Singapore’s Electricity Market after Market Reform

David Tan

Deputy Chief Executive

Energy Market Authority

• Timeline of Market Reform

• Regulatory Principles and Tensions

• Outcomes of Market Liberalisation

Agenda

• Public Utilities Board (PUB) has been the sole

provider of electricity in Singapore up to 1995.

• Infrastructure is built to meet forecasted demand.

• Upward pressure on prices has led the Government

to ask whether the industry is as efficient as it is, as

the electricity system continues to grow.

Competition through industry reforms would

encourage companies to be cost-efficient.

Before Liberalisation

• Electricity industry reforms started in 1995 –

electricity and gas undertakings of PUB corporatised

under Singapore Power. PUB remained the

regulatory body.

• Singapore Power was a vertically integrated power

company, owning the generation, transmission and

retail segments of the industry

Industry Reforms (1)

Electricity Industry Structure in 1995

IPPsSembCorp

Cogen Pte

Ltd

ENV Tuas

Power LtdSingapore Power Ltd

Contestable Business

Non-contestable Business

Franchised Consumers

Non-franchised Consumers

Progressive extension of

competition

Non-franchised

Sector

Utilities Support Services

Franchised

Sector

T&D Pool

Operations

System

Operations

PowerGrid Ltd

SerayaJurong

PowerSeraya LtdSenoko Power Ltd

PP GT Senoko

Private Electricity Suppliers

Non-franchised

Sector

Utilities Support Services

Power Supply Ltd

since Apr 98

• New power companies were not forthcoming in

investing in new plants, since Singapore Power

owns grid and generation.

• In 2000, Govt took further steps in industry reform:

separation of the natural monopolies (i.e. grid) from

the competitive domain (i.e. generation and retail)

• Grid remained under Singapore Power, while each

power plant was set up as a separate company to

compete with one another

Industry Reforms (2)

• EMA was formed in 2001 as the industry regulator

and power system operator.

• Energy Market Company became the market

operator.

• New generation companies came into operation:

SembCorp Cogen in 2001 and Keppel Merlimau

Cogen in 2007. Island Power Company is expected

to come into operation in 2010.

Industry Reforms (3)

T&D

PowerGrid Ltd

IPPsENV

(now NEA)

Tuas Power

LtdSenoko Power

Ltd

PowerSeraya

Ltd

Power Supply Ltd

(now SP Services Ltd)

Franchised (Small)

Consumers

Non-franchised (Large

Industrial & Commercial)

Consumers

Market to be

fully opened

ultimately

ElectricityRetailers

Energy Market Authorityof Singapore

Electricity Flow

Singapore Power Ltd

Market

Operator

Industry

Regulator

System

Operator

Energy Market Company Pte Ltd

Electricity Industry Structure in April 2001

Key Electricity Licensees

� Electricity Generation (8)

� Senoko Power Ltd

� PowerSeraya Ltd

� Tuas Power Ltd

� SembCorp Cogen Pte Ltd

� National Environment Agency

� Island Power Company Pte Ltd

� Keppel Merlimau Cogen Pte Ltd

� Keppel Seghers Tuas Waste-To-

Energy Plant Pte Ltd

� Electricity Transmission� SP PowerAssets Ltd

� SP PowerGrid Ltd (as agent to

electricity transmission licensee)

� Electricity Retail (6)

� Keppel Electric Pte Ltd

� SembCorp Power Pte Ltd

� Tuas Power Supply Pte Ltd

� Senoko Energy Supply Pte Ltd

� Seraya Energy Pte Ltd

� Island Power Supply Pte Ltd

� Market Support Services

� SP Services Ltd

� Market Company

� Energy Market Company Pte Ltd

• National Electricity Market of Singapore (NEMS)

commenced operation in Jan 2003.

• Vesting Contracts was introduced in Jan 2004 to

curb vesting contracts.

• Interruptible Load Supply was introduced in 2004 –

consumers can offer to have their electricity supply

interrupted in exchange for payment from the

reserve market.

Industry Reforms (4)

Industry Reforms (5) – Retail Contestability

Phase II Phase III

started

Jun 2003

• HT consumers

• LT consumers

with average

monthly

consumption

exceeding

20,000 kWh

• About 5,000

consumers

started in

Dec 2003

• LT consumers

with average

monthly

consumption

exceeding

10,000 kWh

• Another 5,000

contestable

consumers

Being studied

• Remaining one

million

consumers

• Electricity

Vending System

Phase I

T&D

PowerGrid Ltd

IPPsENV Tuas Power

LtdPowerSenoko

Ltd

PowerSeraya

Ltd

SP Services Ltd

Franchised (Small)

Consumers (1 mil)

Non-franchised (Large

Industrial & Commercial)

Consumers (10,000)

Market to be

fully opened

ultimately

ElectricityRetailers

Energy Market Authorityof Singapore

Electricity Flow

Singapore Power Ltd

Market

Operator

Industry

Regulator

System

Operator

Energy Market Company Pte Ltd

Electricity Industry Structure in Jan 2003

Generation Statistics (2007)

12,330 MWLicensed Generation Capacity

~ 9%System Losses

~ 44%System Gross Efficiency

41,138 GWhEnergy Generated

5,946 MWMax System Demand

79%Natural Gas

3%Others (Incineration, etc.)

18%Fuel Oil

Generation by Fuel Fix

• A good regulatory regime is essential for the free market to function efficiently.

• Key regulatory objectives :

a) a level playing field

b) transparent rules and consistent application of

rules.

c) open access

d) low entry and exit barriers

• “The most expensive electricity is no electricity” Electricity price should be an outcome of a properly functioning market.

Regulatory Principles (1)

Key market principles:

a) Champion competition, not companies and allow

market outcomes to be expressed.

b) Market to drive investments, allow entry or exit of

new competitors/products into the market

c) Market to incentivise most cost efficient behaviour

d) Market sets electricity price

e) No distortions from subsidies, causer-pays principle

Price regulate monopolies (the Grid) in a way toincentivise the companies to be cost efficient.

Regulatory Principles (2)

• One outcome of competition is to cause companies

to adopt the most cost efficient technology –

Combined Cycle Gas Turbines (CCGTs).

• The reliance on gas has thrown up some dilemmas.

• Do we need a fuel mix for security? Should we

determine the fuel mix to be used or should we

leave it to the market to determine what mix of fuel

to be used?

Regulatory Tensions (1)

Global fuel mix is much more diverse than S’pore

Coal

39.6%

Oil

6.7%

Biomass

0.9%

Nuclear

15.6%

Others

0.5%Hydro

16.5%

Gas

19.5%

Geotherm

al

0.3%

Waste

0.4%

Global Electricity Fuel Mix (2004)

Natural

Gas

77.8%SynGas

0.9%

Orimulsi

on

6.9%

Fuel Oil

11.9%

Diesel

0.1%

Refuse

2.4%

Singapore Electricity Fuel Mix (2006)

Source: IEA, EMA

International Comparison

0%

20%

40%

60%

80%

100%S

ou

th A

fric

a

Au

str

ali

a

Isra

el

Ho

ng

Ko

ng

Taiw

an

US

A

Ge

rma

ny

De

nm

ark

Ind

on

esia

So

uth

Ko

rea

No

rth

Ko

rea

UK

Ire

lan

d

Ph

ilip

pin

es

Ma

lay

sia

Fin

lan

d

Ja

pa

n

Ne

the

rlan

ds

Ru

ss

ia

Ne

w Z

ea

lan

d

Fra

nc

e

No

rwa

y

Sw

itze

rla

nd

Sin

ga

po

re

Coal Hydro Oil Gas Nuclear Renewables

Source: IEA, EMA

• We were dependent on oil for a long time. But the

well developed global markets for oil helped to

ensure that there is always a supplier to buy from –

even during the oil embargo in the 1970s, we were

able to secure fuel.

• Gas enables 2 levels of diversification – gas turbines

can be fired by diesel which is stockpiled and the

LNG terminal which is being planned will enable

source diversification.

Regulatory Tensions (2)

• Fuel diversification occurs in large countries and

usually in countries which have indigenous sources

of energy and is usually an outcome of economic

viability.

• Without adequate economies of scale with each type

of fuel used and without the circumstances to render

the use of each type of fuel viable, fuel diversification

can be a very expensive option.

• We are technology neutral and will be an enabler for

what the market decides.

Regulatory Tensions (3)

• By 2007, about 10,000 accounts representing 75%

of electricity consumed in Singapore are

contestable.

• EMA is exploring how to leverage on technology

(Electricity Vending System) to extend contestability

to the rest of about 1 million domestic consumers

• Evident in the rise in electricity tariffs which is

significantly smaller than rise in fuel oil price

Outcomes of Market Liberalisation (1)

Downward pressure of electricity prices

Electricity Tariff vs Fuel Oil Price

Fuel Oil Prices (S$) vs Low Tension Tariff

38.30 37.18 37.18

32.1332.13

42.8445.66

42.42

50.15

43.06 43.3443.12 44.56 44.5647.79

52.4049.22

64.87

72.71

80.96 81.23

87.49 88.52

75.73

65.25

77.45

87.46

96.64

19.8717.21 17.21

15.0215.02 16.01 16.5115.2417.81 16.56 15.8115.44 15.8 15.8 16.53 16.73 16.06

18.2619.57 21.02 20.4921.15 21.64 20.02 18.8820.52 21.38 22.62

0

10

20

30

40

50

60

70

80

90

100

Apr-

01

Jul-

01

Oct-

01

Jan-

02

Apr-

02

Jul-

02

Oct-

02

Jan-

03

Apr-

03

Jul-

03

Oct-

03

Jan-

04

Apr-

04

Jul-

04

Oct-

04

Jan-

05

Apr-

05

Jul-

05

Oct-

05

Jan-

06

Apr-

06

Jul-

06

Oct-

06

Jan-

07

Apr-

07

Jul-

07

Oct-

07

Jan-

08

Fu

el

Oil

Pri

ce

s (

S$

/bb

l)

0

10

20

30

40

50

60

70

80

90

100

Ta

riff

(¢

/kW

h)

Pegged Fuel Price LT Tariff

• Fuel oil price has increased by 152%

• The electricity tariff for households has however increased by 14%

• This is largely due to efficiencies gains in the industry, such as utilizing more cost-efficient technologies for electricity production.

CO2 Generated in kg/MWh in Year 2000 and 2007

• 30% reduction in Carbon Dioxide Generated in kg/MWhSource: CARMA

Companies are incentivised to:

a) reduce costs (sourcing for cheaper fuel);

b) lower costs of risks (hedge against volatility in fuel oil price);

c) adopt the most cost competitive technology (switch from steam plants to CCGTs),

d) develop market demand and improve efficiency (adopting combined heat and power plants eg co-

gen and tri-gen).

• On the whole, market reforms have increased

competition among industry players and benefited consumers.

Outcomes of Market Liberalisation (2)