AS the mercury soars, so too have energy demand and electricity prices in Singapore.
According to data from the Energy Market Company (EMC), demand for electricity surged in the week of May 7-13 to the highest weekly level since the market was established in January 2003.
The average half-hourly demand for the week rose 2.5 per cent week on week to a high of 6,597 megawatts, while supply increased by just 0.1 per cent.
The average Uniform Singapore Energy Price (USEP) more than doubled week on week to S$774.52 per megawatt hour (MWh) over the same period.
In comparison, the average USEP stood at S$323.96 per MWh in April and S$339.26 per MWh in March.
EMC chief executive Toh Seong Wah attributed the high USEP to tight supply and an increase in demand.
The USEP is the price of energy that is used to settle all energy injections and withdrawals in Singapore.
The increase coincides with a sweltering heat wave that has swept across Singapore and the region.
"With the recent warmer weather, electricity demand had also trended upwards, possibly due to the increased usage of air-conditioners," Toh said.
Notably, the temperature in Ang Mo Kio hit a high of 37 deg C on May 13. This was the highest-recorded temperature in the month of May, and ties with the all-time record for highest daily maximum temperature last recorded on Apr 17, 1983.
David Broadstock, a senior research fellow at the National University of Singapore Energy Studies Institute and head of the Energy Economics Division, said warmer temperatures could have led to a rise in the USEP as more people switch on the air-conditioning.
Air-conditioners that were already switched on may also have had to work harder to maintain the same temperatures, he noted.
Furthermore, Dr Broadstock found that of the roughly 23,000 observations of half-hourly periods he has made over the past 18 months, there appears to have been a shortfall of about "a couple of percentage points" in the energy regulator's initial forecast of demand versus actual demand.
"If the system is not ready to scale up supply to meet this demand, then the marginal power generators -- those brought in at short notice to provide for the unexpected high demand -- might charge higher costs," he said. He added that it may be timely to review the regulator's forecasting model.
End consumers, however, need not be unduly concerned over high wholesale prices -- at least for now.
According to Dr Broadstock, electricity tariffs reflect the long-run fair costs of production, which include fuel import price expectations and domestic power generation costs. Several months of data are used to determine whether tariff rates should be revised.
Still, co-founder and chief executive of the Centre for Strategic Energy and Resources Victor Nian noted that fluctuations in the USEP are a sign that the electricity market is functioning as expected.
He added that even as short-term supply and demand changes continue to influence USEP, fossil fuel costs will also sway prices.
Similarly, Dr Broadstock cautioned that it is a good time to begin monitoring natural gas markets more closely.
While natural gas prices have been much more stable than they have been in the past 18 months or so, he noted that future prices for contracts for the winter of 2023 are getting close to double that of recent market prices.
He added that more time is required to observe the USEP and natural gas markets to see if supply demand imbalances in Europe may drive further price rises, or if the short-term volatility that is being experienced will "naturally dissipate".
The Business Times (BT) understands that there has not been any natural gas supply disruptions to date.
On the hedging front, the Singapore Exchange (SGX) USEP electricity futures market also appears to be thinly traded.
According to SGX data, just six lots of USEP quarterly base load electricity futures for June 2023 changed hands since the start of this year. Two lots of quarterly base load electricity for September 2023 were traded.
Despite this, electricity retailer Flo Energy Singapore chief executive Matthijs Guichelaar noted that there are other hedge providers whom retailers can have deals with to safeguard themselves against high USEP prices. In addition, he noted that some retailers are also power generation companies (gencos), which have a sort of "natural hedge" as prices rise. "For them, if there is a high USEP price, that also means that their production gets paid high," Guichelaar said.
However, he noted that if retailers are not sufficiently hedged and remain short when the USEP spikes, they could incur more costs than income from their retail activities.
For the second quarter of 2023, the regulated electricity tariff fell 5.3 per cent to S$0.2962 per kilowatt hour (kWh), from S$0.3127 per kWh in the first quarter.
Electricity retailers appear to also have reduced their tariffs after the regulated tariff fell. For instance, Geneco's 12 and 24-month tariffs fell to S$0.2898 per kWh, from S$0.3086 per kWh and S$0.3066 per kWh, respectively.
Tuas Power's 12, 18 and 24-month tariffs also fell to S$0.2952 per kWh, from S$0.3116 per kWh in February this year.
As at Mar 1, Geneco and Tuas Power held 26.8 per cent and 21.3 per cent of residential retailer market share, respectively.
According to the Energy Market Authority's (EMA) data, just 0.07 per cent of residential accounts and 9.04 per cent of business accounts were on the wholesale electricity plan as at Mar 1, 2023.
BT has reached out to EMA for comment.