Electricity tariffs: Daily gas prices fell by only 3%

Mr Narayana Narayana asked about the relationship between electricity tariff and fuel prices (“Explain gap between drop in tariff and oil prices better”, 6 Oct).

The electricity tariff consists of two main components – the fuel cost component and the non-fuel cost component.  The latter includes capital and operating costs of generation companies and grid charges, while the former refers to the cost of natural gas which is the dominant source of fuel for power generation in Singapore.  In Singapore and other Asian countries, the cost of natural gas is linked to oil prices.  

Based on the published methodology, the fuel cost component for Q4 2014 is calculated by taking the average of the daily gas prices from 1 July to 15 September 2014, converted from US dollars into Singapore dollars.  It is not correct to only compare two data points using spot crude oil prices, one at the start of the period and one at the end.  As fuel price movements have fluctuated between 1 July and 15 September, the overall reduction in the average daily gas prices is only about 3%, and not the “15 percent” figure which Mr Narayana had used in his calculations.  This in turn translates into a proportional reduction of 1.6% in the Q4 2014 electricity tariff, since fuel costs make up around 50% of the tariff.    

We thank Mr Narayana for his feedback, and the opportunity to clarify the relationship between electricity tariff and fuel prices.

Juliana Chow (Ms)
Director, Corporate Communications
Energy Market Authority


Explain gap between drop in tariff and oil prices better

Singapore residents will be happy SP Services has lowered its electricity tariff for this quarter, and the Main Components of Electricity Tariff are set out to suitably educate the lay consumer.

The list appears to fall short, though, of explaining why the reduction is 1.6 per cent, while crude oil prices have fallen in the past quarter from US$115 (S$147) to below US$100, or about 15 per cent.

It would be interesting to learn who the main beneficiaries of the drop are and, especially, why little of it percolates down to the general public, to whom it should logically be passed on.

Narayana Narayana