This document summarizes a presentation on electricity markets and externalities given in Singapore. It discusses how perfect electricity markets do not actually exist due to issues like externalities and market power. Examples of negative externalities from electricity generation are provided, such as health impacts, environmental damage, and economic impacts. The document then ranks different electricity technologies based on their full social costs when both private costs and externalities are included. The technologies with the lowest costs are found to be renewable options like wind and solar, while coal and natural gas have much higher overall costs once externalities are considered. The implications discussed are that externalities need to be internalized into electricity prices and that subsidies should be removed to allow low-cost clean technologies to compete.

1. Response: “Singapore”
Benjamin K. Sovacool
Research Fellow, Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy, National University of Singapore
Generating Dialogue: Clean Energy, Good Governance and Regulation
March 17, 2008
bsovacool@nus.edu.sg

2. Preview of presentation
• Perfect electricity markets
• Negative externalities
• Positive externalities
• Putting it all together for Singapore
• Implications for Policy

3. Perfect electricity markets?
Perfect information: all participants in the market must be fully informed as to the quantitative
and qualitative characteristics of goods and services (and substitutes to them) and the terms of
exchange among them;
Transaction costs: exchange must be instantaneous and costless;
Rationality: consumers must maximize utility and producers maximize profits; economic actors
must be able to collect and process all relevant information, hold rational expectations about
prices and products, and make decisions that always promote their self interest;
Perfect competition and openness: no specific firm or individual can influence any market
price by decreasing or increasing supply of goods and services; there must be many buyers
and sellers; they must act without collusion; firms cannot use their market power to influence
the market themselves; predatory practices by incumbent firms against insurgent firms must be
restricted; there must be no barriers to entry and exit;
Internalization: all costs and benefits (or negative/positive externalities) associated with
exchanges must be born solely by the participants of the transaction, or internalized in prices so
that all assets in the economic system are adequately priced;
Excludability: those involved in the exchange mist be able to prevent those not involved from
benefitting from it.

4. Examples of externalities
• Catastrophic risks such as nuclear meltdowns, oil spills, coal mine collapses, natural gas wellhead
explosions, and dam breaches;
• An increased probability of wars due to natural resource extraction or the securing of energy supply;
• Public health issues and chronic disease, morbidity, and mortality;
• Worker exposure to toxic substances and occupational accidents and hazards;
• Public deaths and injuries due to coal trucks, barges, and trains;
• Direct land use by power plants, pipelines, and upstream infrastructure;
• The destruction of land by mining operations including acid drainage and resettlement;
• Acid precipitation and its damage to fisheries, crops, and forests, and livestock, especially the effects of
sulfur dioxide on wheat, barley, oats, rye, peas, and beans and the impacts of acid deposition on other high
value crops such as vegetables, fruit, and flowers;
• The effects of water pollution on fisheries and freshwater ecosystems, sensitive to water chemistry, as well
as the release of radionuclides, drill cuttings, drilling muds and oils;
•Consumptive water use, with consequent impacts on agriculture and ecosystems where water is scarce;
• Degradation of cultural icons such as national parks, recreational opportunities, or activities such as fishing
or swimming;
• Atmospheric damage to buildings, automobiles, and materials by corrosion and the increased maintenance
costs for natural stone, mortar, rendering, zinc, galvanized steel, and paint;
• Continual maintenance of caches of spent nuclear fuel;
• Cumulative environmental damage to ecosystems and biodiversity through species loss and habitat
destruction, as well as the ecosystem services provided by wetlands, waterways, different types of forests,
grasslands, deserts, tundra, coastal and ocean habitat;
• Changes to the local and regional economic structure through the loss of labor and jobs and transfer of
wealth and reductions in GDP;
• Incidence of noise and reduced amenity, aesthetics, and visibility

5. Water consumption for conventional and
renewable power plants (Gallons/kWh)

6. Direct and Indirect Carbon Emissions by
Electricity Technology (equivalent grams of
CO2/kWh

7. Singapore’s own emissions are substantial
= 0.2 % of global emissions , yet Singapore has 15.2 mt/capita, Republic of Korea10.0, Japan at
9.6, China at 2.7; Out of 28 possible countries in Asia and Central Asia, including China, Japan,
Korea, and the oil producing states of Turkmenistan, Azerbaijan, and Kazakhstan, Singapore
ranks first in per capita GHG emissions

8. Henry Hub Natural Gas Futures Prices, 1990
to 2008
Source: Mark Bolinger and Ryan Wiser, Comparison of AEO 2008 Natural Gas Price Forecast to NYMEX Futures Prices (Lawrence Berkeley National Laboratory, January 7, 2008).

9. Energy accidents (frequency by decade and
source)
Techn Accid % of
ology ents Total
Natural 91 33
Gas
Oil 71 25
Nuclear 63 23
Coal 51 18
Hydroele 3 1
ctric
Other 0 0
Renewa
bles

10. Unpriced positive externalities from clean
energy
Risk Management Environmental Investment Reduced Resource Improved Public Economic
Performance Use Image Spillover Benefits
Hedge against fuel Emissions credits Production tax Reduced water use Improved relations Rural revitalization
price volatility credit with stakeholders
Hedge against Reduced emissions Accelerated Lower production Corporate social Jobs and
future fees depreciation costs responsibility employment
environmental
regulations
Hedge against Avoided Local tax base Reduced energy use Economic
future carbon tax remediation and improvements and wear and tear development
pollution abatement on T&D grid
costs
Minimization of Avoided
reliance on futures environmental costs
markets of fuel extraction
and transport
Reduced insurance
premiums
Source: J. E. Pater, A Framework for Evaluating the Total Value Proposition of Clean Energy Technologies
(Golden, CO: National Renewable Energy Laboratory, Technical Report NREL/TP-620-38597, February, 2006)

11. Peaking potential and ELCC: “normal” solar
PV potential (flat plate facing south)

12. Peaking potential and ELCC:

14. But what about Singapore?
50 years
payback!!
Stephen Wittkopf, Nyuk Hien Wong, Willi Hess, Potential of
Building Integrated Photovoltaics In Existing Urban High-Rise
Housing in Singapore (Singapore: Centre for Advanced Studies
in Architecture, National University of Singapore, 2004).

15. Putting it all together
Descriptive Statistics of Electricity Externality Studies, $1998 (US Cents/kWh)
Coal Oil Gas Nuclear Hydro Wind Solar Biomass
Min
0.03 0.003 0.0003 0.02 0 0 0
0.06
Max
39.93 13.22 64.45 26.26 0.80 1.69 22.09
72.42
Mean
13.57 5.02 8.63 3.84 0.29 0.69 5.20
14.87
SD
12.51 4.73 18.62 8.40 0.20 0.57 6.11
16.89
N 15 24 16 11 14 7 16
29
Source: Sundqvist, Thomas and Patrik Soderholm. 2002. “Valuing the Environmental Impacts of Electricity
Generation: A Critical Survey,” Journal of Energy Literature 8(2) (2002), pp. 1-18; Sundqvist, Thomas. 2004. “What
Causes the Disparity of Electricity Externality Estimates?” Energy Policy 32 (2004), pp. 1753-1766.

16. Technology Nominal LCOE, $2007 Nominal External Cost, Full Social Cost, $2007
(¢/kWh) $2007 (¢/kWh) (¢/kWh)
Energy Efficiency and DSM 2.5 0.0 2.5
Offshore Wind 2.6 0.4 3.0
Hydroelectric 2.8 4.94 7.8
Biomass (Landfill Gas) 4.1 6.7 10.8
Advanced Nuclear 4.9 11.10 16.0
Onshore Wind 5.6 0.4 6.0
Geothermal 6.4 0.7 7.1
Integrated Gasification 19.14 25.9
6.7
Combined Cycle
Biomass (Combustion) 6.9 6.7 13.6
Scrubbed Coal 7.2 19.14 26.3
Advanced Gas and Oil 11.97 20.2
8.2
Combined Cycle
Gas Oil Combined Cycle 8.5 11.97 20.5
IGCC with Carbon Capture 8.8 19.14 27.9
Parabolic Troughs (Solar 0.9 11.4
10.5
Thermal)
Advanced Gas and Oil 12.8 11.97 24.8
Combined Cycle with
Carbon Capture
Solar Ponds (Solar Thermal) 18.8 0.9 19.7
Advanced Combustion 6.46 39.0
32.5
Turbine
Combustion Turbine 35.6 6.46 42.1
Solar Photovoltaic (panel) 39.0 0.9 39.9

17. Re-rank them:
Technology Full Social Cost, $2007 (¢/kWh)
Energy Efficiency and DSM 2.5
Offshore Wind 3.0
Onshore Wind 6.0
Geothermal 7.1
Hydroelectric 7.8
Biomass (Landfill Gas) 10.8
Parabolic Troughs (Solar Thermal) 11.4
Biomass (Combustion) 13.6
Advanced Nuclear 16.0
Solar Ponds (Solar Thermal) 19.7
Advanced Gas and Oil Combined Cycle 20.2
Gas Oil Combined Cycle 20.5
Advanced Gas and Oil CC w/ CCS 24.8
Integrated Gasification Combined Cycle 25.9
Scrubbed Coal 26.3
IGCC with Carbon Capture 27.9
Advanced Combustion Turbine 39.0
Solar Photovoltaic (panel) 39.9
Combustion Turbine 42.1

18. Re-rank them:
• Does not include greenhouse gases or climate
change (from 1.4 ¢/kWh to 700 ¢/kWh)
• Most studies utilized “willingness to pay” metrics
• Did not assume cumulative damage
• Assumed reference rather than representative
technologies
• Did not assume T&D damages
• Presumed low capacity factors for wind (35
percent) and solar (17 percent)
• Confirmed by Kammen et al. and others

19. Confirmed by preliminary study in Singapore:
•LCA for five power generation technologies in Singapore (1, 250
MW oil-fired steam turbine plant; 367.5 MW natural gas combined
cycle plant; 250 MW steam turbine plant; 2.7 kW solar PV; 5 kW
PEM fuel cell)
• Under current economics and rate structures, power generation
from renewables is costlier than fossil fuels
• However, inclusion of externalities more than compensate for
this if they were included in the cost of electricity
Source: R. Kannan, K. C. Leong, R. Osman, H.K. Ho, “Life Cycle Energy, Emissions and Cost Inventory of
Power Generation Technologies in Singapore,” Renewable and Sustainable Energy Reviews 11 (2007), pp.
702-715.

20. Implications for policy
Widespread convention of excluding externalities in prices must
end; an SBC can be implemented to offset regressive nature of
price increases in low-income families (in a sense they are
already paying)
Removal of subsidies insufficient to create functioning electricity
markets; public goods attributes demand government intervention
When all costs and benefits are included using the best available
methods available, the seven technologies with the lowest full
social costs are energy efficiency, offshore wind, onshore wind,
geothermal, hydroelectric, biomass, and solar thermal. Scrubbed
coal and natural gas are up to 10 times more expensive than
these options