Singapore Electricity Market Analysis: A Comparative Study

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ECONOMICS ASSIGNMENT

Table of Contents
INTRODUCTION...........................................................................................................................................3
TRADITIONAL MARKET STRUCTURE OF SINGAPORE ELECTRICITY MARKET................................................3
MARKET STRUCTURE AFTER THE ROLL-OUT OF OPEN ELECTRICITY MARKET.............................................4
MARKET OUTCOME OF PERFECT COMPETITION.........................................................................................4
GRAPH COMPARISON BETWEEN MONOPOLY AND PERFECT COMPETITION..............................................5
LONG RUN ADJUSTMENTS IN THE PERFECT COMPETITION........................................................................6
IMPACT ON CONSUMERS............................................................................................................................7
COST STRUCTURE OF OPEN ELECTRICITY MARKET IN THE LONG RUN........................................................7
ANALYSIS OF OPEN ELECTRICITY MARKET...................................................................................................8
CONCLUSION...............................................................................................................................................8
REFERENCES................................................................................................................................................9

INTRODUCTION
This essay provides a market analysis of the Singapore electricity market along with the market
structure of the previous market-style before EMA adopted an open electricity market to give
customers more choices and for the liberalization of the electricity industry. Further, the study
also focuses on the sustainability of the new market structure as well as the cost structure of the
retailers. Furthermore, a critical analysis is presented to analyze whether the open electricity
market will benefit the country in the long run.
TRADITIONAL MARKET STRUCTURE OF SINGAPORE ELECTRICITY
MARKET
Before the countrywide roll-out of the open electricity market, the market structure of the
Singapore Electricity market was a monopoly market structure. The Monopoly is the type of
market structure where a single seller or enterprise dominates the entire market and is the sole
supplier of certain goods and services that do not have close substitutes. Singapore Electricity
market has a monopoly market structure because SP Group was the sole supplier of electricity
where it can control the prices of the supply and also the demand elasticity for electricity is zero
as there is no close substitution of it and everyone needs electricity. The entry model for other
players was restricted and the SP group was price-maker for the electricity and consumers were
price-takers and not the vice-versa. In a nutshell, the SP group controlled the electricity market
of Singapore and was the sole supplier that also controlled the prices of supply.

MARKET STRUCTURE AFTER THE ROLL-OUT OF OPEN ELECTRICITY
MARKET
After the countrywide roll-out of the open electricity market, the market structure of the open
electricity market was perfect competition. The perfect competition is the type of market
structure where there are a large number of buyers and sellers and the prices of goods changes
according to the demand and supply of the products. With the introduction of an open electricity
market, consumers are free to choose the retailers from whom, they want to buy electricity.
Many retailers entered the market and many exited, thereby allowing free entry and exit in the
electricity market. All retailers supply electricity, so there is a particular preference of the
consumers and only after the prices, goodwill, and other features, consumers select their
suppliers. In a nutshell, the market structure of the open electricity market is perfect competition
as all the retailers are allowed free entry and exit, prices are flexible and are controlled by
demand and supply and all the retailers sell homogenous products.
MARKET OUTCOME OF PERFECT COMPETITION
Price: the firms or suppliers in perfect competition are said to be price takers as the prices are
determined by the demand and supply of the product and are not fixed by the firms.
Quantity: The quantity of the product or service depends on the demand and supply of the
product as well as the availability of the product. In the case of electricity, the prices are so
flexible that the retailers need to think of the stock before purchasing from wholesalers.

Firm’s behaviour: Firms have no restrictions on entry and exit from the market. There exists a
perfect competition and all the firms compete by making marketing strategies and offering
discounts or raising and falling prices to attract consumers.
GRAPH COMPARISON BETWEEN MONOPOLY AND PERFECT
COMPETITION
Figure 1: MONOPOLY MARKET STRUCTURE

Figure 2: PERFECT COMPETITION MARKET STRUCTURE
In figure 1, which is the monopoly market structure, the prices are higher than the average cost.
The marginal revenue curve (MR) and Average Revenue (AR) are different and downward –
sloping and therefore, prices are different from marginal revenue. Production happens where MC
and MR intersect.
In figure 2, the Marginal Revenue (MR) curve that is horizontal is equal to the demand or AR
(Average Revenue) curve. Production in perfect competition happens when MC and MR
intersect.

LONG RUN ADJUSTMENTS IN THE PERFECT COMPETITION
Figure 3: LONG RUN ADJUSTMENT
In the long-run adjustments in the perfect competition, the new firms enter the industry, the
prices of the products fall because of the increased supply and the cost of the product increases
because of intense competition. The firm enters the industry till P (price) = AC (Average cost)
and all the firms earn a normal profit. The firms that are in loss exit the industry and new firms
enter. Losses in the perfect competition maintain the equilibrium of the long term.
IMPACT ON CONSUMERS
Consumers are very positively impacted by the long-run adjustments because prices are mostly
favourable for the consumers and there are a lot of options to choose from. When the prices of

goods increase, the consumption rate decreases. The long-run adjustment will allow consumers
to place their trust in the suppliers.
COST STRUCTURE OF OPEN ELECTRICITY MARKET IN THE LONG RUN
Figure 4: COST STRUCTURE OF OPEN ELECTRICITY MARKET
Source: (Loi & Le Ng, 2018)
The cost structure of electricity will vary depending on the electricity plans that the people will
choose. As the open electricity market is the perfect competition market structure, the cost of the
electricity will be flexible and depending on the number of suppliers and buyers, the prices will
fluctuate (Loi & Le Ng, 2018).
ANALYSIS OF OPEN ELECTRICITY MARKET
Open Electricity Market is the decision taken by the government of Singapore to liberalize the
retailers and to provide choices to the consumers to buy electricity from their selected store. It is

a good way to reduce the monopoly of the SP Group. The prices of electricity became flexible
and with all the necessary steps taken by the government to protect the rights of the consumers, it
is a good way to reduce the power of the single authority. The government should intervene only
if the interest of the consumers is compromised. In any case, this initiative can bring many
changes and those changes will be good for the public, if their full potential is utilized. The
demand for electricity is ever-growing. With the right selection, this initiative will sustainably
stand in the long run (Chang & Fang, 2017).
CONCLUSION
This essay concludes that Open Electricity Market has a perfect competition market structure
that has its benefits for both consumers and suppliers. With various graphs, different aspects of
OEM are explained and critically analysed.

REFERENCES
Chang, Y., & Fang, Z. (2017). Efficient, equitable and sustainable energy policy in a small open
economy: Concepts and assessments. Energy Policy, 105, 493-501.
Loi, T. S. A., & Le Ng, J. (2018). Anticipating electricity prices for future needs–Implications
for liberalised retail markets. Applied energy, 212, 244-264.