Singapore Power not in the power generation business
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Apr 11, 2012 - ST Forum
WE THANK Mr Richard Goh for his feedback ('Singapore Power should be more innovative in managing production costs'; April 3).
Singapore Power is not in the power generation business. Except for the 2 per cent to 3 per cent of electricity that is produced from incineration waste, the rest of Singapore's electricity is generated from fossil fuels imported by the power generation companies.
Fuel cost is the largest component of the cost of electricity in Singapore, accounting for more than half the tariff.
Although 80 per cent of electricity is produced from natural gas, the price of natural gas is currently pegged to the price of fuel oil. This is also the arrangement for other economies in Asia such as Japan, South Korea and Taiwan. It explains why the fuel cost component of the electricity tariff moves in tandem with fuel oil prices.
We understand the power generation companies hedge their fuel costs to smoothen out price swings within each quarter.
This is reflected in the tariff formula, as approved by the Energy Market Authority, with the fuel cost component for a particular quarter set based on the average forward fuel oil price in the previous three months.
Hedging provides some buffer against the volatilities in the global oil market, but it does not completely remove all price fluctuations.
Singapore Power, through subsidiaries SP PowerAssets and SP Services, is responsible for transporting electricity and providing market support services such as meter reading, billing and payment collection.
SP Services buys electricity from the generation companies and sells it at the same price to households.
Of the 28.78 cents per kilowatt hour (kwh) of electricity sold to residential customers, 4.78 cents/kwh is paid to SP PowerAssets for transporting electricity, and 0.22 cents/kwh is paid to SP Services for the provision of market support services.
Both charges combined account for less than 18 per cent of the tariff. Since 2008, they have been reduced by more than 10 per cent and 20 per cent respectively even though inflation has increased by 8.8 per cent during the same period.
These reductions are derived from savings achieved by Singapore Power through business innovation and efficiency gains.
Shirley Tan (Ms)
Director, Customer Relationship Management
SP Services
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why need middleman?
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dunno.
