Singapore gencos' profits remain under threat as power oversupply looms

Electricity prices stabilising at $50/MWHh brought little hope.

Uniform Singapore Energy Price (USEP) has stabilised at SGD50/MWh or so, suggesting a possible bottom. But May Bank KimEng thinks a strong rebound is likely only before 2018 with the industry’s supply cushion still at 30% and gencos overcommitting to gas supply.

According to the brokerage firm, aside from the positive data, for 3-4 quarters already, power generator Sembcorp Industries (SCI) has also been saying that spark spreads are increasingly stabilising. As such they believe that the sparkspread compression for SCI’s Singapore power business is at its tail end. Nevertheless, it still expects prices and spark spreads to stay weak, with little hopes of margin reversion to 2013 levels until after 2018.

"Although much of the major capacity increases has come onstream after Hyflux’s 410MW Tuaspring plant started in 1Q16, Singapore gencos have generally overcommitted to gas supplies," it said.

An LNG terminal was added in 2013 while Singapore gencos have contracted longterm take-or-pay piped natural gas from Indonesia and Malaysia which will only expire from 2020. Gencos are thus compelled to sell as much electricity as possible to utilise their gas, said MayBank KimEng.

Based on market demand forecasts by Wood Mackenzie and Poten & Partners, this oversupply is unlikely to clear before 2018.