Under changes proposed by the Energy Market Authority EMA in a consultation paper released on Wednesday February 1, Singaporean Electricity retailers may have to meet new requirements to be compensated if retailers leave the market and terminate contracts prematurely.
Following a spate of retailer exits that sent shockwaves through the local market in late 2021, these proposals aim to strengthen consumer protection and ensure that electricity retailers are sufficiently resilient against market volatility.
Singapore's electricity retail market has been liberalized since 2001. The final phase was the nationwide roll out of the Open Electricity Market in 2018 that allowed consumers to choose who they want to buy electricity from. The competition has benefited consumers, according to EMA.
Independent retailers, which do not generate their own electricity but buy electricity from the wholesale market, were particularly affected by these volatile market conditions.
Six of these retailers left the market in the end, while another two prematurely terminated consumers contracts. They provided about 9 per cent of the electricity consumers.
The number of exits suggests that retailers were not sufficiently prepared for market volatility, EMA said in its consultation paper.
These retailers may have large unhedged positions and when wholesale electricity prices went up, they ended up having to buy electricity at high prices and sell at lower contracted rates to consumers. They were no longer able to sustain their operations and exited the market.
The recent market upheaval highlighted the issue that consumers are not sufficiently protected when retailers leave the market or if retailers prematurely terminate contracts.
When retailers leave the market, security deposits from household consumers are protected and refunded. Retailers don't usually have any contractual obligations to compensate consumers in the event of early termination of contracts.
The authority said that most consumers must pay an early termination fee if they choose to prematurely terminate contracts.
Four regulatory changes are proposed by the EMA.