Saturday, June 11, 2011

Cheap Electricity

Buried in the back pages of Saturday's paper was a little known oddity that Singapore's PowerSeraya had been quietly selling surplus generation capacity to Malaysia. Apparently the Energy Market Authority had granted authority to export electricity until Wednesday June 15. EMA said the Government will consider any requests that may emerge for local firms to sell more electricity to Malaysia i.e. EMA intends to make more money.

Let's get this clear. Singapore power stations have excess production capacity over domestic demand. Surely you don't need Economics 101 to appreciate that should have led to a price decrease in electricity tariff!

Singapore's power stations were built over the decades with taxpayers' money. PowerSeraya was privatised and sold to Malaysia's YTL Power after a surprise"unsolicited proposal" for $3.8 billion in 2008, a week after Temasek Holdings had said it would shelve tender plans for PowerSeraya owing to "market conditions". YTL is Tan Sri Dato' Seri (Dr) Yeoh Tiong Lay, one of Mahathir's Chinese business cronies who made millions building B.O.O. (build own operate) and B.O.O.T. (build own operate transfer) power plants when Tenaga Nasional Berhard failed to deliver (and earned it's sobriquet "Total National Blackout"). YTL must have been so grateful for the Singapore deal it treated SR Nathan and his VVIP crowd to an Andrea Bocelli concert at Botanic Gardens (billed as "YTL Concert of Celebration 2010, Andrea Bocelli in Singapore"). The public were given limited lucky draw passes to sit on the wet grass, and car parks were strictly off limits to the hoi-polloi on that star studded evening.

According to EMA's numbers, Singapore's total power generation capacity is about 9,800 MW, while the peak demand is around 6,500 MW. Even if the money made from YTL was not filtered down to the public, you can see there's lots of leeway to reduce electricity tariff. Unless EMA thinks Singaporeans are too daft to understand the economics of supply and demand.


  1. Yet another PAP scheme to screw Sinkies as much as they can get away with, just like new HDB pricing. Power supply & other utilities are national assets and concerns national security as well as citizen welfare. It is exactly the same as national healthcare --- you don't find the govt selling away our entire hospitals and polyclinic system to foreign profit-making companies at the top bids, do you?!?

    If govt truly treats power supply as national need and as national security, it would have strictly implemented reasonable cost-plus pricing, and actual electricity prices will be at least 20% cheaper. We aren't even talking about giving subsidies, and the genco's will still be making healthy profits -- not obscene profits.

    Now we know why S'pore's electricity prices are the 2nd highest in the entire world. Second only to Central London, but at least their salaries are at least 200% higher than similar jobs in S'pore. The electricity in the rest of UK is cheaper than S'pore, and their poor and elderly have subsidised utilities.

  2. Electricity pricing isn't actually that straightforward. The key determinant of electricity price is the cost of the fuel used to generate the electricity.

    Even though we do have excess capacity in the market in Singapore, a large proportion of that excess capacity is made up of the less efficient oil fired units (which use less efficient and more expensive heavy fuel oil). Obviously any plant would run their more efficient natural gas fired units first. From what I read, Seraya is selling power to the Malaysians using the older oil fired units.

    In any case, I do agree that electricity prices in Singapore are somewhat more expensive than what they should be, largely due to the market structure of three big generators controlling a massive proportion of the market.

  3. Extra capacity in power plant does not always translate into reduced electricity cost to consumers. The actual electricity cost depends on fuel fired to generated the electricity and not just capacity. Electricity cost to consumers can be reduced if more than one power plants (different companies) operating in a market with extra capacity because they have to be efficient to compete in a free market. But, if they are allowed to sell extra capacity to the region, then the market in question will have to include the region.

  4. An economic assessment of the cost of a energy-generating system includes all the costs over its lifetime:
    1) initial investment,
    2) operations and maintenance,
    3) cost of fuel,
    4) cost of capital
    (1) and (4) are already paid by taxpayers. Which means the spare capacity sitting idle should be utilised to reduce cost of generation. It's like building the Buangkok MRT station and keeping it shut because of political motives until people started to complain. People should start complaining about the high cost of electricity.

  5. Well.

    60% daft Singkies deserve to pay higher prices.

    The remaining 40% will have to work harder to convince their parents, siblings, aunties & uncles to vote smarter.

    The fights for votes for GE 2016 starts now.

  6. Incorrect! It is a fallacy! Excess capacity doesnt necessarily mean there should be cheaper electricity prices/tariff. 1kWh still needs the same amount of fuel to generate. Actually, since these power plants have fixed overhead costs, by filling up and using the excess capacity, you can get economies of scale which *could* lower your electric prices.

    I wonder who needs Economics 101....

  7. If the peak demand in and around Singapore is around 6,500 MW, why did they invest in equipment and infrastructure for 9,800 MW? Did someone make a mistake in planning, and pass on the depreciation and maintenance overheads to the consumers?

  8. Peak power should always be lower than capacity to cater for redundancy, maintenance, etc.

    If there is no excess capacity, this would result in brownouts/blackouts when plants need maintenance.

    Frankly, would opine the blogger is barking up the wrong tree since the power plants are more similiar to motor vehicle engines which no one in their right mind goes perpetually at top speed.

    Further, as the blogger forgets that there is redudancy required unless people would like the same situation as HDB flats which have not met demand due to arguments during downturn when there were excess flats.

  9. Well high demand doesn't always mean high in supply. Also high supply doesn't always mean high demand. But if certain factors applies, high demand should always be paired up with high supply.

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