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Presented at the International Conference of Applied Energy (ICAE) 2012 in Suzhou, China

Presented at the International Conference of Applied Energy (ICAE) 2012 in Suzhou, China

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Liberalized Electricity Markets? A Case Study of Singapore Liberalized Electricity Markets? A Case Study of Singapore Presentation Transcript

  • Liberalized Electricity Markets?A Case Study of SingaporeEnergy Management, Policy and EconomicsInternational Conference on Applied Energy5-8 July 2012Melissa Low, Energy Analystesimlyx@nus.edu.sg 1
  • Overview• Market Introduction• Drivers of Change• Market Reform Milestones• Legislative Reform• Analysis of Benefits• Summary• Outlook 2
  • About ESIESI was established at the NationalUniversity of Singapore inNovember 2007 to promote anddevelop policy-oriented researchon the economics, environmentaland security aspects of energy, aswell as to contribute to energydialogues and collaboration withinthe region.We are committed to providingindependent, quality and timelypolicy research and analysis ofregional and global energy trends. 3
  • Funding Sources Ministry of Trade and Industry (MTI) Ministry of Environment and Water Resources (MEWR) Ministry of Foreign Affairs (MFA) 4
  • Singapore Market Figures (2011)• On an annual basis, metered demand increased 1.3% from 2010 to hit 43 terrawatt hours in 2011• Wholesale electricity price (annual Uniform Singapore Energy Price or USEP) increased by 26.0% to reach new height of S$214 per megawatt hour (MWh)• Annual trading value in National Electricity Market of Singapore (NEMS) was recorded as S$9.7 billion in 2011• Available capacity in NEMS increased by 1% to slightly above 6,500MW• With effect from 1 Jul 2012, the electricity tariff for households reached 28.08 cents per kWh 5
  • Source: EMA Annual Report 2011 6
  • Total Licensed Capacity: 9,892 MWSource: EMA Annual Report 2011 7
  • Electricity consumptionSource: Lowcarbonsg.com based on statistics from Energy Market Authority and Singapore Department of Statistics 8
  • Generation Capacity 9
  • Overview Singapore’s electricity industry has evolved from atraditionally vertically-integrated Government-ownednatural monopoly to one that is structured to facilitate competitive wholesale and retail markets.Separation of the ownership of the contestable parts ofthe industry from the Government-owned undertakings was crucial to allow gradual deregulation and liberalization of the electricity market. 10
  • Drivers of Change• 1990s: worldwide trend in deregulation, privatization, restructuring• Previously regulated monopolies and/or state-owned: – Not just electricity but airlines, trucking, telecommunications, natural gas (US, Canada, UK), mail and package delivery services, railroads etc. as well• Overriding reform goal to: – Create new institutional arrangements – Provide long-term benefits to society – Ensure that appropriate share of benefits are conveyed to consumers – Ensure service quality attributes that reflect consumer valuations 11
  • Drivers of Change• Other countries in the world, such as the US, Australia and New Zealand, were attempting to reform their electricity sectors• Perception that deregulation could bring about lower electricity costs due to various efficiency gains through competition• Singapore’s reliance on foreign direct investments and exports and competition from countries with lower costs such as China and India increased pressure on government to reduce cost of doing business in Singapore 12
  • Process of deregulationCorporatizing Regulatory Privatization Full Market 1995-1998 Infrastructure & Divestment Contestability 1998-2001 2001-2009 2009-? 13
  • Market Reform Milestones: Corporatizing• 1963 – 1995: Public Utilities Board fully responsible for the supply of electricity, piped gas and water to the entire population of Singapore• 1 October 1995: Corporatizing the electricity and piped gas undertakings of the PUB by vesting it under the Government’s investment arm Temasek Holdings• Within Temasek Holdings, Singapore Power was created as the holding company for several new companies including generation companies, PowerSenoko (now Senoko Power) and PowerSeraya; the transmission company, PowerGrid (now SP PowerAssets); and SP Services Ltd, the electricity supply and utilities support services company.• A further generator, Tuas Power, was set up as an independent company directly under Temasek Holdings 14
  • Market Reform Milestones: Regulatory Infrastructure• 1 April 1998: Singapore Electricity Pool commenced operation with a day-ahead cost-based market• September 1999: Singapore Government carried out a comprehensive review of the industry with a view to consider the implementation of a wholesale electricity market structure and regulatory framework to support a competitive electricity industry in Singapore• March 2000: Decided that further deregulation would take place to obtain the benefits of full competition• January 2004: Vesting Contract and Interruptible Loads Scheme introduced 15
  • Vesting Contracts• Key policy objective of the vesting contract regime is to curb market power in order to promote efficiency and competition in the electricity market for the benefit of consumers• Bilateral electricity contracts between generation companies and SP Services• Under the vesting contracts, the generation companies are committed to sell a specified amount of electricity (viz. the vesting contract level) at a specified price (viz. the vesting contract price).• This removes the incentives for generation companies to exercise their market power by withholding their generation capacity to push up spot prices in the wholesale electricity market.• EMA reviews both the vesting contract level and the parameters used to set the vesting price every two years. The vesting price is set based on the long run marginal cost (“LRMC”) of the most efficient generation technology that accounts for more than 25% of the total electricity demand and taking into consideration the key policy objective. 16
  • Market Reform Milestones: Privatization & Divestment• 2001: Electricity generation and retail business was separated from the natural monopoly of electricity transmission at the ownership level• 2003: National Electricity Market of Singapore opened, replacing the Singapore Electricity Pool (1998)• 2003: Privately-developed power generation firms like Sembcorp Cogen and Keppel Merlimau Cogen saw the opportunity to enter the market• 2009: Power Senoko (now Senoko Energy), Power Seraya and Tuas Power fully divested from Temasek Holdings 17
  • Market Reform Milestones: Divestment• July 2008: Tuas Power, when Sino-Sing Power, which owns Tuas Power Ltd, acquired by the Huaneng Power International, Inc.• October 2008: Lion Power Consortium, comprising of Marubeni Corporation (30%), GDF SUEZ (30%), The Kansai Electric Power Co. Inc. (15%), Kyushu Electric Power Co., Inc. (15%), and Japan Bank for International Cooperation (10%) took over Senoko Energy• March 2009: Power Seraya became a wholly-owned subsidiary of YTL Power International Berhad 18
  • Market Reform Milestones: New Players• 2009: Revised regulation price cap of $300/MWh implemented• 2009: New embedded generators, small generators and incineration plants joined NEMS and began trading• 2010: Vesting tender was introduced to tender out a percentage of non-contestable electricity demand to generation companies for bidding• 2010: Shell Eastern Petroleum joined the market as an embedded generator and began trading 19
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  • National Electricity Market of Singapore (NEMs) Participants• Energy Market Authority – Regulator• Energy Market Company – Operates and administers the wholesale market – Calculates prices, schedules generation, clears and settles market transactions, procurement of ancillary services• Power System Operator• Transmission Licensee• Generation Licensee• Retail Electricity Licensee• Market Support Services Licensee• Consumers 23
  • Electricity Demand Forecast• Current*Forecasted demand is based on GDP and population projections. It does nottake into account possible changes in Singapore’s economic structure or demandpatterns due to energy efficiency measures. 24
  • Market Structure 25
  • Source: EMA Annual Report 2011 26
  • Legislative Reform• Market deregulation/liberalization since 1995 only took legislative form from 2001 onwards: – Energy Market Authority Act 2001 – Electricity Act 2001 – Energy Conservation Act 2013 27
  • Energy Market Authority of Singapore Act (Chapter 92B)An Act to establish and incorporate the Energy MarketAuthority of Singapore, to provide for its functions andpowers, and for matters connected therewith.Note:• Part III Functions, Duties and Powers of Authority• Part V General – Powers of Enforcement• Second Schedule Powers of Authority 28
  • Energy Market Authority• EMA was set up in April 2001 to liberalize the electricity and gas markets and ensure security, reliability and adequacy of power system• EMA oversees the regulation of electricity, piped gas industries and district cooling in designated areas• EMA oversees both the Energy Market Authority of Singapore Act (Chapter 92B) and Electricity Act (Chapter 89A)• Regulations made pursuant to the powers conferred under the Electricity Act (Chapter 89A) and are currently in force so come under purview of EMA 29
  • Electricity Act (Chapter 89A)An Act to create a competitive market framework for theelectricity industry, to make provision for the safety,technical and economic regulation of the generation,transmission, supply and use of electricity, and for othermatters connected therewith, to repeal the ElectricalWorkers and Contractors Licensing Act (Chapter 89 of the1985 Revised Edition), and to make consequentialamendments to certain written laws. 30
  • Energy Conservation Act• Energy Efficiency-related legislation across various sectors will be consolidated in an Energy Conservation Act that will be introduced in FY2013• The proposed mandatory energy management practices will affect companies that consume more than 15 GWh of energy annually, or 1.29 ktoe of energy.• Objectives – To help Singapore achieve the target of a 35% improvement in energy intensity by 2030, from 2005 levels. – To improve the energy performance of companies and thus making them more competitive in the global economy. – To complement existing schemes and capability building programmes which provide support for companies investing in energy efficiency – To ensure a co-ordinated approach to standards setting for energy efficiency across all sectors 31
  • Other legislation and regulations• Energy Market Authority Act – Electricity (Electrical Workers) Regulations – Electricity (Composition of Offences) Regulations – Electricity (Cable Detection Workers) Regulations – Electricity (Contestable Consumers) (no. 2) Regulations – Electricity (Electrical Installations) Regulations• Gas Act – Gas (Metering) Regulations – Gas (Supply) Regulations – Codes of Practice• District Cooling Act 2001 – District Cooling Supply Services Code*See www.ema.gov.sg for more information 32
  • Success FactorsThe relative ease of transition from a traditional utilitypractice into a truly open and competitive market canbe attributed to • Small market size • Political structure • Legislation and regulatory framework • Well-enforced market rules 33
  • Analysis of Benefits• Attracting private investment• Increasing efficiency of government assets• Sending accurate price signals• Encouraging innovation• Providing consumer choice 34
  • Attracting private investment• Temasek Holdings sold – Tuas Power to China Huaneng Group for S$3.9 billion – Power Seraya to YTL Power International Bhd. For S$3.6 billion – Senoko Power generating company to Lion Power Holdings for S$3.65 billion• Race for cost efficiency means investing in new and more efficient gas-fired combined cycle turbines and retrofitting/upgrading existing infrastructure 35
  • Increasing efficiency of government assets• From 2000 to 2006, the electricity generated by natural gas increased from 19% to 78%• Singapore’s overall power generation efficiency has improved from 38% to 44% in 2006• In 2010, around 79% of Singapore’s electricity was generated from natural gas, 19% from petroleum products such as fuel oil and diesel, and 3% from renewable sources like biogas, municipal solid waste and solar 36
  • Measuring efficiency gains• System Average Interruption Duration/Frequency Index (SAIDI/SAIFI)• In 2001, Singapore’s SAIDI figures show there were only 0.8 interruptions per 1000 customers and outages totaled just 0.93 minute that same financial year (Chang and Tay, 2006) 37
  • Source: Energy Market Authority 38
  • Sending accurate price signals • Electricity tariffs, regulated by the Energy Market Authority (EMA) are a good indicator to determine if prices of electricity have remained or become more competitive since liberalization of the marketSource: SP Services 39
  • Source: SP Services 40
  • Non-fuel CostThe non-fuel cost, which reflects the cost of generating anddelivering electricity to our homes, comprises the following: – Power Generation Cost: Costs of operating the power stations, such as the manpower and maintenance costs, as well as the capital costs of the stations. – Grid Charge: Recover the cost of transporting electricity through the power grid. – Market Support Services (MSS) Fee: Recover the costs of billing and meter reading. – Power System Operation and Market Administration Fees: Recover the costs of operating the power system and administering the wholesale electricity market. 41
  • Source: EMA Annual Report 2011 42
  • Source: SP Services 43
  • Source: EMA Annual Report 2011 44
  • Sending accurate price signals• December 2010: KEMA performed an international benchmarking study to compare SP Services’ cost-to- serve and service levels against utility companies offering similar scope of services in other electricity markets. They include utility companies in Asia, Australia, Europe and the United States.• SP Services achieved the lowest cost-to-serve per customer per annum, and it is significantly lower than the average cost-to-serve of other utilities• According to EMA, Singapore’s service standards adopted by SP Services are generally more stringent than those of overseas 45
  • Source: Energy Market Authority 46
  • Encouraging innovation• Innovative products currently only benefit contestable consumers, those whose average monthly consumption over a 12-month period is over 10,000 KWh• Contestable consumers have three choices to buy electricity: – Electricity retailer; – Directly from the wholesale market (NEMS) as a market participant; or – Indirectly from the wholesale market through SP Services Ltd 47
  • Encouraging Innovation: Providing Consumer Choice• Collectively, these non-contestable consumers - more than 1 million in number - represent 25% of the total electricity sales in Singapore• Currently, they continue to purchase their electricity from SP Services Ltd at the regulated tariff• The main barrier towards full retail contestability seems to be the high cost of maintaining and servicing small accounts• The use of smart meters and electricity vending are just some ways that the EMA is proactively exploring possible solutions for market liberalization 48
  • Summary• The liberalization of Singapore’s retail electricity market has been implemented in phases to ensure a smooth transition• Thus far, the liberalization has opened up 75% of total electricity sales in Singapore to competition• A total of about 10,000 contestable consumers are able to exercise their choice of electricity purchase• Legislation has played a defining role in the liberalization of Singapore’s electricity industry• Third and final phase of deregulation is full market contestability, which is currently underway in Singapore 49
  • Outlook• Tuas Power Tembusu Multi-Utilities Complex (TMUC) – Biomass clean coal cogeneration plant, a desalination plant, and a wastewater treatment facility• Liquefied Natural Gas set to enter the market in 2013 with the opening of Singapore LNG Terminal – EMA expects 3,000 MW of additional CCGT capacity using LNG by 2016, seen to be a key driver of maintaining the competitiveness of electricity prices• Energy Conservation Act 2013 highlights commitment of government in curbing growth of electricity consumption and carbon emissions – Affects companies consuming more than 15GWh annually or 1.29 ktoe – To help Singapore achieve the target of a 35% improvement in energy intensity by 2030, from 2005 levels• Plans to import and export electricity, so as to contribute to bringing about a regional market for electricity underway – Up to 600MW per source country 50
  • Final Thoughts• Further research needs to be done to understand the impact of new energy developments on electricity market• Test-bedding of new (and not-so-new) ideas such as Demand Response/Demand Bidding to manage potential growth in electricity consumption in Singapore and an Energy Futures Market are real possibilities, therefore opportunities and challenges need to be examined 51
  • ReferencesAttorney-General’s Chambers (2011) Energy Market Authority of Singapore Act (Chapter 92B)Attorney-General’s Chambers (2011) Electricity Act (Chapter 89A)Business Times (2011) Plan to import electricity silent on exportsChang and Tay (2006) Efficiency and deregulation of the electricity market in Singapore, Energy Policy 34, pp. 2498-2508Department of Statistics Singapore (August 2011) Monthly Digest of Statistics in SingaporeDepartment of Statistics Singapore (2011) Key Annual IndicatorsDepartment of Statistics Singapore (2010) Key Annual Indicators 2010E² Singapore (2011) Power GenerationEnergy Market Authority (2012) Liberalization of the Retail Electricity MarketEnergy Market Authority (2011) Singapore Energy StatisticsEnergy Market Authority (2010) Statement of Opportunities 2010Energy Market Authority (2010) Singapore Gas IndustryEnergy Market Authority (2009) How is Electricity Tariff DeterminedEnergy Market Authority (2009) Introduction to the National Electricity Market of SingaporeEnergy Market Authority (2009) Statement of Opportunities 2009Energy Market Authority (2007) Pick Up Your Evaluation Guide: To Switch on Your ChoiceEnergy Market Authority (2007) Switch on Your ChoiceEnergy Market Company (2012) About The MarketEnergy Market Company (2012) Market Players 52
  • ReferencesEnergy Market Company (2012) Singapore Electricity Market Rules “Chapter 1 Introduction & Interpretation of theMarket Rules”International Energy Agency (2011) Empowering Customer Choice in Electricity MarketsInternational Energy Agency (2011) Key World Energy Statistics 2011Kema International (2007) Grid Price and Benchmarking Study Tender reference no: TC050212; Final report referenceno: 0160-KCS/IMS 05-0422Ministry of Environment and Water Resources (2008) National Climate Change StrategyMinistry of Environment and Water Resources (2011) Energy Conservation Act Fact SheetMinistry of Trade and Industry (2011) “Chapter 3 Economic Outlook” in Economic Survey of Singapore Second Quarter2011.Ministry of Trade and Industry (2007) National Energy Policy Report, p. 43National Climate Change Secretariat (2010) Singapore’s Second National Communication: Under the United NationsFramework Convention on Climate Change National Environment Agency SingaporeNational Environment Agency (2011) Singapore Energy Efficiency Programme OfficeNational Environment Agency (2006) Singapore Green PlanSenoko Energy (2012) About Us – MilestonesSingapore LNG Corporation (2012) Project Updates: SLNG is fairly advanced in its programme to deliver the SingaporeLNG TerminalSingapore Power (2012) Tariff RatesThe Straits Times (2011) Electricity tariffs to increase by average of 2.3%World Atlas (2011) Countries of the World –Singapore 53