REGULATING SINGAPORE’S

ELECTRICITY INDUSTRY

11 April 2011
 Outline
•The Electricity Industry Milestones

1) Background

2) Restructuring of Singapore’s Electricity Industry

3) Regulatory Philosophy

4) Regulatory Framework

5) Regulatory Practices

6) Key Lessons

7) Results achieved so far

About the Energy Market Authority of Singapore
•The Electricity(EMA)
Industry Milestones

• The lead agency for energy matters in Singapore – a statutory

board under the Ministry of Trade and Industry.

• EMA is also the regulator of Singapore’s electricity and gas

industries.

• EMA’s main goals are to:

(1) ensure a reliable and secure energy supply;

(2) promote effective competition in the energy

market; and

(3) develop a dynamic energy sector in Singapore.

 Overview of Singapore’s Energy Landscape

Gas from
Indonesia
• No significant energy resources – dependent on imports for energy needs.

• About 80% of Singapore’s electricity is generated using imported natural gas –

vulnerable to price fluctuations and supply disruptions

• Singapore faces additional challenge of being alternative energy

disadvantaged – limited scope to deploy solar and wind energy on a large scale.
 •The Electricity Industry Milestones

Restructuring of Singapore’s
Electricity Industry
 Electricity Industry of
Restructuring Reforms - 2000 Industry
the Electricity

• Singapore’s electricity industry had traditionally been vertically integrated

and Government-owned.

• Liberalisation of electricity industry began in 1995, and continued through

2000, where the government decided to press on with further liberalisation
of the electricity industry and obtain the full benefits of competition.

Key Initiatives for Restructuring:

• Clear separation of contestable/competitive businesses from natural

monopolies to ensure level playing field

• Open access to monopoly infrastructure

 ELECTRICITY INDUSTRY
Electricity Industry STRUCTURE
Structure in IN 1995
1995

Singapore Power Tuas SembCorp

ENV
Power Cogen
Senoko Power IPPs
PowerSeraya

PowerGrid Ltd
T&D System Pool
Operations Operations
since Apr 98

Power Supply Ltd Private Electricity

Non- Suppliers
franchised Utilities
Franchised Support Utilities Non-
Sector Sector Services Support franchised
Services Sector
Contestable Business
Non-contestable
Progressive Non-franchised Business
Franchised
extension of Consumers
Consumers competition
ELECTRICITY INDUSTRY
Electricity STRUCTURE
Industry IN Today
Structure APRIL 2001

Senoko Power NEA Tuas IPPs

Power Seraya Power

EMA

Industry
Regulator
PowerGrid System
Singapore T&D Operator
Power

SP Services (formerly Electricity Energy Market

Power Supply) Retailers Company
Market
Franchised (Small) Market to be Non-franchised (Large Operator
Consumers fully opened Industrial & Commercial)
ultimately Consumers
Electricity Flow

Note: SP Services is not allowed to compete with the retailers for contestable
consumers, it just passes through the pool price.
 Regulatory Philosophy
Contestable Sector
(Gencos, Retailers)
 regulate with light touch
 rely on market signals
 ensure level playing field
 Low barriers to entry
 Transparent rules and
consistent application of rules
Monopoly Sector
(SP PowerAssets, SP Services,
EMC)
 regulate revenue/prices
 incentivise efficient behaviour
 Set performance standards to
prevent “cutting of corners”
 share cost savings with
consumers
 Open access
•The Electricity Industry Milestones

Contestable Sector:
Generation
 Wholesale
WholesaleElectricity
Electricity Market

• Gencos bid half-hourly to sell

electricity
• Energy
Market • Reserve: Primary, Secondary
Mechanism and Contingency
• Regulation
• Retailers/contestable consumers
buy electricity

• EMC
Market
Operator • Perform market clearing and
settlement functions
 Market Power
VestinginContracts
Wholesale Market
• Wholesale Market is dominated by three large gencos, with combined
market share of close to 80%.
• Gencos can push prices up by witholding supply.
Price Demand

P2 Genco At demand = Q, Market Price

C is P1.
P1 However, suppose Genco A
Genco
B withholds supply, Genco C
would now be dispatched.
Genco A
The market price would
increase to P2.
Genco
B

Genco
A

Quantity
Q
 Vesting
VestingContracts
Contracts(1)

Solution:
• Introduced Vesting Contracts in 2004 - Gencos to sell a specified
amount of electricity at specified price.

2004 Mid-2007 2011 2012 Ultimate

Goal
Vesting 65% 55% 60% 55% 0%
Cover
Vesting LRMC of most economic power plant in Singapore
price

• Vesting Price set by EMA based on Long Run Marginal Cost of the
most economic generation technology in operation in Singapore and
that contributes to more than 25% of total demand.
 Review of Vesting Price
Review of Vesting Price

• EMA reviews the LRMC parameters every 2 years and resets them to reflect
the costs of newer and more efficient plants.

• In each round of review, EMA consults the industry before deciding on the
value of parameters that would take effect for the next 2-year period.

• EMA is also required to consult all Vesting Contract holders (i.e. gencos) at
least 3 months in advance of any amendments to the parameters of the
vesting price, or the methodology for setting the vesting price.

• Review process is transparent and gives regulatory certainty to gencos.