Senoko

RIDING THE

RIDING THE MEGATREND OF SUSTAINABILITY
MEGATREND OF
SUSTAINABILITY
SINGAPORE SUSTAINABILITY AWARDS COMMEMORATIVE BOOK
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the Inaugural Sustainable Business Awards and Green IT Awards

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© 2011

SENOKO ENERGY PTE LTD
Case Written By Somnath Kansabanik

SENOKO ENERGY

Committed to serving the nation’s energy needs in a responsible way, Senoko Energy Pte Ltd is the largest
power generation company (genco) in Singapore, with 3300 MW licensed capacity which is over 30 per cent
share of the city state’s entire installed capacity. The company has two power plants. The main plant called
Senoko Power Station (3195 MW capacity) is at the extreme north of Singapore bordering Malaysia. The other
open cycle gas plant (Pasir Panjang Gas Turbine Plant) is at Pasir Panjang, south of Singapore. Senoko Power
Station is the first company in Singapore to build combined cycle gas turbine (CCGT) plant in 1996 in a bid
to reduce its carbon emission intensity. By year 2004, Senoko had converted its three ageing oil fired 120MW
steam plants into three modern 365 MW combined cycle plants. This repowering project increased the total
combined cycle capacity to 1945 MW as well as reduced the carbon emission by 40 per cent making Senoko the
genco with lowest CO2 emission intensity1. With highest share of CCGT generation2 and lowest CO2 emission
intensity, Senoko is the most efficient and environment friendly power generator in Singapore.

SENOKO’S JOURNEY THROUGH PRIVATIZATION

Senoko started its operations in 1976 as a division of the Electricity Department of Public Utilities Board (PUB)
and was later corporatized as PowerSenoko Limited under Singapore Power (SP) in 1995. Divestment from
SP to Temasek took place in 2001 when PowerSenoko was renamed as Senoko Power Limited. In fact, prior
to privatization and deregulation, the Singapore government’ investment arm Temasek Holdings owned all
the three power gencos in Singapore. Temasek subsequently decided to divest all three gencos in order to
provide a stable and competitive power market in Singapore. Temasek first sold Tuas Power to Huaneng group.
Continuing divestment strategy, Temasek sold Senoko Power Limited to Lion Power Holdings in 2008. Lion
Power is an international consortium comprising Marubeni Corporation (30 per cent), GDF Suez S.A. (30 per
cent), The Kansai Electric Power Co. Ltd (15 per cent), Kyushu Electric Power Co. Ltd (15 per cent) and Japan
Bank for International Cooperation (10 per cent). GDF Suez is a French Power Company while the rest of the
shareholders are Japanese companies. On 13 January 2010, the name Senoko Power Ltd was changed again
and now it is known as Senoko Energy Pte Ltd (SEPL).

THE ABCs OF SUSTAINABLE DEVELOPMENT IN THE POWER INDUSTRY

Sustainable development is defined as the development that “meets the needs of the present without
compromising the ability of future generations to meet their own needs”3. A sustainable development requires
simultaneous pursuit of “triple bottom lines”: economy (firm specific), environment and society. Whenever we
think of sustainable development within the power industry, the picture of wind turbines and solar panels
comes to mind. Generating power means providing society with the most useful
commodity which makes living possible in the modern world. However, the process
of power generation must be economically sustainable while minimizing the
impact on the environment. Wind and solar power are renewable sources as well
as environmentally clean. But the question remains as to whether wind turbines
and solar turbines are economically sustainable means
of power generation in Singapore. Wind speed of 6
Wind Turbine Farm meter/second is the minimum air speed for successfully
harnessing wind turbine energy, and for profitable wind
turbines the required air speed is 9 meter/second4. However in Singapore, average
air speed is 0.06 to 3.4 m/s. So, wind is not a viable option for Singapore. Neither
is solar power a realistic source of energy since the solar panels require large space
which the tiny 710 sq km island cannot provide. If the government housing blocks Solar Plant

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(HDB) were upgraded with solar panels which usually operate at 10 per cent efficiency, altogether these panels
could only provide 2 per cent of the nation’s entire electricity need. Nuclear, hydro and bio-energy are the other
environmentally friendly choices. Nuclear however requires big investment although operating cost per unit
electricity produced is much lower. Safety is prime concern for nuclear power plant, especially in a small country
such as Singapore. Hydro power is not obviously a possibility in Singapore. The other sources of fuel such as
bio-mass and bio-fuel are renewable but limited in quantity. Hence, Singapore has to rely on fossil fuels like
natural gas, fuel oil and oil/diesel for power generation. Among these, natural gas is the most environmentally
clean and viable choice.

With limited alternative energy
solutions, Singapore uses thermal
systems for power generation
which contribute to half of the total
national emissions of CO2, the
primary heat-trapping, “greenhouse
gas” responsible for global warming.
However, it will not be technically
correct to say gencos are the only
sources of the greenhouse gas
problems; they are just a solution
provider for the energy needs of
Singapore. The manufacturing
sector, which is the biggest customer
of electricity, also emits CO2 by
using directly fossil fuels in their
manufacturing processes. So in
terms of total CO2 emission, the
manufacturing sector tops the CO2
emission list with 44 per cent share in overall emission. The other customers of electricity as well as direct
contributors of CO2 emission are the transport industry (5 per cent), buildings (30 per cent) and households
(18 per cent). Apart from CO2, NOx, Sulphur and industrial waste are the other polluting elements emitted by
gencos. Overall, gencos face the unique challenge of fulfilling society’s need for energy while having to remain
economically sustainable and environmentally friendly as well. The implications of sustainability for power
industry are much more than just showing lip-sympathy towards the environment. The environmental strategy
of gencos will decide whether Singapore can achieve the national target of reducing CO2 emission by 16 per
cent by 2020 (against business-as-usual level).

It is important that a company not only addresses the concerns for environment, economy and society but
also measures on a set of dimensions the impact of its sustainability actions and reports them periodically.
Of late, companies have started adopting a holistic approach in reporting non-financial performance of the
company in the form of sustainability reporting. As per GRI (Global Reporting Initiative) guidelines there are 79
indicators to measure sustainability in terms of both human and environmental aspects. While human resource
practices, community service, corruption/ethics are measures of human aspect of sustainability, there are
number of indicators for environmental sustainability such as noise level, ambient air quality, carbon footprint,
water efficiency, water quality, waste management etc. In Singapore to date about a number of companies
are annually reporting their sustainability performance with SGX. Senoko is in the process of starting to report
sustainability on annual basis. Power Seraya has already ventured into sustainability reporting and has won
the top position in the Singapore Awards for Sustainability Reporting (SASR) by ACCA5.

SELLING CIGARETTES VS. SELLING POWER

In Singapore, there are 1 million domestic customer accounts for the entire population of 5.1 million people6.
Domestic retail market is not de-regularized yet, hence SP Power is still the sole retailer in this domestic market
which is 18 per cent of the 41.2 Terra Watt hour (TWh) yearly (in 2010) electricity sales in Singapore. Through

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the monthly invoices, SP Power communicates the national average electricity consumption data along with
the individual consumption trends. This data is provided in order to raise consumer awareness so that they
can minimize the use of electricity and water. Along with SP Power, all the private operators are also spreading
the same message of saving electricity. Is not the reduction in consumption going to reduce their revenue?
That may be true, but power companies need to look beyond short term revenue base maximization through
promoting higher use of electricity.

In Singapore, tobacco companies are obliged to mention the ill-effects of smoking on the packet itself. On a
similar note, power companies embrace efforts to let the common people know how electricity is generated
in Singapore and how the waste of electricity simply adds to elevated Carbon footprint. Nowadays, almost
all environmentally conscious organizations are participating in events like “Earth Hour”. As per the Facebook
page of Earth Hour Singapore, if most people, businesses and government get involved in the Earth Hour and
turn off their lights for 60 minutes, electricity consumption could be reduced by 10 per cent of the total demand
which is equivalent to “taking 48000 cars off from the roads”vii for one hour. Considering all these facts, we
can see the twist while analyzing the strategic angle for economic sustainability of gencos. Their responsibilities
towards environment and people are much more than any other traditional profit maximizing organizations.
But they must develop sound economic strategies to survive in the deregulated power industry and continue
serving the society.

How Senoko & Its Competitors Generate Power
In a typical steam plant, fuel is burnt in steam boilers to produce steam that drives the turbines and
generates electricity. Senoko has a total of 500MW from its two steam plant in Senoko Power Station. Its main
competitors are Tuas power which has a 600 MW steam plant and Power Seraya which has six units of 250 MW
oil-fired steam plants that have a combined capacity of 1500 MW.

Natural gas provides the highest
efficiency when used in combined cycle
power plant (also known as combined
cycle gas turbine – CCGT). In CCGT,
natural gas is burned to produce energy
to drive gas turbine that generates
electricity. The waste gas-to-heat, in
the form of steam produced in the heat
recovery steam generator, is recovered
to drive a steam turbine that produces
more electricity. The system is equipped
with back-up diesel supply, to address
gas shortage , if any.
source: http://www.ema.gov.sg/how_electricity_is_generated/index.html In Singapore, there is a general shift
towards natural gas and hence existing
plants are being converted to modern combined cycle plants. The first combined cycle plant in Singapore
was commissioned by Senoko in 1996. Between 2000 and 2004, Senoko completed its first stage repowering
project to convert its three 120MW oil fired steam plants into three 365 MW combined cycle plant. After Senoko,
Tuas Power developed four
combined cycle plants with
combined capacity of 1470 MW
(4 x 367.5)8 between 2002 and
2005. By 2002, Seraya also
completed two units of 370
MW combined cycle power
plant. Seraya also built two
units of 400 MW cogeneration
combined cycle power plants9.

The list of different plant types, their capacities and all the power generators in Singapore with their capacities
are as follows (as of September 2009):
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Plant Mix by Type Installed Cap MW Percentage Company Capacity
Cogen Plant: Power Seraya 3100
Sembcogen 785 7.4%
Senoko Energy 3300
Keppel Cogen 470 4.4%
Sub-total 1,255 11.9% Tuas Power 2670
CCGT:
SembCorp Cogen 900
Senoko 1,945 18.4%
PowerSeraya 730 6.9% Island Power 800
Tuas Power 1,470 13.6% Singapore Syngas 20
Sub-total 4,145 39.2%
Orimuision/Cheap Oil: ExxonMobil 180
PowerSeraya 750 7.0% Keppel Merlimau 470
Steam Plant:
Elba Eastern 50
Senoko 1,250 11.8%
PowerSeraya 1,400 13.3% NEA 250
Tuas 1,200 11.3% Total 11740
Sub-total 3,860 36.5%
Adapted from:
OCGT Senoko’s Presentation,
Seraya 210 1.0% Consulted following:
1) http://www.powerseraya.com/index.
Senoko 210 2.0% php?option=com_content&task=view&id=3&Ite
Sub-total 420 3.0% mid=81
2) http://www.ema.gov.sg/media/files/facts_and_
NEA 251 2.4% figures/consumption/Licensed_Capacity_in_
TOTAL: 10,576 100% Commercial_Operation_LN.pdf

Fuel For Power Generation: Environment Or Cost?
For power generation companies fuel cost comprises 85 per cent of the long run marginal cost10. Cheaper fuel
may give short term profitability but it is detrimental to the environment.

Natural gas is costly at present but provides the highest
Fuel Price
thermal efficiency and emits lowest CO2. As per EMA’s
Gas 19.26 SGD/GJ report, estimated gas price is 19.26 SGD/Giga Joule (GJ),
whereas High Sulphur Fuel Oil (HSFO) is 18.31 SGD/
HSFO 18.31 SGD/GJ GJ and coal is 6.3 SGD/GJ11. If gas price in Singapore
Diesel 23.53 SGD/GJ further comes down, gas would be the Singapore’s
answer for global warming issues. Presently, there are
Coal 6.30 SGD/GJ three international gas pipes from Malaysia (M-Gas)
and Indonesia (I-Gas). Gas contract with Malaysia was
signed in 1990 where gas was bought at 7 per cent premium along with water from Malaysia. In 1998
during Asian financial crisis, a contract was signed with Indonesia to buy gas at >20 per cent premium to
facilitate ASEAN’s economic recovery12. By 2013, LNG terminal is supposed to be operational which will further
increase supply of gas. LNG terminal will enable
transportation of gas through ships from gas rich Carbon Intensity by Fuel Type
countries such as Iran and Qatar.
1000 922
900
How Green Is The “Garden City” Singapore? 800
757 726
629
During the UN’s Climate Change Conference in 700
600
kg/MWh

Bali in December 2007, consensus to reduce 500 417
400
CO2 emission by 25~40 per cent by 2020 could 300
200
not be reached but all agreed to follow the 100
‘Bali Roadmap’ that formed the basis of future 0

negotiations on protocols meant to replace the
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Kyoto Protocols. Following the recently concluded
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Copenhagen summit on climate change, Singapore has now pledged to cut its carbon emissions by 16 per cent
(business-as-usual levels) by 2020. Carbon Monitoring for Action (CARMA.org) monitors worldwide emission of
CO2. As per total carbon emission, the world’s top 10 biggest carbon emitters are China, USA, India, Russia,
Germany, Japan, UK, Australia, South Africa and South Korea.13

CARMA also colour codes different countries based on total carbon emission per unit electricity generated
(carbon emission intensity) i.e. kg of CO2 per Mega Watt-hour (kg/MWh) of electricity produced. The colour
coding is shown below:
66 Co2 emission intensity colour codes range from red to green
> 1,750 Ib/MWh = > 794 kg/MWh (coal)
1,250~1,750 Ib/MWh = 567~794 kg/MWh (oil)
750~1,250 Ib/MWh = 340~567 kg/MWh (natural gas)
250~750 Ib/MWh = 113~340 kg/MWh
< 250 Ib/MWh = <113 kg/MWh (nuclear, hydro)

Switzerland and France with high ratio of hydro and nuclear facilities are the countries with the lowest carbon
emission intensities in the world. With Carbon intensity of 541 kg/MWh, Singapore is “yellow” in terms CO2
emission intensity which is considered moderate. Between 2000 and 2007, Singapore CO2 emission intensity
reduced by 30 per cent. This reduction is the best in ASEAN region. Given the 100 per cent electricity coverage,
Singapore’s achievement is outstanding.

Senoko took the first step in Singapore’s journey towards CO2 emission reduction. It was the first genco to
convert the oil fired power plants into CCGT. By implementing CCGT, Senoko recycled the lost heat and reduced
CO2 emission intensity.

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ARE SINGAPORE CONSUMERS “GREEN”?

While answering a question on the possibility of charging a premium for cleaner source of energy, Minister
Mentor Mr. Lee Kuan Yew mentioned how the citizens of this small, densely populated country have learnt to live
with the pricing mechanism. Singapore electricity market

“
deregulation started in 2001 but smaller consumers still I think Singaporeans are cost conscious;
get their electricity through SP Power at regulated tariff. they don’t care from where the energy

”
So far, liberalization has enabled only 75 per cent of
15
comes from. Which is the cheaper one?
the market for contestability i.e. giving consumers choice - Minister Mentor Lee Kuan Yew,
to select their desired power company while buying International Energy Week 2008 14
electricity. Singaporean domestic segment (18 per cent of
the entire 41.2 TWh electricity sale) and the small business segment are not qualified as “contestable” which
means they have to buy electricity at the government regulated tariff.

Any consumer with monthly consumption over 10,000 kilo Watt hour (kWh) for the previous 12 months is
eligible to become a contestable consumer. As contestable customer, non-domestic sectors can buy from the
retailer or from SP Services (also known as Market Services Support Limited - MSSL) at competitive prices.
Retailers in Singapore are usually vertically integrated. So Senoko Energy Supply (http://www.senokoenergy.
com.sg/) is the retail arm of Senoko Energy Pte Ltd (http://www.senokoenergy.com/). As per EMA’s data in
December 201016, 27 per cent of the 8064 contestable customers purchased electricity through SP Services
while the rest 73 per cent purchased from retailers. However, the 73 per cent customer accounts represent 94
per cent of the entire contestable demand. Senoko is having 15.3 per cent share in the retail market with 450
retail customers17.

Contestable Consumers can buy from any retailer or directly from the market; they can switch their vendor in
real time. The churn rate among the contestable consumers was 1.76 per cent in December 201016. Although
consumers can switch between retailers, there is only one Grid Company called SP Power Assets which
charges fixed network cost subject to annual review. The entire flow of electricity from generators to consumers
is shown below (adapted from http://www.ema.gov.sg/page/3/id:27/)

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Shown below is the diagram with the locations of different gencos in Singapore and the major grid lines
(adapted from Senoko’s presentation):

The industry structure and power grid network may be simple to understand, but the structure of National
Electricity Market Singapore (NEMS) and the market dynamics of the real time energy trading are more
complicated. First, the different players and their roles need to be understood:
66 Energy Market Authority (EMA) – Regulates electricity industry
66 Energy Market Company (EMC) – Administers the spot market
66 Generation Companies (genco) – Produce & sell electricity in the spot market
66 Transmission Licenses (SP Power Assets Ltd) – Owns the network
66 Retailers – Buy electricity at spot prices and sell electricity to contestable consumers
66 Market Support Services Licensee (MSSL, SP Services) – Provides Spot Market Support

The overall structure of the new
electricity market is shown below
(adapted from http://www.mssl.
com.sg/market_frameset.htm).

The market is divided in two
parts: the wholesale electricity
market and retail electricity
market. The wholesale market
is called the spot market where
all the wholesalers (power
generators) “sell” 100 per cent
of their generation forming an
“electricity pool” through which
electricity is traded. SP Services
buys from the pool at a price set
as per contract. Small business

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and households have to buy electricity from SP Services at pre-defined tariff. Contestable customers have
many avenues from which they can buy electricity. They can buy from directly from the energy market pool,
from SP Services or from retailers who again can choose to buy directly from the market or from SP Services.
For a contestable consumer the decision on where to buy electricity would depend on total consumption,
consumption pattern and other economic or financial considerations.

From April 2011 onwards SP Services has revised the
electricity tariff to 25.58 cents (US$ 208/MWh18) per
kWh for households and small businesses19. Out of
25.58 cents, 20.52 cents (205 SGD/MWh) will now
go to gencos. Earlier the price was 18.9 cents (189
SGD/MWh). As per Energy Market Company’s trading
report, the average electricity prices increased from
160.79 SGD/MWh in February 2011 to 186.70 SGD/
MWh20 in March same year. Domestic consumers
however do not buy at market traded price which
keeps varying every half hour. For consumers, SP
Services sets fixed energy cost taking into account
the policy objective of promoting efficiency in thermal power plants. Presently, “F Class” combined cycle
gas turbine is the most efficient one that caters more than 25 per cent of the system demand. The price
that consumers pay now reflects the long run marginal cost of most efficient (hence least polluting) power
generation technology.

February 2011 March 2011
Weekdays Saturday Sunday Weekdays Saturday Sunday
USEP ($/MWh)
Daily Average 160.79 164.08 179.66 186.70 178.87 196.51
Daily Maximum 322.07 426.95 487.28 427.48 414.35 456.87
Daily Minimum 128.15 128.75 129.76 143.60 145.48 148.16

Thursday Friday Saturday Sunday Monday Tuesday Wednesday
21-Apr-11 22-Apr-11 23-Apr-11 24-Apr-11 25-Apr-11 26-Apr-11 27-Apr-11
USEP ($/MWh)
Daily Average 219.17 234.48 248.92 211.66 271.13 289.55 286.16
Daily Average 277.36 312.69 457.12 274.15 478.19 468.57 481.28
Daily Minimum 190.04 191.18 180.91 184.14 171.68 191.73 191.69

When Singaporeans pay their electricity bills, they are actually supporting CCGT power generation technology
which is the most efficient and least CO2 emission intensity technology. If a genco buys cheap oil and
eventually offers cheap electricity, only some non-domestic contestable customers can buy that. In a way,
Singaporeans are helping the nation’s target of switching to natural gas to reduce total CO2 emission. That
contributes to making us green. In fact, larger consumers like manufacturing industries, buildings and shopping
malls are also adopting green technologies by investing in energy saving equipments. They are also inviting
experts for conducting energy audit for identifying electricity wastes and possible improvements by minimizing
power consumption. By adopting the experts’ suggestions buildings and malls are becoming green. Examples
are CDL’s City Square Mall near Farrer Park MRT. Singapore and its people are thus trying to do their part in
this green initiative.

The efforts taken by Singapore are indeed remarkable because, for example, Hong Kong, a city comparable
to Singapore on many dimensions, still uses coal as its major fuel source. It is further interesting to note that

085

Singapore has not adopted any tough measure like carbon pricing in Europe. Yet, Singapore and its people
have managed to stay “greener” compared with its neighbours and competitors.

A PERSPECTIVE ON SENOKO’S ECONOMIC STRATEGY

First, the alignment of Senoko’s different revenue streams with corporate structure needs to be understood.
Like any other generator/retailers such as Power Seraya, Tuas Power, Sembcorp Cogen and Keppel Merlimau
Cogen, Senoko is vertically integrated i.e. separate generation and retail arms within the same parent company.
Senoko Energy Supply, the retail arm of parent company Senoko Energy Pte Ltd., earns revenue from retail
contestable customers whereas Senoko Energy gets revenue from MSSL through its vesting contracts and
through direct market participants for the nodal sale of electricity.

Singapore’s GDP continue to grow and so is the electricity consumption which surpassed 40 terawatt hours
(TWh) for the first time in the NEMS’ history, reaching 41.2 TWh in 201021. Out of the total electricity produced
18 per cent are consumed by domestic customers while the rest 82 per cent with market size of 33.9 TWh
market22 belongs to the non-domestic segment in Singapore. Again, within non-domestic segment 18 per cent
are non-contestable customers and remaining 82 per cent qualify as a contestable customer group representing
total 27.9 TWh electricity sales23. A small portion of contestable customers choose to buy electricity from SP
Services, but 95 per cent of the entire contestable market is shared by five main retailers with total electricity
sales of 26.5 TWh in 2010.

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As per NEMS 2010 report, Senoko’s share of power generation is 25.7 per cent of the entire market whereas
Seraya’s share increased to 28.4 per cent. Senoko is having 15.3 per cent market share of retail market based
on metered demand24. This is higher than Senoko’s share of 14.3 per cent in 2009. However the current market
share of Senoko is less than Seraya’s share of 18.9 per cent in 2010 and 18.7 per cent in 2009. As per the
metered demand, SP Services is having the highest share of 35.9 per cent.

The market share of different retailers based on annual metered demand is shown below (adapted from NEMS
2010 report):

Considering the fact that SP Services does not produce electricity, rather it buys from the gencos
and supplies to the domestic segment, non-contestable non-domestic customer segment and 5
per cent of the contestable customers, the non-MSSL retailers’ share of the retail market would be
based on the ratio of their metered demands. Therefore, Senoko with 15.3 per cent would have
15.3
or 24 per cent share of the
15.3 + 18.9 + 13 + 7.6 + 9.3
Share of
26.5 TWh markets of contestable customers buying Share of
Name Contestable
through non-MSSL retailers. Seraya and Tuas share Generation
Market
29 per cent and 20 per cent respectively. In terms of
Generation, respective shares of Senoko, Seraya and Senoko 25.70% 23.9%
Tuas are 26 per cent, 29 per cent and 25 per cent
respectively. Seraya 28.40% 29.5%
Tuas 25.20% 20.3%
Seraya is currently the market leader in terms of
Power Generation and Retail Market share as per the SembCorp 9.50% 11.9%
above table showing the share of generation versus
Keppel 8.30% 14.5%
share of contestable market for the top five power
companies. Seraya has a very strong trading group
that managed to secure good contracts for cheap oil used in power generation. Although cheap oil emits more
CO2, electricity can be generated at a cheaper rate and that means higher share in a deregulated energy market
where some computer algorithm called Market Clearance Engine (MCE) is performing all trades by matching the
bid against the lowest offer irrespective of how the energy is generated.

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Share of Power Generation Share of Contestable Market
Year 2010 : 41.2 TWh Year 2010 : 26.5 TWh

SembCorp Keppel Keppel
10% 9% 15%
Senoko Senoko
26% 24%
SembCorp
12%

Tuas
26% Tuas
Seraya Seraya
20%
29% 29%

However, the government does not encourage the use of cheap oil for power generation and has taken some
unique measures in the deregulated market in order to promote efficient and environmentally friendly energy
generation and to control the market power of three major gencos who control 90 per cent of the market.
First, there is no mechanism of carbon pricing in Singapore. Rather the interests of plants engaging in CCGT
technology are protected by vesting contract regime.

All the electricity generated by different generator is sold to the electricity pool and a portion of the entire pool
(55 per cent in 2011) is under the pricing provisions set by vesting contract, a special financial contract between
SP Services and each of the three main power generators (Seraya, Senoko and Tuas). With vesting contracts,
generators are obliged to produce a specified quantity of electricity (vesting contract level) at a specified price
(vesting price/strike price). The strike price is same for all generators, but the level of contracts is different
based on the generation capacity of each of the companies.

If the gencos do not have any A portion of
market power, Vesting Contract generation
Reference Price (VCRP) will be Electricity Pool is pegged to
usually higher than the Uniform “Vesting Price”
Singapore Energy Price (USEP) 100% of generation Vesting Contracts or “LRMC”
which is the average of all nodal is “sold” to the (“Vesting Price”) (Long Run
prices of electricity. VCRP is set Electricity Pool. with Marginal Cost
to reflect the long run marginal SP Services
cost of class “F” CCGT (most Pool revenue,
however, fluctuates A portion of
efficient). Beyond the vesting Retail generation is
level, generators compete with every half hourly Contracts
and is thus not hedged by Retail
one another to sell remaining Contracts with
capacity to consumers. certain.
(“Spark Spreads”) large customers
Others
Historically in Singapore, USEP
has always been lower than
vesting contract reference price.
Due to vesting price and appropriate level, no company can get unfair advantage by producing electricity
by cheaper means over long run. There could be some short term gains, but this cannot sustain as EMA
periodically monitors the licensing requirements of power plants and enforces measures such that gencos
eventually switch to efficient and environmentally friendly power generation. Power Seraya, due to cheap
oil has enjoyed some economic advantages to bid for cheap electricity sale. Hence retail share of Seraya in
comparison to its generation capacity is higher than that of Senoko.

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In 2010, Senoko produced over 10500 Giga
Watt hours (GWh) of electricity which is 25.7
per cent of national consumption of 41,199
GWh. Out of total 10500 GWh, around 4200
GWh was sold via SP Services at the vesting
contract hedge price of $172.29/MWh22. Rest
6300 GWh energy, which is 24 per cent of the
contestable market by retailers, was sold to its
450 contestable customers.

A PERSPECTIVE ON SENOKO’S
ENVIRONMENTAL STRATEGY

With top priority for environment, Senoko is
aligning all its major business decisions as per
the “Singapore Green Plan 2012”, which was drafted by Singapore government in order to reduce national
carbon footprint. The company took the first step in reducing its carbon emission intensity by embarking on an
S$600 million repowering project to convert three ageing oil-fired 120MW steam plants into environmentally-
friendly three units of 365MW combined cycle gas turbine (CCGT). The project was completed by 2004 and it
increased the efficiency of power plant by 14 per cent age points. This is known as Stage 1 Repowering Project
(2000-04) that reduced the annual carbon emission by 2,500,000 tonnes of CO2, which is nearly equivalent to
CO2 emissions of all passenger cars on Singapore roads in one year25.

After the huge success of stage I repowering program, Senoko invested in Stage II Repowering programme
with a budget of over S$ 760 million in order to convert three 30 year old oil-fired 250 MW steam plants into
two units of environmentally-friendly LNG & piped gas-fired 430MW combined cycle plants. Given the fact
that Singapore LNG terminal is supposed to start operation from 2013, the project which is expected to be
completed by the latter half of 2012 has important strategic implications. A lot of counties like Japan, India are
adopting CCGT technology apart from nuclear technology. It is interesting to note that despite having an export-
oriented, energy-intensive economy, Singapore has managed to keep its CO2 intensity measured against GDP
at 2000 PPP prices) below the world average and stayed ahead of developed countries like Japan, Netherlands
and Belgium26.

Senoko equipped all generator sets with low-NOx burners by investing $16 million. This has lowered the NOx
emission level to below 200 mg/Nm3. So far, Senoko has successfully maintained the NOx level in line with the
NEA’s new statutory requirement of 700 mg/Nm327.

Senoko has consistently increased the use of NEWater (reclaimed water from sewage treatment) and desalination
water as boiler feed-water for electricity generation. Senoko built a $7 million desalination plant in 2004 in
order to use seawater as boiler feed-water for electricity generation. By this Senoko, since 2004, has reduced
consumption of PUB’s potable water by 80 per cent (750,000 m3, annually) which is 3 per cent of the entire
monthly water consumption in Singaporexx28.

Senoko has also established internal measures to encourage employees to reduce water usage and minimize
water wastage. These measures include conducting company-wide awareness briefings, monitoring monthly
water consumption and installing low-capacity flushing systems, flow regulators and spring-loaded faucets in
washrooms. Apart from constant patrolling to ensure minimal water wastage, Senoko also has a helpline for
reporting on-site water leaks to facilitate immediate fixing.

Senoko engages independent external laboratories in order to carry out monthly water quality test for analysis
of contamination of ground water by sewer water. Through this monthly analysis, Senoko identified sources of
seawater infiltration into sewer pipes. Following this, a CCTV system worth $35,000 for surveying underground
sewer pipes was deployed in Feb-Apr 2008. Moreover, porous sewer pipes were re-lined by spending another
$80,000 in May 2008. All these efforts ensured safe discharge of Senoko’s sewer water into public sewers.

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Senoko is the first genco in Singapore to be awarded the ISO 14001 certification Environmental Management
System (EMS) which covers policy, commitment, evaluation, review and improvement for environmental
concerns. Among all the power generation companies, Senoko has taken the lead role in reducing greenhouse
emissions and educating Singapore’s youth community on climate issues. Eventually Senoko became the first
genco in Singapore to be given the Singapore Green Plan 2012 (SGP2012) award in 2005 and the President’s
Award for the Environment in 2008.

A PERSPECTIVE ON SENOKO’S STRATEGY TOWARDS SOCIETY

In its vision to be the “preferred energy supplier” in Singapore, Senoko aims to deliver competitively priced
electricity while taking care of its employees, the community and environment. The Executive Management
Team (EMT), under the leadership of the president and CEO, determines the CSR guidelines which are identified
under the five core values of Safety, Teamwork, Integrity, Commitment, Care and Customer focus.

By adhering to Singapore laws (Workplace Safety & Health Act, WSHA) and going beyond to include certification
to international standards (OHSAS 18001 Certification), Senoko is committed to its Workplace Health and
Safety (WHS) programme. The board of directors set the WHS policy whereas the safety manager implements
it. Mini-safety committees at section levels have been set up on voluntary basis to discuss reports and
brainstorm safety issues. Senoko is involved in raising the awareness level continuously and also encourages
its employees to participate in Energy Utilities Workforce Skills Qualification (WSQ) scheme launched recently.
It also encourages contractors to get involved in safety management by providing them with induction training,
checking workers’ qualification for job and rewarding them for good safety practices.

Participation of employees and contractors in safety programmes is encouraged and their contribution is
rewarded accordingly. Lost Time Injury (LTI) is one of the several operation indicators which together with
the financial performance of Senoko that determine the amount of bonus payment. This helps in aligning
safety behaviour with compensation. Senoko’s policy is to be open about its safety practices and learn
“unashamedly” from other organisations. Senoko’s positive image is fortified by the fact that it received the
Workplace Safety and Health (WSH) Performance Award (Silver) from the Ministry of Manpower in 2009 and
2010. Along with this, there were requests from NTUC WSH committee, Mount Alvernia Hospital and RSAF to
give talks on safety.

Some of the examples of Senoko’s other CSR initiatives are as follows:

National Weather Study Project (NWSP)
National Weather Study Project (NWSP), an inter-school competition on climate change awareness is Senoko’s
flagship environmental commitment which was launched in 2005. The concept of NWSP was to raise awareness
among the student population of how climate and weather patterns have a deep impact on the environment.
Through the installation of mini-weather stations at the participating primary schools, secondary schools and
junior colleges, Senoko has invested over S$2.1 million in the competition till today. The NWSP is organized
by the NWSP Working Committee (comprising Senoko’s employees) with the guidance of the NWSP Advisory
Committee (made up of individuals from various private and public sector organizations). In the 2009
competition, the committee identified 14 winning entries, out of the 235 projects submitted by 152 schools.
The overall winners were awarded cash prize and sponsored trips to Germany to present their projects. With
time NWSP has expanded its scope and is fast becoming an ideal platform for raising awareness of the threats
posed by climate change. The list of official NWSP partners comprising government ministries, statutory
boards, commercial entities, grassroots bodies, NPOs, academic institutions and individuals is growing every
day. Even foreign multinational organizations such as Siemens, are getting interested in the competition by
becoming co-sponsors.

Adoption Of Sungei Sembawang
Senoko officially adopted the 2.5 km long Sungei Sembawang waterway in June 2008 located at the northern
Singapore shore, shared with the residents of Sembawang and Woodlands. Senoko collaborated with PUB,
the Waterway Watch Society and surrounding schools in collecting litter from park connectors and link-ways,

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under this initiative. A brochure detailing the history, the surrounding bio-diversity, and the areas of attraction
along the map of Sungei Sembawang waterway was commissioned in the process. Students were encouraged
to take ownership in the upkeep of the waterway by spreading the message in the brochure to the nearby
residents and companies.

Water quality testing of Sungei Sembawang waterway is conducted on regular basis by Senoko Monthly
voluntary riverside cleanups at Sungei Sembawang are also organized in which Senoko employees and
students participate to remove litter from the waterway and its surrounding areas. This scheme was expanded
in February 2009 to include part of the Kallang River along the Building and Construction Authority (BCA) with
BCA’s collaboration.

Corporate & School Partnership Programme (CASP)
Senoko adopted 16 schools, mainly located in Woodlands, Sembawang and Yishun under this NEA programme.
Training opportunities are provided to the teachers and the students and Senoko also visits these schools
on a regular basis to understand the needs for technical expertise and sponsorship. Every year in November,
these adopted schools are encouraged to showcase their environmental projects to the public and other
schools. Senoko sponsorships include technical consultations, on-site assistance, booth space rents and the
cost incurred in project showcases. Senoko has been the recipient of the CASP sustainability award for 2005,
2006, 2007, 2008, 2009 and 2010 by adopting the maximum number of schools under this NEA programme.

Teacher Work Attachment Programme:
This is a MOE programme under which teachers and students are attached to Senoko to learn how Senoko
operates in an environmentally responsible manner while maintaining profitability at the same time. Senoko is
one of the limited lists of organisations that accept teachers and students (going down to primary & secondary
schools) on work attachments. The primary and younger secondary student leaders have shown interest
in developing trials on fuel combustion, water processing and environmental monitoring using techniques
of science and mathematics. The older secondary students and polytechnic/university interns undertake the
diagnostic investigation of ambient air, indoor air and sewer water quality as well as establish topography of
air & water quality levels from the sources of emission & trade effluent discharge.

Teachers are mainly interested in learning how technical knowledge (chemistry, physics, mean square errors
and thermodynamics) is applied in real life environment. They also study how business in private organisations
is conducted and how regulations are monitored and complied with. To date, more than 15 groups of teachers
and students have spent time ranging from a few days to four months with Senoko to appreciate the whole
process of trade effluent analysis and management.

WHAT’S NEXT?

Senoko has so far played a leading role in innovation and sustainability. It was the first company to start fuel
diversification, the first to build CCGT and thereby answer environmental concerns by repowering existing oil
fired turbines to gas fired ones. Even Senoko’s shareholding power companies have international reputation
for environmental concerns. Other power companies in Singapore are following Senoko’s model of upgrading
old power plants to modern plants. By doing so, gencos will be able to minimize environmental impact
while fulfilling society’s need for energy, a very essential commodity. With strong corporate ethics to strive for
sustainable development, Senoko has set examples for others.

Senoko faces some unique strategic challenges. First, it is a single product company. Second, it is situated at
north. With the development of the petrochemical and chemical industry cluster on newly reclaimed Jurong
Island, the other power generating companies enjoy the advantage of selling steam and thus acting as
cogeneration plant. Senoko is unable to do that as there is no substantial customer base for steam around
its power station. Third, the government has not taken any strong measures like implementing carbon tax on
electricity production. This allowed others to enjoy a short term competitive advantage for profit maximization
and increasing retail market share by producing electricity using cheap oil.

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Senoko is positioned as a well managed environmentally friendly company with a strong culture for safety
and ethics. Senoko’s culture, leadership and staff are real assets that will give Senoko long term sustainability.
Although Senoko has taken a leading role in implementing key initiatives for sustainability, it has yet to take
a leading role in communicating its achievement to the public in the form of sustainability reporting. Senoko
has to immediately focus on annual sustainability reporting which the competitor has already started. Over
the long run, Senoko has to build up its corporate image as an environmentally friendly power generator with
lowest CO2 emission intensity in Singapore.

References:
1 Accessed http://carma.org/dig/show/world+country on 28-Apr-11

2 Accessed http://www.ema.gov.sg/media/files/facts_and_figures/consumption/Licensed_Capacity_in_Commercial_Operation_LN.pdf on 27-Apr-11

3 United Nations 1987: “Report of the World Commission on Environment and Development.” General Assembly Resolution 42/187, 11
December 1987. Retrieved: 2007-04-12

4 Expert Interview (Unless otherwise stated, each of the expert interviews have been conducted internally with members from the company
Senoko Energy Pte Ltd)

5 Accessed http://www.powerseraya.com.sg/images/stories/newsarchive/acca-award-win-best-sustainability-report.pdf on 26-Apr-11

6 2010 Census of Singapore

7 “Earth Hour Facebook group”: Accessed http://www.facebook.com/group.php?gid=8786319877 on 26-Apr-11

8 Accessed http://www.tuaspower.com.sg/tuas.asp on 27-Apr-11

9 Accessed http://www.powerseraya.com/index.php?option=com_content&task=view&id=3&Itemid=81 on 27-Apr-11

10 Expert Interview

11 PA Consulting Group Report: Review of Parameters for Setting Vesting Contract Price 2011 – 12, Published at the following URL: http://www.
ema.gov.sg/media/files/vesting_contracts/27%20Sept%2010%20-%20PA%20Consulting’s%20Final%20Report%20_VC%20Parameters%202011-
2012.pdf

12 Expert Interview

13 Accessed http://carma.org/dig/show/world+country accessed on April 27, 2011

14 Videos of International Energy Week 2008 in Singapore accessed at http://www.youtube.com/watch?v=2wMDwW5BMsQ on 26-Apr-11

15 Accessed http://www.ema.gov.sg/page/4/id:28/ on 27-Apr-11

16 Accessed http://www.ema.gov.sg/images/files/facts_and_figures/details%20of%20contestable%20demand.pdf on 27-Apr-11

17 Expert Interview

18 Based on currency conversion rate on 28-Apr-11 by http://www.xe.com/ucc/

19 Press Release by SP Services http://www.spservices.com.sg/news/Press%20release_29Mar11.pdf

20 Accessed http://www.emcsg.com/MarketData/MarketTradingReports on 28-Apr-11

21 Accessed http://www.emcsg.com/f279,59153/EMC_NEMS_2010-28_March_version_with_links.pdf on 28-Apr-11

22 http://www.ema.gov.sg/page/38/id:75/ Statistics for Qtr 1 to 4 in 2010

23 Accessed http://www.ema.gov.sg/media/files/facts_and_figures/consumption/DETAILS%20OF%20CONTESTABLE%20DEMAND%20_as%20at%20
Dec%2010_%20with_churn_rate.pdf on 28-Apr-11

24 Accessed http://www.emcsg.com/f279,59153/EMC_NEMS_2010-28_March_version_with_links.pdf on 28-Apr-11

25 Expert interview (Data updated as per year 2004 car statistics)

26 Accessed http://app.mewr.gov.sg/data/ImgUpd/NCCS_Chapter_3_-_Mitigation.pdf on 12-May -2011

27 Accessed http://www.senokoenergy.com/pdf/Care_Environment.pdf on 14-May-11

28 Accessed http://www.pub.gov.sg/conserve/Pages/default.aspx on 14-May-11, Average water consumption per person 154 litres/day

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