Electricity prices must go down

last SG · 2008-12-05T17:37:58+00:00

Any idea where I can see the composition of SP's cost?There is no talk about how to manage the other 50% of costs to help to offset the increase in crude oi...

kilua SG

err...could you explain a little on your post kilua? I'm rather confused on what you're trying to say.

Coal has been used to explain why electricity in Hong Kong is much cheaper than Singapore. I think you also mentioned it in your post.

Intuitively, we would think coal is cheap while gas is more expensive, which explains the difference in pricing.

Its true that the fuel cost for coal is cheaper than gas. However, to build a coal plant requires 2-3 times more initial investment.More could be said for a nuclear plant. The cost of the high initial invesment would be passed back to the consumers.

As mentioned in the earlier post, a study by The Royal Academy of Engineering in UK, after factoring various hidden costs,gas fired CCGT which Singapore uses has the lowest cost per kwh.

One qualifier is that the cost can vary depending on location and proximity to resources.

The results of the study for different types of power plant are as follows

( all prices in UK pounds)

Cost to generate per KWH

Gas fired CCGT 2.2 cents

Nuclear fission 2.3 Cents

Coal powered PF steam plant 2.5 cents

Coal powered CFB plant 2.6 cents

Coal fired gasification IGCC 3.2 cents

Stevenson101 SG

Going by your numbers, is it reasonable for me to assume that that NG powered plants are actually cheaper than coal fire plants? Eg: more efficient, cheaper to build..etc.

If so, wouldn't the world be more inclined to build more natural gas power plants then? But somehow, it doesn't seemed to be the trend.

I'm not idealistic enough to believe that the power companies aren't trying to gain money from us if they can but at the same time i find accounting the entire price difference to just plain greed is just too simple an answer.

The government wants more foreign businesses to invest here,letting the power bill go beyond a reasonable level, discouraging such investments hurts them just as much it hurts us.

soul_rage SG

Going by your numbers, is it reasonable for me to assume that that NG powered plants are actually cheaper than coal fire plants? Eg: more efficient, cheaper to build..etc.

If so, wouldn't the world be more inclined to build more natural gas power plants then? But somehow, it doesn't seemed to be the trend.

The government wants more foreign businesses to invest here,letting the power bill go beyond a reasonable level, discouraging such investments hurts them just as much it hurts us.

that is why I advocate a balanced political environment, of 2 parties, 1 pro-business balanced by the other that is pro-citizen.

If you have no balancing power in check, who's to say what's the reasonable level? Letting a pro-business party determine a 'reasonable' level for the citizens, is likened to the conflict of asking a private company running the public transport system to provide low cost transport. It runs counter to their objective, to maximize profits.

Similarly, you don't expect a pro-business party to think adequately for the people.

angel7030 SG

that is why I advocate a balanced political environment, of 2 parties, 1 pro-business balanced by the other that is pro-citizen.

Similarly, you don't expect a pro-business party to think adequately for the people.

Sound like American politcs, but can we be so gracious to live with 2 parties environment, and can guarantee a balanced one. Not until the day when changi airport close down due to protest by pro citizen party, u may regret the 2 parties system here, especially in an asian culture.

soul_rage SG

Well, a democratic society doesn't necessarily equate to a chaotic one. That's PAP's fave tactics, shock and awe. "If you don't have us, you will be maids and labourers", "We are a better govt system, look at Taiwan, do u want that sort of govt?" etc.

In fact, there are many ideas that I can suggest in encouraging a more democratic society, while at the same time, minimizing the negative aspects democracy bring.

And nobody promises a utopian balance, it's probably not practical. However, putting in some more opposition will ensure that the PAP will sit up and listen to the people (in some way this IS a balance), rather than allowing the PAP to continue to believe that no matter how much they tax us, they can get away with it at the end by just throwing some cheap freebies at us.

If the above happens, it might even encourage more Singaporeans to devote some of their time to politics in helping to ensure that politicians do what they should do, ie, caring for the people, and not treating politics as a career.

Stevenson101 SG

In fact, there are many ideas that I can suggest in encouraging a more democratic society, while at the same time, minimizing the negative aspects democracy bring.

I agree with what you say and acknowledge we need a stronger opposition to at least make the PAP sit up and listen. You cannot get a 3G army if it's commanded by 2G officers.

The problem is people tend to think of democracy as a right, but not as a responsibility. They feel they have the right for what they want to hear, but not what they need to hear, believing it's incompetence. This understanding can easily be gotten by observing US politics, even during the presidential debates McCain and Obama still insisted that Russia attacked Georgia first.

How much debates and arguments have you went through in this forum? How many ended up in vulgarities and endless quote wars? Who ultimately wins an argument? The man who is right, or the man who is the loudest?

I dislike democracy, because the favor is badly skewed towards people who can talk well not people who can solve problems well. People who can incite, not people who can inspire.

You get a government staffed by lawyers, instead of industry professionals and scientists.

If Singapore is to ever become a true AND healthy democracy, first and forthmost we need to recognize the fact that a democracy is a responsibility, not a free ticket to behave whatever and whenever we like.

fatone SG

ArtBoon SG

no choice. lots of facts in order to see the picture. sorry...

Stevenson101 SG

Eh...i see a lot of facts but....i really can't see the picture.

I can see a lot of assumptions drawn from the facts yes, but like what soul_rage has said, i'm not really educated enough to see the numbers in the same light as the poster.

ArtBoon SG

I wrote it.... my "mosaic theory" is SP needs to charge high to make profit to cover for loss of goodwill on its balance sheet. The goodwill arises from Alinta acquisition which it later fails to sell to listed SP Ausnet... just my "anyhow" theory...

soul_rage SG

Eh...i see a lot of facts but....i really can't see the picture.

I can see a lot of assumptions drawn from the facts yes, but like what soul_rage has said, i'm not really educated enough to see the numbers in the same light as the poster.

Let me try to elaborate a bit more on what artboon is discussing. (Correct me if I am wrong, artboon).

This requires a bit of accounting knowledge.

Basically goodwill is accumulated when you buy a company higher than the fair market value of the company to be purchased.

A simple example:

If you buy a company at $500million, but the fair market value is determined to be $300million, then you accumulate a goodwill of $200million.

Most companies are only willing to be bought if its shareholders feel that the offer made by the purchasing company is above a certain value of what they feel their company is worth. It is almost certain that you must pay a premium to buy a company with good future prospects, much as how a soccer player's value is inflated. You could possibly pay too much for a company, much as you buy a property at its highest price only to have it come crashing down.

Goodwill becomes an expense when it is reduced sometime into the future. How it is reduced is dependent on the accounting standards used. In short, you could be making $$$ in your business, but if you carry too much goodwill and it is to be reduced based on a certain formula, the expense incurred from the amortization of the goodwill may be higher than what you make, and this ends up as a loss for the company, which affects shareholders' confidence.

Thus, the company, if it knows that the amortization of goodwill in this quarter may potentially cause it to go into a loss, may look into ways to prop up its income statement.

ArtBoon SG

Tks for reading, soul_rage. I am trying to find holes to my own theory.... :)

ArtBoon SG

Actually, most of the time it is the management (whose bonus is tied to profit of the company) that wants to make number looks good.

but if you carry too much goodwill and it is to be reduced based on a certain formula, the expense incurred from the amortization of the goodwill may be higher than what you make, and this ends up as a loss for the company, which affects shareholders' confidence.

soul_rage SG

In economics, a monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. Monopolies are thus characterized by a lack of economic competition for the good or service that they provide and a lack of viable subtitute

Sounds like SP?

Monopolies are the most likely to use prices as a direct method to control their profits because the consumers have no where else to go. In short, they lack the incentive to think of cost-effective measures. Think of Singtel, which makes ridiculous amts of profits over the citizens coz in the past, we had no one else to go to.

So bring this back to the govt's argument. If the PAP has monopolized the govt, and some of you said about setting reasonable power bills, what the incentive for the govt to think for the people if they are pro-business? A monopoly setting a 'reasonable' price based on their own calculations is highly unlikely to be the 'reasonable' price the consumers are looking for.

soul_rage SG

Actually, most of the time it is the management (whose bonus is tied to profit of the company) that wants to make number looks good.

Hi artboon, no, thanks very much for bringing this up. A person who takes the effort to put in his thoughts in detail deserves the right for the rest of the forum members to read it

In terms of goodwill, I would like to add, it's not only about the management that wants to make numbers look good.

If a company is consistently making reduced profits or making losses because of the reduction of goodwill, it only demonstrates one thing to the shareholders.

That this company is making acquisitions at prices that are too inflated, such that the revenue generating streams that it acquire are not making enough to cover the premiums that it had paid.

ArtBoon SG

I am not making any judgement here whether SP is pricing its product reasonably or otherwise.

My theory is, if SP is organised to max profit, and faced with loss in goodwill from a bungled "arbitrage opportunity", it will try its best to profit using its monopolistic position to cover up.

A monopoly setting a 'reasonable' price based on their own calculations is highly unlikely to be the 'reasonable' price the consumers are looking for.

ArtBoon SG

Agree.

If a company pays a goodwill over its acquisition, but cannot generate profit subsequently to offset the goodwill, obviously something is wrong.

So my theory is SP is now trying to minimise the damage. My theory is, SP did not want Alinta in the first place. It is just trying to buy Alinta and sell it straight to its "investment vehicle", SP Ausnet. But market stopped the deal. So SP has no choice but to increase price (to generate profit) substantially to cover the goodwill impairment coming up.

If a company is consistently making reduced profits or making losses because of the reduction of goodwill, it only demonstrates one thing to the shareholders.

That this company is making acquisitions at prices that are too inflated, such that the revenue generating streams that it acquire are not making enough to cover the premiums that it had paid.

eagle SG

Sounds like SP?

Add on

ArtBoon SG

Theory says monopoly creates inefficiency etc.

Does not seem to be applying to SP which is making profit...

soul_rage SG

I am not making any judgement here whether SP is pricing its product reasonably or otherwise.

My theory is, if SP is organised to max profit, and faced with loss in goodwill from a bungled "arbitrage opportunity", it will try its best to profit using its monopolistic position to cover up.

and I am not saying you are making any judgement either :)

I am just saying that a monopoly like SP has every incentive to take more from their consumers because we are caught in a situation where if we don't pay, our electricity gets shut off. It's not just them, it's almost every monopoly that has that incentive.

So long as they ensure you don't die from them eating you inside out, ensuring they leave you enough for you to survive, that's probably their 'reasonable' amt.

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