This week, iSwitch became the first electricity retailer to exit from the electricity market. About 90000 households may face 20% higher electricity bills as a result. 3 days later, Ohm Energy followed suit. It has been reported that 2 more companies are expected to exit.
Electricity retailers can charge cheaper electricity bills to households than SP Group to Singaporeans because they buy cheaper electricity from the wholesale market. What many Singaporeans are unaware is that we can buy cheap electricity directly ourselves from the wholesale market through SP Wholesale. So, why not simply bypass the electricity retailers who act as middlemen and buy direct from SP Wholesale? Wouldn't that result in a cheaper price for all of us?
The problem with buying from the wholesale market is the prices can fluctuate like the stock market. Cheap today can mean expensive tomorrow. The electricity retailers provide value to households by shouldering this risk on behalf of households. For households who do not feel comfortable with fluctuating electricity rates, they sign up for fixed price plans with the retailers. This way, if wholesale prices shoot through the roof, households need not worry about getting a shock from their electricity bill. That is provided electricity retailers stay in business to honour the contract.
Buying from electricity retailers instead of SP wholesale is similar to buying an insurance plan. We worry about shocking medical bills when we fall sick. This is why we buy medical insurance to give us peace of mind. What if the insurer close shop when your medical bills get too high? When you really need them, they disappear. Do you feel safe buying insurance from this kind of insurer?
Households transfer the risk of higher prices by paying an "insurance premium" to electricity retailers in exchange for a fixed price plan. The last we want to see happening is for the electricity retailers to transfer the risk back to us when we need them the most. Unfortunately, this is what is happening today with electricity retailers saying "Bye Bye" one by one in the face of rising electricity prices.
I want to emphasize that there is nothing unethical about electricity retailers closing their unprofitable businesses. It would be unreasonable of any customers to expect a business to continue loss-making operations to serve them. Nobody owes anybody else a living.
As a customer, I hope to see a consolidation in the electricity retail market so that we can have financially strong electricity retailers among the survivors. No point in buying insurance from an insurer who is not financially strong enough to weather the storm and is likely to cancel the contract when customers need them to be around the most.
I am buying electricity from the wholesale market and am a customer of SP Wholesale today.
EDIT: More Singaporeans on wholesale plan will be good for the country during
an electricity supply crisis. Singaporeans on wholesale plan will try
their best to conserve electricity when the country is in an electricity
supply crisis. There is no incentive for people who are on a fixed
price plan to help the country conserve electricity since their wallets
are not hit by a supply crisis.
Influencing people's behavior with free market prices is probably the most effective cure for supply-side problems.
PS: I am not getting paid to advertise for SP Wholesale. I am sure SP Group will prefer their customers to stay on with their SP Regulated Tariff plan which is much more profitable.