Energy deregulation in ASEAN: Quicker isn’t necessarily better

Photo Credit: Jimmy McIntyre/Flickr

Singapore is ready for energy deregulation. A slower, more cautious approach is ensuring consumers, as well as providers, can enjoy the spoils or deregulation.  

By Joelyn Chan

At different paces, ASEAN countries are studying the feasibility of energy deregulation. The term applies to the transition from regulated to market-based energy prices.

Some ASEAN countries embark on an energy deregulation journey to increase sustainability. With market-based prices, the energy sector is forced to become more efficient and to look for novel ways to generate power in a socially, economically, and environmentally sustainable manner.

ASEAN’s energy demand has increased by 60% over the past 15 years. it will continue to grow as ASEAN’s developing economies expand further, with demand set to double by 2030. Efficiency will have to become a central focus of the energy industry to meet this demand.

Across ASEAN, the interest level in energy deregulation varies. Singapore, Malaysia, Thailand and the Philippines operate liberalised retail electricity markets. The triggering factors varied from a push for more competitive pricing, partnerships with independent power producers (IPPs), and recommendations from the International Monetary Fund (IMF) and World Bank.

Conversely, countries like Indonesia prefer to retain their national and state utility companies as the only IPP. The oil-producing nation has likely been deterred by its past setbacks in liberalising the oil and gas sector.

Slow and steady can win the race to deregulation

Countries like the US, Europe and Australia may have embarked on their journeys towards deregulation first, but not everyone has benefitted from the move.

For instance, in Texas, USA, the average electricity tariff fell by 5.5% after introducing retail competition. However, in Maryland, a lot of residents are paying more. Just 3% of utility customers who buy power from a supplier are saving money.

To ensure the benefits of a liberalised energy market are shared amongst consumers, and avoid the pitfalls of Maryland, ASEAN nations must make consumer protection a pillar of liberalisation. After signing up for teaser rates, customers do not monitor and stay updated on the new imposed variable rates. In the US, many providers then increase the rate after the initial introductory offer expires, leaving many billpayers worse off. 

To safeguard consumers, Singapore’s Energy Market Authority (EMA) has created consumer advisory and a website for price comparison. There are standard price and non-standard price plans for consumers to choose when changing retailers. In cases of dispute, consumers can also approach the Consumers Association of Singapore.

Avoiding the pitfalls: Singapore is providing a model for energy deregulation

Singapore, although moving at a slower pace than many in the West, takes the lead in the race to sustainable liberalisation with consumer benefits. However, Singapore’s land area stands at a mere 720 square kilometres. In the current phase, 12 different electricity retailers will compete for 1.4 million households and business accounts. The market size is small, with little growth potential. It makes more sense for larger countries to push for energy liberalisation.

Dr Shi Xunpeng noted, “This free choice and competition among retailers will give consumers more customised electricity supply, better services and probably lower prices.” He is the deputy head of energy economics at the National University of Singapore’s Energy Studies Institute.

Back in 2015, Singapore’s Minister for Trade and Industry announced plans to fully open up the electricity retail market to competition. Its statutory board – EMA was to oversee the transition. EMA has been operating since 2001, to support the nation’s effort in liberalisation.

Since the introduction of energy liberalisation, the main power producer SP Group has lost market share. Its market share in the electricity retail sector reduced from 41.7% in 2005 to 27.7% in 2017. Even though SP group is a government-linked company, the government has not held back its liberalisation plans.

Singapore takes a cautious approach when it comes to implementation. It started off by using businesses as a testing ground, followed by a pilot in Jurong. More than 30% of the eligible residents in Jurong switched energy retailers and paid around 20% less than the regulated tariff.

By May 2019, this initiative will have been rolled out across Singapore. In the meantime, the government provides information on energy providers and encourages citizens to explore their options.

Source: Energy Market Authority

At the end of the day, it is not about who adopted energy deregulation first, but how consumers benefit from it. The nation loses if their people end up suffering from higher energy prices. A cautious, consumer-centric approach can provide the winning formula for deregulation. Now other ASEAN nations should follow suit.

About the Author

Joelyn Chan
Joelyn is a freelance writer based in Singapore. She graduated from Nanyang Technological University with a Double Bachelor in Accountancy and Business. During her free time, she explores the latest developments in fintech and business.