The real reason power retailers exit market

Power retailers fail not due to fierce competition, nor is it because the market is too small as many pointed out. The main reason is the deregulation structure is tipped in favour of the gentailers (retailers set up by power generation companies). This rationale is not bandied about because it points to a planning oversight.

In 2017, top 5 gentailers had about 72%, SP had 27.7% of the market share, with the small balance shared by a host of independent retailers.

Gentailers have name recognition and they have been there since day 1. Those first in the game has captured a huge chunk of the market, leaving the majority Johnny-come-lately which are independent retailers, to scramble over the crumbs. More independent retailers failing will create consumer fear in the smaller outfits and strengthen gentailer preference. No doubt it's open market and retailers can compete when gentailers' customers review their contracts, but they are disadvantaged for two reasons. Firstly, customer inertia ensures gentailer has good consumer retention as long as their service level is good and their rate is competitive.  Secondly, the incumbent gentailer has no selling cost in extending a contract to an existing customer thus it has a pricing advantage.

All these means that over time, the industry may consolidate with more independent retailers exiting the market due to inability to build a sustainable market share. The industry may probably end up somewhat similar to the petrol pump industry, a cartel of oil companies and their service stations. There will be just gencos and their gentailers.  This is bad news for both consumers as well as for the system. Gencos with their own gentailers, have a natural hedge on their power generation, or at least a major portion of it. This situation will curtail the development of the electricity futures market. For consumers, a cartel-like market will be a disaster. Assuming the present over-capacity is not resolved. and the retail electricity market is left with only gentailers, then gencos will continue to bid low in the pool to ensure their plants get despatched, meanwhile cartel trickery allows their gentailers to price higher in order to recoup the losses on the power generation side. 

What is deregulation all about when gencos can also be retailers (distributors). The independent retailer SMEs have very little chance of building a sizeable load to sustain the business. It is difficult to understand the planners giving one leg up to the gencos. When the retail market opened up in 2001 in stages, perhaps the planners had difficulty in enticing entrants to the new industry of retail electricity. Or more likely they wanted to play safe with people who are already in the business, ie, the gencos. It could also well be the old wealth of Singapore prefers the easy way out of making money - in real estates, why bother with a new industry that they don't understand. It's probably a combination of all factors that led to deregulation kicking of with gentailers, giving them a huge head start in the game. 

Is the size of the market too small to sustain too many retailers? The aggregate annual energy consumption of Singapore is about 54 tetrawatts per annum. If the number of retailers is say 20 and the load is equally spread out, the average is 2,700,000,000 kWh. I have no idea what the gross margins are like. But working on just 100 basis points, or $0.01/kWh (which is very conservative), the gross revenue is S$27,000,000 pa which by simple intuition, can easily generate a pretty generous ROI. The market can easily support much more than 20 retailers if the load share is well spread out. The more retailers the better for market competition as well as more participants and liquidity for the electricity futures market. The problem is the gentailers have gobbled up the market with little left for the others.



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