Nothing extraordinary about 34% increase in electricity tariff vs 220% increase in fuel price

I refer to the 6 Apr 2013 Straits Times letter by EMA’s Ms Juliana Chow [1].

Ms Chow explains that electricity tariffs have increased by only 34% since 2001 compared to 220% increase in fuel prices over the same period. A simple example below shows why this is nothing extraordinary:

$50,000 COE $100,000 COE Percentage increase
Toyota Camry without COE $90,000 $90,000
COE $50,000 $100,000 100%
Toyota Camry with COE $140,000 $190,000 36%

In this example, the price of a Toyota Camry with COE increased by only 36% compared to 100% increase in COE price itself. Yet, the price of both Toyota Camry and COE increased by the same amount – $50,000. Would anyone feel fortunate that car price increased by only 36% compared to 100% increase in COE even as the dollar increase in car price and COE are the same?

It is the same story for electricity tariff versus fuel price. The following graph shows that when expressed in the same units of dollars per barrel, electricity tariff and fuel price have fluctuated in tandem since 2001 [2]. The gap between electricity tariff and fuel price has remained relatively constant even as electricity tariff and fuel price fluctuated wildly together.

Tariff VS fuel price

The following table shows that although the swing in fuel price is much higher in percentage terms compared to the swing in electricity tariff, the swings in dollar terms are about the same.

Fuel price Electricity tariff
Low ($/bbl) $32.10 $93.40
High ($/bbl) $155.10 $213.70
Swing in dollar terms ($/bbl) $123.00 $120.30
Swing in percentage terms (%) 483% 229%

Hence, just like the Toyota Camry example, there is nothing extraordinary about the 34% increase in electricity tariffs compared to the 220% increase in fuel prices. Although the percentage increases are different, the dollar increases are the same as the dollar increase in fuel cost is simply passed on to the consumer as the dollar increase in electricity tariff.

What is important to note from the graph above is that despite efficiency gains over the years from 38% to 44% [6], electricity tariff continues to be driven primarily by fuel prices. The reason why electricity tariff has been trending up all this while is because fuel price has been trending up all this while. This is so even though Singapore is using more natural gas now because natural gas contracts are signed based on pegging to fuel oil prices.

Ms Chow also explains that since more than half of electricity tariff is due to fuel cost, the 220% increase in fuel prices since 2001 will lead to more than 100% increase in electricity tariff had there been no efficiency gains. The following table shows that if we take the 2001 fuel cost and increase it by 220%, the increase in electricity tariff would have been 71% without efficiency gains and 57% with efficiency gains [3]. Either way the increase would have been less than 100%, contrary to Ms Chow’s predictions [3].

Fuel cost at 2001 fuel price and 2001 efficiency of 38% (¢/kWh) Fuel cost at 320% of 2001 fuel price and 2001 efficiency of 38% (¢/kWh) Fuel cost at 320% of 2001 fuel price and improved efficiency of 44% (¢/kWh)
2001 non-fuel cost (¢/kWh) 13.5 13.5 13.5
Fuel cost (¢/kWh) 6.4 20.5 17.7
Tariff (¢/kWh) 19.9 34 31.2
% increase 71% 57%
Fuel cost as percentage of tariff 60% 57%

[1] Straits Times forum, Info on electricity tariffs readily available online, 6 Apr 2013

[2] The chart has three graphs. The fuel price per barrel graph was plotted using data taken from the various EMA annual reports. The gap graph is simply the difference between electricity tariff and fuel price. To obtain the electricity tariff graph, electricity tariff information in ¢/kWh is first taken from the various EMA annual reports. This is then converted to $/barrel by applying the knowledge that 7.333 barrels of fuel oil contains 1 metric ton of oil [4] which in turn contains 11.630 kWh of energy [5]. We also note that overall power generation efficiency has increased from 38% to 44% between 2000 and 2006 [6] and has remained around 44% since then because the fuel mix has remained relatively unchanged since then.

[3] To obtain 2001 fuel and non-fuel cost components, first convert fuel price from $ per barrel to ¢/kWh based on [4] and [5]. Then factor in efficiency [6] to obtain the fuel component. Subtracting fuel component from electricity tariff yields the non-fuel component.

[4]
International Energy Statistics
http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=94&pid=57&aid=32
7.333 barrels per metric ton for USA (assume Singapore’s high sulphur fuel oil is equivalent to US crude oil)

Society of Petroleum Engineers, Unit Conversion Factors, http://www.spe.org/industry/docs/UnitConversion.pdf
7.33 barrels per metric ton

Department of International Economic and Social Affairs, Studies in Methods, Series F, No. 44, Table 8, page 24
7.32 barrels per metric ton

[5] International Energy Agency, http://www.iea.org/stats/unit.asp

[6] E2 Singapore, NEA, page 8

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2 Responses to “Nothing extraordinary about 34% increase in electricity tariff vs 220% increase in fuel price”

  1. dotseng Says:

    You just put a big fat smelly shoe into Ah Chow’s mouth. Now he should just sit down quietly and eat it the best he can.

    Thank you!

    Darkness 2013

  2. bond Says:

    This Chow is low IQ should go back to primary school.

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