What happen to Genco while SP Power is making close to 1 Billion per year ?


image credit to staritstimes.com


Disclaimer: I am a Hyflux N2H ( 6% CPS ) holder, my view may carry some biases towards the company I have vested. As I said in my previous blog post, we shouldn't blame anyone for losses incurred in our investment except ourselves.

Electricity tariffs to rise by 6.9% for July-September period ( from channelnewsasia.com - 29th June 2018)

This is what caught my attention and I think this will further contribute to a better bottom line of SP power ….. Yes, SP Power is making close to $900 mil per year  ( Base Annual Report from SP Power – here ) and all the Genco is bleeding and in red of more than -$357 Mil in 2016 ( I’m sure it will be much more than this figure in 2017 and some estimated it could be close to $1 Bil )


image credit tp SP group.sg




While :

“Singapore's power generation sector has a total capacity of 13,350 megawatts (MW). Peak demand, however, averaged only 7,000 MW in the year to March 2017, leaving a spare capacity of 48 per cent in the system.” Quote from Businesstimes.com.sg , 09 Apr 2017.

Economics 101 teaches us that if supply is more than  demand, the price may drop …but the overcapacity of electricity supply started in 2016, look at below :





One may just ponder and puzzle

            1)  Why Genco is bleeding while SP Power is making close to $1 Bil/p.a ?
          2)  Why our electricity tariff keeps increasing while there is obvious overcapacity in the power supply?



“The Energy Market Authority (EMA) is a statutory board under the Ministry of Trade and Industry. Our main goals are to ensure a reliable and secure energy supply, promote effective competition in the energy market and develop a dynamic energy sector in Singapore. Through our work, EMA seeks to forge a progressive energy landscape for sustained growth“  taken from EMA's Website

Well, one may also wonder if there is any issue on the “tariff setting “ by EMA -Energy Market Authority (which is full of formulas and complex ) which may cause such lopsided of profitability between stakeholders? which ultimately end up with " head I win, tails You lose " kind of situation for certain stakeholder over others.

I think is also reasonable to ask if Genco is sustainable under current situation? 


We definitely can’t just blame the “lower electricity “ tariff for the failure and collapsed of Hyflux, obviously, it is a combination of over-leverage , over-confidence and overlook on various “risk management” which lead to such predicament. 

No doubt, the overcapacity of power supply had caused the difficulty of selling the Tuaspring desalination & power plant by Hyflux at a good price and timely manner while hundreds of millions of debts waiting to be redeemed in this and next two years. Hyflux is more than just “Tuaspring “...

We thought that electricity generation and supply is an easy to understand matter but for our case, it is very complex and confuses, especially the setting of tariff rate by EMA to Genco and SP Power, the more I read, the more I don’t get to understand. What a stupid STE…

You may find many good articles from Singaporepordesk.com ( here ), one of the best quote from :

Singapore’s Power Supply Cushion – How to Solve a Problem like Maria on overcapacity of power supply from Genco and it’s implication published in July 2017..

  

Quote “

Do Pigs Fly?

Is it likely to happen that up to 2,000 MW is retired or repositioned for the purpose to increase prices in favour of the Genco’s but paid for by Consumers? In the short-term probably not. The EMA has been extremely careful not to take any responsibility for the current situation. The overcapacity is too large for the incumbent Genco’s to resolve organically.
In the long-term, the economic viability of the Genco’s is at risk. One way or another, something will happen.
Unquote

More reading on electricity supply and price setting mechanism by singaporepowerdesk.com and some other sources.

Power generation sector crushed by massive overcapacity ( by Businessrtimes.com.sg – Apr 2018)


After reading all above , how do you feel ? more confuse with all sort of jargons ( USEP, SRMU,LRMU,CCGT,ST Plant etc ) right ?


This is what we think about process and understanding of power supply industry : 

image credit to EMA.gov.sg

image credit to EMA.gov.sg


But in actual fact, it looks like :



image credit to fiercepharma.com


Well, we all know that Hyflux's problem is not just the power generation section from Tuaspring, is much beyond that on risk and debts' management, by hindsight. Also, I think that current problems faced by Genco are not only the overcapacity created by Genco themselves!

I would leave it to the reader to keep asking yourself on many questions with regards to our electric power supply industry, with your wisdom!


Cheers !!




PS : If you want to know more about the discussion on Hyflux and the latest development, I would suggest you visit this blog :

The Simplified Resource For Investing and Personal Finance by sgdividends

And join the telegram created by the author :




375 members had joined this group as the time of writing.




Comments

  1. Alamak too complicated --- better ask chairman of EMA ... I think should still be Tin Pei Ling's husband.

    Anyway I've always wondered why govt never got around to ipo SP Group, unlike DBS, Singtel, SIA, SATS, ST Eng, SBS, Comfortdelgro, Capitaland, or the ill-fated NOL and SMRT.

    Should have sold like hot cakes. Ok ok they mentioned national security but in 2008 Temasek sold our 3 largest & among our oldest gencos to foreign companies. And after that the open liberalisation of energy market ... So the prev old national security excuse should be outdated right?

    ReplyDelete
    Replies
    1. Yes, the is the company I wanted to invest as well,, asset light and have price setting advantage, fuel cost increase can just transfer n not my problem, fuel cost decreased , I have others factors to justify. Temasek sell Genco is really a smartest move, by going asset light for SP power , now you know who have the meat and who have the bone..😂😂 formula setting is always subjective...

      Delete
  2. Buy lower is not necessary must sell it relatively lower; but in this case sell it higher and laughing to the bank.

    Buy higher will mean sell higher.

    ReplyDelete
    Replies
    1. Yes, smartest company, oil price increase who will be the one suffered, Genco's cost , SP just pass or transfer the cost to consumer base on their so called formula, they may also make more money by selling high , oil price dropped , they said due to others non fuel components, only adjust a little bit,,, clearly who is the winner and smartest investors in the world,,,buy Low sell high, buy high sell higher ! Hahaha,,,😄 I definitely wanted to invest in such ' bao jia' company,,,when are they going to issue IPO?..👍👍

      Delete
  3. Core commodities like electricity and water cannot be priced simply based on demand and supply. That is the number 1 boo-boo to ever commit. Having market forces determine these resource would make either dominant party influence pricing, manipulate the market and push up spot prices by withholding supply. This drama will become what is like at the Oil industry.

    Also, SP is not asset light. SP PowerGrid and SP PowerAssets are super asset heavy companies.

    I also find it funny that the chart posted by you shows tariff dropping about 30% from peak to trough and yet we expect the tariff to drop even more? Does it mean that staff costs and other fixed overheads should fluctuate in tandem with oil prices? The formula is public, meaning even if oil prices increase, the pass through cost would be limited by the blended formulae. Math is really math.

    ReplyDelete
    Replies
    1. Hi LetsGetRichTgt,
      Yah , u are right both are not asset light company , but in different business model, one might be one time spending on asset and for the other one the cost of running the asset might be high. Yup , math is math , someone is having better or superior in math than others , one go meat and the other got borne , can't even blame anyone on this right , is fair commercial decision . Sometimes , 1+1 simply not equal to 2 ...cheers !!

      Delete

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