Posted by: donmihaihai | March 22, 2019

you are locked in.

The Breakdown of latest regulated tariff rate $23.85.

Energy generation cost (Genco) – $18.09. 75.85%

Network cost (SP) – $5.31. 22.26%

MSS (SP) – $0.4. 1.68%

Market admin & POS fee (non-SP?) – $0.05. 0.21%

The only adjustment within the regulated tariff rate is energy generation cost.

From SP services AR, under segment results, electricity retailer is grouped under and I believe form bulk of the market support segment. EBITDA and NPAT for last 3 yrs are

EBITDA & EBITDA margin (2018, 2017 & 2016) – 181.3M(6.37%), 104.8M(3.93%), 103.6M(3.53%)

NPAT & NPAT margin (2018, 2017 & 2016) – 135.4M(4.75%), 73.7M(2.76%), 73.8M(2.51%)

What does the above figures say? Electricity retailer is a low margin business in Singapore. Any retailer who offer more than 10% discount to regulated tariff rate will be highly like to be loss making because SP services only earn max 4.75% out from 100% of the regulated tariff rate. Of Course, SP services might be stupid and lazy and new retailers are smart and out to disrupt our Singapore electricity, so they buy smart, hedge, etc etc.

But something doesn’t change, 24% of tariff rate $23.85 are fixed. The price of electricity sell by Genco must be really low/ out from projection for retailers to offer big discount.

In short, there are only 3 players in the whole chain who will take the price risk. Genco, retailer and consumer. If consumer is offered a big discount from regulated tariff rate, then either Genco or retailer will be taking the hit.

I suspect that the amount earned by SP services from being a retailer with regulated tariff is actually lower and the results were actually supported by other services included in this segment.

Base on discount offered by current retailers, most if not all will be loss making and unlikely to be profitable going forward. Why are they so stupid? SP services results might say something, retailer is high turnover, low margin business with low fixed cost. A low-cost retailer can generate high profitability as long as there is no suicide pricing.

The problem with Singapore retailers is, the market is open up with many retailers who can only outdo each other in price alone. What can they do if the end road they want is big market share and less competitor? Pricing.

What happened next? How many households will keep checking on offer rate and regulated rate in the future? I don’t know. I won’t do that of course. Now you are locked in by them.

 

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