Calvin, agree with you that most plantation companies will do very well when CPO is about RM4000 per tonne now. I do like BPlant which is grossly undervalued due to its large tracts of plantation land suitable for commercial or industrial development.
Singapore has a population of about 7 million residents, which is smaller than that of Malaysia. But it has huge industrial base and commercial users of electricity. Being smaller does not mean that Singapore cannot produce localised or regional champions.
We have seen that Singapore banks like DBS, UOB or OCBC earning much higher earnings than Malaysian banks. You have Singtel which has much higher market cap than TM here. The electricity market in Singapore can certainly accommodate 5-7 key players earning decent returns on their investments.
Weaker player like Tuaspring/Hyflux will be wiped out or taken over by the stronger one if they do not manage their cashflows well, and invest at the wrong time of the cycle.
PowerSeraya’s earnings outlook remains bright with the elevated Uniform Singapore Energy Price ( USEP) and locked- in competitive gas contracts. The USEP has average at SGD259 per MegaWatt Hours ( MWh) between Jan and Mar this year, which is significantly higher than the SGD85 per MWh 5- year average that was seen during 2016 to 2020.
when the demand had been increasing in Singapore while the supply side (installed) been stagnant, the marginal unit has gone up to the level of even less efficient open-cycled unit that needs non-fuel margin of SGD80/MWh to breakeven. As such the bidding mechanism will secure this margin even for the efficient CCGT ones like PowerSeraya
For households, the electricity tariff (before GST) will decrease from 28.95 to 27.43 cents per kWh for the period 1 April to 30 June 2023. The average monthly electricity bill for families living in HDB four-room flats will decrease by $4.69 (before GST).Mar 31, 2023 https://www.spgroup.com.sg › ...PDF MEDIA RELEASE ELECTRICITY TARIFF REVISION FOR THE PERIOD 1 APRIL ...
As a default option, residential consumers in Singapore buy electricity from SP Group, a market support services company regulated by EMA. The tariff set by SP Group is reviewed every quarter, and is regulated by EMA to reflect the actual cost of electricity.
This tariff comprises two key components – fuel cost and non-fuel cost.
The fuel cost, or cost of imported natural gas, is tied to oil prices by commercial contracts. This changes depending on global market conditions. The non-fuel cost is the cost of generating and delivering electricity to homes.
Find out more about past electrical tariffs from the SP Group website
Breakdown of Electricity Tariff
Fuel cost This component of the tariff is calculated using the average of daily natural gas prices in the first two-and-a-half month period in the preceding quarter. For example, the average natural gas price between April and June is used to set the tariff for July to September.
This helps to smoothen out the impact of any large swings in the oil markets, while ensuring electricity tariffs are updated to reflect market conditions.
Around 95% of Singapore's electricity is generated from imported natural gas, the prices of natural gas are indexed to oil prices. This is the market practice in Asia for natural gas contracts.
Non-fuel cost This part of the tariff reflects the cost of generating and delivering electricity to consumers. It includes:
Power Generation Cost This covers mainly the costs of operating the power stations, such as the manpower and maintenance costs, as well as the capital costs of the stations. Network Costs This is to recover the cost of transporting electricity through the power grid. Market Support Services (MSS) Fee This is to recover the costs of billing and meter reading, data management, retail market systems as well as for market development initiatives. Power System Operation and Market Administration Fees These fees are to recover the costs of operating the power system and administering the wholesale electricity market.
The Tariff revision which is a drop from 28.95 to 27.43 cents is matching the table presented on UESP 2005-2023 above which is merely a drop by SGD 13.9/MWh or about 1.39 cents per KWh.
But from this info we cannot determine anything on the non-fuel margin as its the sum effect of the fuel cost and non-fuel cost breakdown above....
considering the significant drop in NG price - more than 50% taking the 2.5 months lag effect (we can calculate it accurately if we want), it indicates the non fuel margin has expanded significantly into the second quarter (Apr - Jun 23')
We have NG price drop of easily 4 USD/MMBTU between the quarters Jan - Mar 23'' and Apr 23' looking at the NG price chart using 2.5 months trailing price (Nov & Dec 22') as per basis presented by sslee above
that translates to 4 x 1.35 SGD/USD x 3.4 MMBTU/MWh = SGD 18/MWh
using CCGT efficiency of 61.8%, thats a fuel cost reduction of SGD 29/MWh
All others being equal the 'non fuel margin' expanded by SGD 29/MWh - SGD13.9 MW/h (from tariff changes), i.e by SGD 15/MWh for Apr to June 23'
appreciate to have dragon328 comments on my layman understanding :)
@probability & @sslee, glad that you were having interests in knowing more about Singapore electricity market. Many analysts do not bother to understand it and simply treat it as a cyclic sector.
The figure of SGD259/MWh was the USEP averaged for Jan-Mar 2023 quarter in Singapore, as you may already know, USEP is the weighted average of electricity prices in all regions in Singapore over a certain period of time, for your info, electricity prices differ slightly in different regions in Singapore based on supply and demand in that region. To note that this average is for the half-hourly electricity wholesale prices which are cleared at the wholesale market every 30 minutes. This is a benchmark for some types of retails electricity contracts, which are priced at a small discount to the wholesale electricity pool prices.
There are various types of retails electricity prices besides the one I described above. Another type is a fixed-priced contract where electricity prices are fixed for a period of time, usually 6 months to 24 months. The other type of contract is a discount-off-tariff which is priced at a discount to the vesting contract price (which is itself the benchmark price used by the incumbent retails electricity supplier MSSL to supply electricity to households who have not switched to a private retailer).
Whatever type of electricity prices (wholesale or retails), there are two components in the electricity price - fuel cost and non-fuel profit margin.
Fuel cost is essentially the cost of generating the electricity which depends on gas prices and the efficiency of the power plant units. FYI, over 90% of power generation in Singapore is based on natural gas which is a mixed of piped gas from Msia/Indonesia and LNG (liquified natural gas) imported from various countries.
Usually the fuel cost component makes up the bigger part of the electricity price, eg. SGD180/MWh vs SGD79/MWh in the average USEP of SGD259/MWh.
When gas prices drop, then electricity prices drop. TO note that vesting contract price and the MSSL supply price to HDB flats for a quarter are based on the average gas prices in the prior 2.5 months, eg. vesting price for April-June quarter is based on average gas prices for 1st Jan - 15 Mar. So you always see a lag effect in the electricity prices to HDB flats or vesting prices from falling or rising gas prices.
Gencos in Singapore makes the bulk of their profit from the non-fuel margin, very little from the fuel cost component unless their gas units are more efficient than others.
Gencos typically have contracts-for-differences (CfD) with their own retails supplier to hedge against the fluctuation of the wholesale electricity prices, i.e. they price the generated electricity at their fuel cost + non-fuel margin for their retailer to sell to customers. In this way, Gencos' profit is more or less certain for the period where their generation has been hedged with their retailer, typically for 6 months to 24 months. Usually their profit is not affected by the fluctuation of the gas prices or the wholesale electricity prices. But as part of their generation is still covered by vesting contracts, so their profit margin to certain extend is based on the non-fuel margin agreed at the vesting contracts.
When supply is tight, wholesale pool prices tend to trade high, especially when all the efficient combined-cycle plants have been running max and the less efficient open-cycled unit or oil-fired units are required to run setting the marginal price at the pool. As such open-cycled unit or oil-fired unit is usually not required to run and hence not contracted for differences with the retailer, so that generation from such less efficient units will need to be priced higher at the pool to cover their higher generation costs plus an ad-hoc profit margin. This ad-hoc profit margin can sometimes be very very high when pool prices spike to like SGD1,000/MWh or at occassions max SGD4,500/MWh for a couple of hours during peak hours.
In short, electricity prices tend to move in tandem with gas prices though at a lag. But Gencos' profit is typically locked in via CfDs with retailers and protected for 6 -24 months ahead.
As gas prices have fallen, we may see retails electricity prices to soften in 2-3 months ahead but it does not mean that Gencos will make less profit.
But if certain Gencos have locked in low gas prices for next 1-2 years ahead, and when gas prices do fall further, they may make less profit from the "extra" profit in the fuel component which they are not supposed to make at normal times.
No, I don't have anyone working inside YTL but do have friends working in the power industry. Anyway, it does not take an expert in the power line to understand the utility business of YTLP, you just need to follow the company development long enough and do some background studies on the industry.
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