Analysing the electricity market in SG

The article discusses the rise in household electricity and gas tariffs in Singapore for the July to September period, attributing the increase to higher energy costs. It also highlights government measures to mitigate the impact on households. Let's break down the economic concepts at play and analyze the effects and implications of these changes.

1. Demand and Supply

Supply-Side Factors: The increase in tariffs is attributed to higher energy costs. This suggests that the supply of energy has become more expensive, possibly due to higher costs of production or increased prices of raw materials (e.g., natural gas, oil). When the cost of inputs rises, the supply curve shifts to the left, leading to higher prices for consumers.

Demand-Side Factors: Electricity and gas are essential services with relatively inelastic demand. This means that consumers' demand for these utilities does not decrease significantly with an increase in price. People still need to use electricity and gas for daily activities, making them less sensitive to price changes.

2. Price Elasticity of Demand

Inelastic Demand: The demand for electricity and gas is typically inelastic because these are necessities. Even with a price increase, the quantity demanded remains relatively stable. For instance, the article mentions a 0.3% increase in the electricity tariff, which translates to a minimal increase of S$0.35 per month for families living in HDB four-room flats. This small change is unlikely to significantly affect consumers' usage patterns.

Consumer Welfare: While the monetary increase may seem small, it can add up over time and impact low- to middle-income households more severely. The inelastic nature of demand implies that consumers have limited options to reduce consumption in response to higher prices, potentially leading to a decrease in their overall welfare.

3. Government Policies to Promote Equity and Efficiency

Equity: The government has implemented measures to promote equity by providing U-Save and service and conservancy charges (S&CC) rebates. These rebates are part of the GST Voucher scheme and the Assurance Package, targeting lower- to middle-income households to help offset the increased utility costs. The additional U-Save disbursements, announced at Budget 2024, aim to cover a significant portion of utility bills for eligible households.

• U-Save Rebates: By providing up to S$950 in rebates, the government helps to cover approximately eight months of utility bills for those living in 1- and 2-room flats and about four months for those in 3- and 4-room flats. This direct financial assistance helps to alleviate the burden on lower-income households, promoting equity.

• S&CC Rebates: Eligible households will receive up to four months of S&CC rebates within the financial year. This includes an additional Cost-of-Living S&CC Rebate in January 2025, further easing the financial burden.

Impact on Consumers

Short-Term Impact: In the short term, consumers will face higher utility bills, which could strain household budgets, especially for lower-income families. The increase in tariffs may lead to a slight reduction in discretionary spending as households adjust their budgets to accommodate higher energy costs.

Long-Term Impact: Over the long term, higher energy costs could incentivize households to adopt more energy-efficient practices and technologies, potentially reducing overall consumption and fostering a more sustainable energy market. The rebates and assistance programs will help cushion the impact, allowing households to gradually adjust to the new price levels.

Conclusion

The increase in electricity and gas tariffs reflects higher energy production costs, affecting households with relatively inelastic demand for these essential services. The government's policies aim to promote equity by providing targeted rebates to lower-income households, while the tariff adjustments based on EMA guidelines ensure market efficiency. By balancing these objectives, the government supports vulnerable consumers and encourages efficient resource use, fostering a fair and sustainable energy market.