Singapores Electricity Market After Market Reform

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Singapores Electricity Market After Market Reform

  1. 1. Singapore’s Electricity Market after Market Reform David Tan Deputy Chief Executive Energy Market Authority
  2. 2. Agenda • Timeline of Market Reform • Regulatory Principles and Tensions • Outcomes of Market Liberalisation
  3. 3. Before Liberalisation • 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.
  4. 4. Industry Reforms (1) • 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
  5. 5. Electricity Industry Structure in 1995 ENV Tuas SembCorp Singapore Power Ltd IPPs Power Ltd Cogen Pte Senoko Power Ltd PowerSeraya Ltd Ltd PP GT Senoko Jurong Seraya PowerGrid Ltd T&D System Pool Operations Operations since Apr 98 Power Supply Ltd Private Electricity Non- Suppliers Franchised franchised Utilities Support Utilities Non- Sector Sector Services Support franchised Services Sector Contestable Business Non-contestable Progressive Non-franchised Business Franchised extension of Consumers Consumers competition
  6. 6. Industry Reforms (2) • 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
  7. 7. Industry Reforms (3) • 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.
  8. 8. Electricity Industry Structure in April 2001 Senoko Power PowerSeraya ENV Tuas Power IPPs Ltd Ltd (now NEA) Ltd Energy Market Authority of Singapore Industry Regulator PowerGrid Ltd System Operator T&D Singapore Power Ltd Power Supply Ltd Electricity Market (now SP Services Ltd) Retailers Operator Energy Market Company Pte Ltd Franchised (Small) Market to be Non-franchised (Large Consumers fully opened Industrial & Commercial) ultimately Consumers Electricity Flow
  9. 9. Key Electricity Licensees Electricity Generation (8) Market Company Senoko Power Ltd Energy Market Company Pte Ltd PowerSeraya Ltd Tuas Power Ltd Electricity Retail (6) SembCorp Cogen Pte Ltd Keppel Electric Pte Ltd National Environment Agency SembCorp Power Pte Ltd Island Power Company Pte Ltd Tuas Power Supply Pte Ltd Keppel Merlimau Cogen Pte Ltd Senoko Energy Supply Pte Ltd Keppel Seghers Tuas Waste-To- Seraya Energy Pte Ltd Energy Plant Pte Ltd Island Power Supply Pte Ltd Electricity Transmission SP PowerAssets Ltd Market Support Services SP PowerGrid Ltd (as agent to SP Services Ltd electricity transmission licensee)
  10. 10. Industry Reforms (4) • 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.
  11. 11. Industry Reforms (5) – Retail Contestability Phase I Phase II Phase III started started in Being studied Jun 2003 Dec 2003 • HT consumers • LT consumers • Remaining one with average million • LT consumers consumers monthly with average consumption • Electricity monthly exceeding Vending System consumption 10,000 kWh exceeding 20,000 kWh • Another 5,000 contestable • About 5,000 consumers consumers
  12. 12. Electricity Industry Structure in Jan 2003 PowerSenoko PowerSeraya ENV Tuas Power IPPs Ltd Ltd Ltd Energy Market Authority of Singapore Industry Regulator PowerGrid Ltd System Operator T&D Singapore Power Ltd SP Services Ltd Electricity Market Retailers Operator Energy Market Company Pte Ltd Franchised (Small) Market to be Non-franchised (Large Consumers (1 mil) fully opened Industrial & Commercial) ultimately Consumers (10,000) Electricity Flow
  13. 13. Generation Statistics (2007) Max System Demand 5,946 MW Licensed Generation 12,330 MW Capacity Energy Generated 41,138 GWh System Gross ~ 44% Efficiency System Losses ~ 9% Generation by Fuel Fix Fuel Oil 18% Natural Gas 79% Others (Incineration, 3% etc.)
  14. 14. Regulatory Principles (1) • 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.
  15. 15. Regulatory Principles (2) 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 to incentivise the companies to be cost efficient.
  16. 16. Regulatory Tensions (1) • 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?
  17. 17. Global fuel mix is much more diverse than S’pore Global Electricity Fuel Mix (2004) Singapore Electricity Fuel Mix Waste (2006) Geotherm 0.4% Others al Refuse 0.5% Hydro 0.3% 2.4% Diesel 16.5% 0.1% Orimulsi Coal on 39.6% 6.9% Natural Nuclear Gas SynGas 15.6% 77.8% 0.9% Biomass 0.9% Fuel Oil 11.9% Gas Oil 19.5% 6.7% Source: IEA, EMA
  18. 18. 0% 20% 40% 60% 80% 100% South Africa Australia Source: IEA, EMA Israel Hong Kong Taiwan Coal USA Germany Hydro Denmark Indonesia Oil South Korea North Korea Gas UK Ireland Nuclear Philippines Malaysia Finland Japan Renewables Netherlands International Comparison Russia New Zealand France Norway Switzerland Singapore
  19. 19. Regulatory Tensions (2) • 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.
  20. 20. Regulatory Tensions (3) • 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.
  21. 21. Outcomes of Market Liberalisation (1) Downward pressure of electricity prices • 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
  22. 22. Electricity Tariff vs Fuel Oil Price 96.64 100 100 Fuel Oil Prices (S$) vs Low Tension Tariff 87.49 88.52 87.46 90 90 80.96 81.23 77.45 80 75.73 80 72.71 70 64.87 65.25 70 Fuel Oil Prices (S$/bbl) Tariff (¢/kWh) 60 52.40 60 50.15 49.22 47.79 50 45.66 50 42.84 42.42 43.06 43.34 43.12 44.56 44.56 38.30 37.18 37.18 40 40 32.1332.13 30 22.62 30 21.15 21.64 20.02 20.52 21.38 19.87 18.26 19.57 21.02 20.49 18.88 17.21 17.21 17.81 16.56 20 15.0215.02 16.01 16.51 15.24 15.81 15.44 15.8 15.8 16.53 16.73 16.06 20 10 Pegged Fuel Price LT Tariff 10 0 0 Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 • 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.
  23. 23. CO2 Generated in kg/MWh in Year 2000 and 2007 • Source: CARMA 30% reduction in Carbon Dioxide Generated in kg/MWh
  24. 24. Outcomes of Market Liberalisation (2) 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.
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