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
