Two approaches to pricing electricity
Every C&I procurement decision in Singapore comes down to a fundamental choice: cost certainty or cost optimisation. Fixed-price and indexed contracts take opposite approaches to managing wholesale market risk, and the right choice depends on your business profile, your risk appetite, and where the market sits when you procure.
Since the opening of Singapore's retail electricity market in 2019, businesses consuming above 2 MWh per month have been free to choose their retailer and contract type. That freedom brings opportunity, but it also demands a clear understanding of how each pricing mechanism works, what risks it transfers, and what it costs you over a full contract cycle.
Fixed-price contracts
How they work
You pay a locked cents-per-kWh rate for the duration of the contract. The retailer absorbs the wholesale price risk, buying electricity from the National Electricity Market of Singapore (NEMS) at whatever the prevailing Uniform Singapore Energy Price (USEP) happens to be and selling it to you at the agreed fixed rate. Common tenors range from 6 to 36 months, with most C&I customers settling on 12- or 24-month terms.
Your monthly bill becomes straightforward: consumption in kWh multiplied by your contracted rate, plus regulated pass-through charges from SP Group for network use, the Power System Operator (PSO), and the Market Support Services Fee (MSSF). The fixed component covers only the energy charge itself.
Pros and cons
Advantages:
- Predictable monthly energy costs, making budgeting and forecasting significantly easier across financial quarters
- Protection from wholesale price spikes, which in Singapore can see half-hourly USEP exceed $1,000/MWh during tight supply conditions
- Simpler to manage internally, with no need for dedicated energy monitoring or market tracking resources
Disadvantages:
- Includes a risk premium over expected wholesale costs, because the retailer needs to price in the cost of hedging your contract against market volatility
- No benefit if market prices drop below your fixed rate, meaning you continue paying the agreed price even during sustained periods of low wholesale costs
- Early termination fees if you need to exit, which typically range from one to three months of estimated energy charges depending on the remaining contract duration
Businesses that prioritise budget certainty, have low risk tolerance, or lack the internal capability to monitor wholesale markets. Common among SMEs, retail chains, and organisations with tightly managed operating budgets where cost predictability matters more than savings optimisation.
Indexed (pool-price) contracts
How they work
Your energy cost floats with the Uniform Singapore Energy Price (USEP), which is settled every half hour by the Energy Market Company (EMC). You pay the actual wholesale price plus a retail margin and pass-through charges. Your bill moves with the market, reflecting real-time supply and demand dynamics across Singapore's generation fleet.
Retail margins on indexed plans typically range from 0.5 to 2.0 cents/kWh, depending on the retailer and your consumption volume. The transparency is a draw: you can see exactly what you are paying for wholesale energy, what the retailer's margin is, and what the regulated charges amount to.
Pros and cons
Advantages:
- No risk premium baked into the rate, so you avoid paying the hedging cost that fixed-price retailers build into their offers
- Potential for significant savings when wholesale prices are low, particularly during off-peak hours and periods of comfortable generation reserve margins
- Full transparency on the pricing mechanism, with wholesale rates published by EMC and available for independent verification
Disadvantages:
- Exposed to wholesale price volatility, including occasional price spikes driven by generation outages, high demand days, or tight gas supply
- Harder to budget, as monthly costs can vary by 20 to 40 percent or more depending on market conditions and seasonal demand patterns
- Requires monitoring capability or advisory support to manage exposure effectively, track market trends, and identify opportunities to optimise consumption timing
Businesses comfortable with cost variability, able to shift load to off-peak periods, or with the internal resources to monitor market conditions. Typical among larger C&I consumers, data centres with flexible cooling schedules, and manufacturing operations that can adjust production timing.
Side-by-side comparison
The table below summarises the key differences between fixed and indexed contracts across the factors that matter most to C&I procurement teams.
| Factor | Fixed | Indexed |
|---|---|---|
| Price certainty | High, locked for contract duration | Low, moves with wholesale market |
| Risk exposure | Retailer absorbs market risk | Business is fully exposed |
| Budget predictability | Consistent monthly costs | Variable, can fluctuate significantly |
| Savings potential | Limited if market drops | High when wholesale prices are low |
| Management effort | Low, set and forget | Higher, benefits from active monitoring |
| Best suited for | Risk-averse, budget-driven businesses | Sophisticated buyers with flexible demand |
Hybrid structures
Some retailers offer contracts that blend both approaches. A portion of your consumption — for example, 50 to 70 percent — is locked at a fixed rate, while the remainder floats with USEP. This lets you hedge your base load while still benefiting from favourable market movements on the variable portion.
Hybrid structures are increasingly popular with mid-to-large C&I consumers in Singapore who want partial protection without giving up all upside. They work particularly well for businesses with a predictable base load (lighting, HVAC, core operations) and a variable component (production lines, additional shifts) that can flex with market conditions.
The split ratio is typically negotiable. A 70/30 fixed-to-indexed split offers more stability, while a 50/50 arrangement leans toward cost optimisation. Your choice should reflect how much of your load is genuinely flexible and how much volatility your finance team is willing to manage in monthly reporting.
Choosing the right structure
The decision should be driven by several interlocking factors: your consumption volume, your peak-to-off-peak ratio, internal budgeting cycles, risk tolerance, and contract duration preferences. A warehouse running 24/7 with flat demand has a very different optimal structure from a restaurant chain with sharp lunch and dinner peaks.
The current market environment matters too. When wholesale prices are at cyclical lows, locking in a fixed rate captures the savings for the full contract duration. When prices are elevated or trending down, staying indexed or going short-term gives you flexibility to re-enter at a better rate. Timing the market perfectly is not realistic, but understanding where prices sit relative to the 12- to 24-month historical range gives you a meaningful edge.
Contract duration is also a strategic lever. Shorter tenors of 6 to 12 months give you flexibility to renegotiate, but they also mean more frequent procurement cycles and potential gaps. Longer tenors of 24 to 36 months provide stability but carry the risk of being locked into an above-market rate if conditions shift.
There is no universally "best" contract structure. The right choice depends on your load profile, your risk tolerance, and where the market sits when you procure. A good energy advisor will model both scenarios using your actual consumption data.
The strongest procurement outcomes in Singapore's C&I market come from businesses that treat contract structuring as a recurring strategic decision, not a one-off administrative task. Whether you favour certainty, flexibility, or a blend of both, the key is matching your contract to your operational reality — and reviewing that match every cycle.