SP Wholesale Electricity Plan - Going for it!

We know that if Shop A buys a product from Shop B, Shop A will then mark up the price of the product and then sell it to the consumer.  To get a cheaper price, the consumer can go directly to Shop B.

Similarly, if electricity retailers buy at the wholesale electricity price and then sell it to residential consumers, wouldn't it make sense that residential consumers would get it cheaper if they buy directly at the wholesale electricity price?

The markup in price by the electricity retailers is basically to compensate them for the risk they take. They buy at volatile prices and sell at fixed prices. Residential consumers are therefore paying for price certainty a.k.a peace of mind. But is this peace of mind really worth it? 

Below is the comparison of the 3 different electricity plans without GST.

This SP Wholesale Electricity Plan is the most complicated of the 3 as it comprises of additional charges on top of the wholesale electricity price (WEP). These additional charges are as follows:

Updated 3 november 2021

Only the Vesting Contract Debit/Credit is variable but it is usually a few cents per month and sometimes $0. The rest of the charges are available online and known beforehand. Peak period is between 7am to 11pm. For simplicity, i took the average of the peak and off peak rates. These additional charges are under the column "charges" which is added to WEP.

Comparison

This table can also be found here which is updated monthly.

No wonder so many electricity retailers have chosen to throw in the towel recently! 

From Jan 2020 to June 2021, there is a significant price difference between the WEP prices ( blue column) and electricity retailer prices( green column), with the WEP prices always being lower. It is only in July 2021 onwards where the price differences is very low with July 2021 being the only month where the WEP price exceeded the electricity retailer price.

It seems that a switch to the SP wholesale electricity plan is a no-brainer...or is it really? 

It depends.

The table above shows average prices and so neglects the volatility of prices of the WEP prices. It depends on one's usage of electricity at home. To be more specific, it depends on when we usually turn on the big guzzlers of electricity like the air conditioners, the water heaters and the washing machines. With WFH, our routines can be quite messed up unlike the Pre-covid times when most of us are in the office between 9am to 6pm.

So when are electricity prices usually more expensive?

I have charted the average WEP and Maximum WEP against the period of the day for the months of July, August and September 2021. The SP regulated tariff and electricity retailer prices are shown in red and green

September 2021

August 2021

July 2021

I would focus more on the Max WEP charts on the right as avoiding these periods of the day where the maximum electricity prices occur would most certainly result in lowering the average wholesale electricity prices even further as seen in the comparison table above. These are generally periods 19 to 45. ( 9.30 am to 10.30 pm) which corresponds well to most workers during pre-covid times as they will not be at home for a majority of this period. So, it really depends on one's routines. 

So in general, if one is out of home or do not have to use energy guzzlers during 9.30 am to 10.30pm, one should prefer the SP wholesale plan?

To illustrate how volatile prices can be, the chart below shows the WEP for a single day on a Saturday, 16 October 2021. One would rationalize that periods when prices are high are when factories, schools and offices are running which falls on during weekdays. However, on this fateful Saturday, the prices were amazingly high even at night when people are sleeping from 11 pm to 1am( periods 46- 48 and periods 0 to 2). Prices average $1.3/kWh during the day, with Max price at $2/kWh at 11.30 am and Min price at $0.27/kWh at 5 am. Even at 1am when most people are asleep, the price hit $1.97/kWh! Remember that additional charges of $0.061/kWh will still have to be added to these prices to get the final price we pay.

Now, which plan would you now choose? 

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Which electricity plan to choose?

How much should our networth be?

In the book The Millionaire Next Door: The Surprising Secrets of America's Wealthy, there is a formula which determines whether we are Prodigious Accumulators of Wealth (PAW) or Under Accumulators of Wealth (UAW). This formula first multiplies your age with your current gross annual income, followed by dividing by 10 to get the expected networth. If my current networth is more than two times the expected networth, i am a PAW. However, if my current networth is less than half the expected networth, i am a UAW. 

Example

Thommy is 50 years old now, currently earning $84,000 gross income per annum. His expected networth now should be $420,000. If his current networth is higher than $840,000, he is a PAW. On the other hand, if his expected networth is less than $210,000, he is a UAW.

I am sure many questions are forming in your heads now. Using this formula to see how we are doing financially now, ignores our future spending needs which is different for everyone. I can survive on cai peng everyday but not another person. I can be very able riding a bicycle as a means of transport but not another less able person. Many more questions! But as with all models, take it with a pinch of salt.  Imagine a fresh grad at 25 years old who has worked 1 year in investment banking and earning $150,000 a year, he would be a UAW! 

The PAW/UAW formula didn't fit what i was looking for. I needed to know whether i was on the right track in terms of whether i was having enough now.  To know that, i needed to project

• my estimated expenditure after retirement
• my annual contributions to my retirement fund till i retire
• the inflation rate
• my rate of return of my retirement fund if i had invested them

This retirement fund is to be used fully by the time i passed away.

The retirement age will be 63 ( as per Ministry of Manpower in 2022) and the date of passing away will be projected to be 86 (as per the female life expectancy in 2021 by Singstat). Females generally live longer than males who are expected to pass away at 81 (2021 by Singstat) and using 86 is a matter of prudence as life throws curveballs at us.

Example

Esther is 41 years old. She wonders if she currently have enough money to fund her retirement. She has been spending $4000 a month on her lifestyle and would like to continue her quality of living in retirement. Inflation has been hovering around 2% pa historically and she has been getting 5% pa on her retirement fund investments.

She has been contributing $24,000 a year into her retirement fund with ease and believes she can do this till retirement at age 63. 

Her networth now should be $201,222. 

A lot of things have to go right for Esther to be comfortable with $201,222. She has to be able to contribute $24,000 annually for 22 years to retirement by being gainfully employed, being healthy, not being scammed ,not facing a global financial crisis somewhere along the route to retirement e.t.c. As life do throw curveballs at us sometimes, it would be better to have much more that this networth to be comfortable.