As Singapore grapples with rising energy costs, the Energy Market Authority has implemented temporary caps on wholesale electricity prices starting July 1. This measure aims to mitigate extreme market volatility that has characterized the power sector, with over 3,000 intraday price spikes reported since 2021. The high energy costs, which some analysts predict will persist even after the housing market stabilizes, are reshaping investment dynamics within the city.

The real estate sector has seen rents surge over 50% in the past two years, but there are signs of a cooling market as private housing prices fell by 0.4% last quarter. Despite the real estate boom, investor enthusiasm is waning, particularly for companies like CapitaLand Ascott Trust, which reported a 178% increase in revenue per available unit in late 2022 due to an influx of expatriates.

In contrast, utility companies like Sembcorp Industries and Keppel have become the standout performers on the Straits Times Index, driven by their roles in the power generation sector. Together, they account for approximately 20% of Singapore’s 12 gigawatts of power-generation capacity, much of which is aging. According to DBS Group Holdings, about 25% of this capacity will retire in the next five years, while electricity demand is expected to rise by over 4% annually. As a result, the power market is anticipated to remain tight until new capacity becomes available in 2026.

The volatility in the energy market can be traced back to several factors, including the post-pandemic surge in demand and the geopolitical tensions arising from the Ukraine conflict, which have driven up imported natural gas prices. This scenario has led to a phenomenon termed “sellers’ inflation,” where power producers raise prices collectively in response to common cost pressures. Despite some stabilization in global natural gas prices, wholesale electricity costs remain elevated due to the constrained market environment.

As private sector interest in building new capacity diminishes, the Energy Market Authority has announced plans to construct two 340-megawatt open-cycle gas turbines by June 2025 to bolster Singapore’s energy resilience. This proactive step reflects a recognition that a fully liberalized market may not adequately address the city-state’s energy needs.

Singapore’s experience with public ownership in other sectors, such as its nationalized subway system, raises questions about the resilience of its power market and the need for increased public investment. The ongoing shifts in both the housing and energy sectors illustrate the complexities Singapore faces as it navigates economic pressures and seeks to stabilize essential services.