Why Has USEP in Singapore Fallen So Significantly?
If you’re a solar homeowner in Singapore and are frustrated over your export rates decreasing overnight, you are not alone. The drop in export rates is attributed to the fall in USEP over the past 2 months, due to changes implemented by the Energy Market Authority. These changes are focused on controlling volatility of electricity prices and ensuring sufficient electricity supply, especially in light of current affairs. In this article, we will go into detail as to what these changes are, why they have caused prices to decrease, and what we recommend homeowners to do to maximise their savings.
First, what exactly is USEP?
USEP is an acronym for Uniform Singapore Energy Price, which is the half-hourly energy price in the Singapore Wholesale Electricity Market. Being an open market, USEP is dictated by demand & supply, which is why USEP was at its peak during the global energy crunch.
How does USEP affect solar exports?
If you are currently a solar homeowner signed under the Enhanced Central Intermediary Scheme (ECIS) – simply put, signed on to an OEM retailer apart from SP Group, your solar energy surplus is paid at prevailing half hourly wholesale energy prices, which is similar to USEP. The reason why you are seeing lower solar export prices is due to the decrease in USEP, which in turn causes these half hourly prices to fall.
Decrease in USEP for July and Aug 2023
So Why Has USEP Fallen?
This is due to two mechanisms implemented by EMA, namely the temporary price cap in the Singapore Wholesale Electricity Market (SWEM) as well as implementation of a new vesting framework. These mechanisms are primarily targeted to reduce volatility of prices in the market as well as to ensure supply of electricity to non-contestable consumers can be met.
Temporary Price Cap
The temporary price cap (TPC) was introduced by EMA on 1st July 2023 in response to situations like the global energy crisis where periods of high and sustained volatility in the Singapore Wholesale Electricity Market were observed.
The TPC, as described by EMA, will act as a “circuit breaker” that is activated only during such periods of high and sustained volatility in the SWEM. Once volatility returns to normal levels, the TPC will be deactivated.
If you are concerned about how long the TPC will last after being triggered, EMA assures that the TPC will also only be online for brief periods of time when activated. For context, the TPC would only be active for less than 5% of energy trading periods if this measure were to exist during the global energy crisis from January 2021 to September 2022.
New Vesting Framework
EMA have also replaced their previous vesting contract regime and introduced a new vesting regime framework to replace expired vesting contracts, which were phased out from 1 January 2017. This new vesting regime framework is slated to be in place from 1 July 2023 until 30 July 2028.
How does the new vesting framework work?
Understanding how the new vesting framework works requires a brief overview of how SP interacts with the wholesale electricity market.
To fulfil customer demand for electricity by non-contestable consumers (NCC), SP buys electricity from the Singapore Whole Electricity Market (SWEM) at USEP and supplies them to consumers at regulated tariff rates.
In order to ensure SP is able to fulfil this electricity demand by NCC consistently (commonly known as “NCC load”), NCC load is also fulfilled through vesting contracts with commercial electricity generation companies (commonly known as “gencos”). This provides a hedge in the event that USEP prices skyrocket, and SP do not have sufficient cash flow to purchase enough electricity from the wholesale electricity market. The price SP buys electricity from gencos is separately calculated and different from the USEP.
The vesting period lasts from 1 July 2023 to 30 June 2028, where EMA can issue vesting contracts under the following schemes:
Base vesting scheme (BVS)
The base vesting scheme is the first vesting scheme that EMA uses. EMA allocates a base vesting quantity (BVQ), which is set in megawatt hour (MWh). This amount is determined based on equivalent quantities between the Daily Contracted Quantity (DCQ) level and the Maximum Daily Contracted Quantity (MDQ) level.
Tender vesting scheme (TVS)
Situationally, EMA may, from time to time, tender out portions of the NCC load. A Tenderer whose Tender Offer has been accepted by EMA may source for its own fuel supply to fulfil the awarded Tender Vesting Quantity (TVQ).
Residual vesting scheme (RVS)
Finally, for a given half-hour period, there may be residual/unhedged NCC load that was not hedged by prevailing hedge quantities under the BVS, TVS and any new scheme EMA may from time-to-time introduce.
To ensure the required NCC load is hedged, each Holder of BVQ and/or TVQ is required to participate in the RVS. Under the RVS, the Holder will use up to its excess generation output (if any) that is uncontracted and generated using its own term gas supply to hedge any Residual NCC Load.
How does this affect USEP?
Vesting contracts remove incentives for generation companies to exercise their market power. Without vesting contracts, companies may choose to withhold supply to push up the half-hourly wholesale electricity prices in the wholesale electricity market for their own benefit. However, with vesting contracts, companies are able to ensure they can reliably sell electricity generated to SP at competitive prices, thereby reducing the incentive for market manipulation.
This ultimately helps prevent USEP from peaking in price, and can cause prices to fall as observed in the previous 2 months.
Our Recommendations
From our point of view, it is highly recommended to start watching out for when your contract terms are coming up, and consider switching back to SP. If you are switching to SP, do remember to fill up a new Net Export Rebate form and submit it through your retailer. This can be done with assistance from your solar installer.
In terms of electricity plans, EMA encourages consumers to buy electricity either through long-term contracts from electricity retailers such as Tuas Power, Senoko Energy and Sembcorp Power, or from SP Services at the regulated tariff if applicable, for greater price stability and certainty.
Peak and non-peak plans such as PacificLight are also viable choices to consider for maximising savings, since night time rates are typically cheaper in price. This synergizes well with the fact that solar generation dwindles at night, in addition to increased electricity consumption after working hours
Evident from the chart below, solar generation (yellow graph) typically falls to zero after 6pm, in contrast to average household energy consumption patterns (blue graph) which increase after 6pm, up to approximately 1.50kWh.
Trends of household energy consumption against solar generation
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