Soaring energy prices are putting a strain on businesses in Singapore

Male accountant or banker use calculator.

In a recent article by CNA, we read about Mr Bernard Tay, who received a staggering electricity bill of S$10,654 for one of his Korean fast-food chain outlets. The bill was more than double what he paid in the previous month and a whopping five times more than the month before.

The sharp increase reportedly started after the outlet’s electricity account was transferred back to SP Group following the exit of its former electricity retailer, Best Electricity, in October last year.

With electricity usage exceeding 4 megawatt-hours (MWh) a month, Mr Tay’s outlet is not eligible for a regulated tariff plan. According to SP, businesses with more extensive power consumption can only buy electricity from the wholesale market. It is noteworthy that prices fluctuate every half-hour based on demand and supply in this scenario.

With wholesale electricity prices remaining elevated amid a global energy crunch, Mr Tay has had to contend with monthly bill shocks. As a result, he had lost a significant amount of profit. This then raises the question of what businesses could do differently to mitigate such risks.

Well, not all industries are equal when it comes to energy needs. Case in point, Mr Tay’s fast food restaurant may need significantly more energy as compared to his neighbour that sells only beverages. Likewise, in the light and heavy industries sector, factories situated next to each other or even factories producing similar products may have vastly different energy requirements.

This volatile energy landscape poses tremendous challenges for businesses today. Not only in areas of productivity and efficiency, but also in areas of finance. Today, managing cash flow and costs is critical to business survival. Unfortunately, soaring energy prices have recently emerged as the curveball in an otherwise reliable game plan.

What exactly is causing this situation? Well, it seems to point to a combination of events. Recently there have been disruptions in supply, such as the piped natural gas disruptions from Indonesia, the Russia-Ukraine war, and unanticipated global demand, to name a few.

At home, we see energy retailers throwing in the towel.

Already, the turn in market conditions saw six electricity retailers calling it quits between October and December last year, while two others terminated some customers’ contracts prematurely, said Second Minister for Trade and Industry, Tan See Leng, in a parliamentary reply earlier this month. He added that approximately 11,000 business consumers have to buy electricity directly from the wholesale market, therefore being more exposed to volatile prices.

Needless to say, businesses need a stable energy source with stable costs.

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