0.32 a kWh, compared with S$0.254, on Feb 27, before the start of the Iran war. That amounts to a near 26 per cent increase in the space of a month.

Its 24-month plan now charges S$0.305 a kWh, up from S$0.2485 before which translates to an approximate increase of 23 per cent. Its 36-month contract charges S$0.29 a kWh, up from S$0.2425, going up by over 19 per cent.

“Pricing for fixed plans is closely tied to wholesale electricity market conditions at the point of contract,” explained Guichelaar, adding: “Our focus is to ensure our hedging and procurement strategies continue to support contract stability across a range of market conditions.”

Similarly, a Tuas Power Supply spokesperson acknowledged that electricity generation costs have increased due to higher fuel prices – with plans in line with market conditions.

While it did not disclose its price adjustments, its fixed rate plans for businesses, inclusive of GST, are priced at S$0.3183 a kWh for 12 months; S$0.3052 for 24 months; and S$0.2878 for 36 months.

PacificLight Energy, which serves businesses ranging from small, local businesses to large multinationals, “continues to review and adapt” its plans, said general manager Geraldine Tan.

However, pricing of these commercial contracts is not as straightforward as for the retail customer. Many retailers encourage businesses to ask for a quote, rather than listing their prices.

Lee Poh Seng, executive director at the National University of Singapore’s (NUS) Energy Studies Institute (ESI), flagged that for businesses, price impacts are often less visible than for households. This is because many commercial electricity contracts are negotiated directly between the retailer and the business.  

Industry observers noted that adjustments reflect not only current spot prices, but also increased risk premiums and hedging costs. The main concern for businesses now is not just the price increases, but the heightened volatility and uncertainty in electricity markets, they said.

This has resulted in a narrower gap between retail plans and the regulated tariff, observed Su Bin, senior research fellow and division head at ESI.

Added Dr Lee: “Businesses now need to pay more attention to contract tenor, pricing structure, and their exposure to future energy shocks.”

Up across the board

Singapore’s regulated electricity tariff was adjusted to partially price in global developments, in the latest quarterly revision. 

For the quarter starting Apr 1, the electricity tariff for non-domestic, low tension supplies before GST rose to S$0.2727 a kWh, up 2.1 per cent from S$0.2671 in the preceding quarter. Non-domestic refers to electricity for premises that are used for the purpose of, or in connection with any trade, business or profession.

High tension small (lower demand load) and large (higher load) supplies each saw prices climb 1.6 per cent for peak hours, while extra high tension supplies’ price was up 1.5 per cent.

“Tariffs in subsequent quarters are expected to rise further as the full effect of elevated natural gas prices is incorporated,” said ESI’s deputy director and principal research fellow, Roger Fouquet.

This regulated tariff was the option through which 67.79 per cent of businesses pay for their electricity consumption, OEM data showed.

Wholesale electricity plans – which allows users to purchase electricity at volatile half-hourly electricity prices through SP Group – were used by 7.23 per cent.

Apart from the higher prices, industry observers also flagged that businesses face a bigger impact as retailers have withdrawn discounts and reduced rebates. Businesses could also face shorter quotation validity periods, and a more selective approach to certain contract structures, said Dr Lee.

The impacts of these higher prices on businesses are expected to vary.

For most businesses, electricity accounts between 1 and 5 per cent of total cost, and a small increase in electricity prices could translate to a “relatively modest” rise in total cost, said Dr Su.

Dr Lee agreed: “Firms with lower electricity exposure may see it as a manageable but unwelcome cost increase.”

However, observers agreed that energy-intensive businesses – those in chemicals, electronics and other manufacturing, food and beverage, and hospitality, for example – will feel the squeeze most acutely.

Energy-intensive businesses’ electrical cost share can exceed 10 per cent, so the same price increase could raise total cost more significantly, said Dr Su.

Chan Siew Hwa, co-director at the Nanyang Technological University’s Energy Research Institute, said for such businesses and SMEs, even a small increase, such as a few cents per kWh, can translate into noticeable cost increases at scale.

As well, with the heightened uncertainty, business planning may also be significantly affected, said ESI senior research fellow Zhong Sheng.

Could be worse

Though electricity will continue to become more expensive, Dr Lee said this “does not necessarily point to a repeat of the 2021 retail electricity crisis” during the Covid-19 pandemic.

Tighter regulatory requirements introduced after that episode have resulted in a better protected market and improved resilience, even if businesses cannot be fully shielded from higher underlying fuel costs, he said.

Dr Zhong also noted that the current electricity tariff is below the levels between 2022 and 2024, when the industry faced geopolitical tensions and liquefied natural gas supply constraints. In July 2022, in the midst of the Russia-Ukraine War, tariffs were as high as S$0.3017 a kWh, he said. 

Still, he warned: “But there is a time lag before electricity tariffs fully reflect ongoing conflict.”

Ultimately, businesses will need to invest in energy efficiency measures and diversify their electricity mix – particularly through renewable sources, observers said.

Amendment note: The article has been edited to reflect the correct name