REGULATING SINGAPORE’S ELECTRICITY INDUSTRY
11 April 2011
•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
Outline
•The Electricity 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.
About the Energy Market Authority of Singapore (EMA)
Gas from Indonesia
Gas from Malaysia
Overview of Singapore’s Energy Landscape
• 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 Reforms - 2000
• 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
Restructuring of the Electricity Industry
ELECTRICITY INDUSTRY STRUCTURE IN 1995
IPPs
SembCorp CogenENV Tuas
Power Singapore Power
Contestable Business
Non-contestable Business
Franchised Consumers
Non-franchised Consumers
Progressive extension of competition
Non-franchised
SectorUtilities Support Services
FranchisedSector
T&D PoolOperations
SystemOperations
PowerGrid Ltd
PowerSeraya Senoko Power
Private Electricity Suppliers
Non-franchised
Sector
Utilities Support Services
Power Supply Ltd
since Apr 98
Electricity Industry Structure in 1995
T&D
PowerGrid
IPPsNEA Tuas Power
Senoko Power
Power Seraya
SP Services (formerly Power Supply)
Franchised (Small)Consumers
Non-franchised (Large Industrial & Commercial) Consumers
Market to be fully opened
ultimately
Electricity Retailers
EMA
Electricity Flow
Singapore Power
Market Operator
Industry Regulator
System Operator
Energy Market Company
ELECTRICITY INDUSTRY STRUCTURE IN APRIL 2001Electricity Industry Structure Today
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)
Monopoly Sector(SP PowerAssets, SP Services,
EMC)
regulate with light touch
rely on market signals
ensure level playing field
Low barriers to entry
Transparent rules and consistent application of rules
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 Electricity Market
Market Mechanism
• Gencos bid half-hourly to sell electricity
• Energy• Reserve: Primary, Secondary
and Contingency• Regulation
• Retailers/contestable consumers buy electricity
Market Operator
• EMC • Perform market clearing and
settlement functions
Wholesale Electricity Market
Vesting Contracts
• Wholesale Market is dominated by three large gencos, with combined market share of close to 80%.
• Gencos can push prices up by witholding supply.
Market Power in Wholesale Market
Genco A
Genco B
Genco A
Genco B
Genco C
Price
Quantity
P2
P1
At demand = Q, Market Price is P1.
However, suppose Genco A withholds supply, Genco C would now be dispatched.
The market price would increase to P2.
Q
Demand
Vesting Contracts
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 Cover
65% 55% 60% 55% 0%
Vesting price
LRMC of most economic power plant in Singapore
Vesting Contracts (1)
• 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
• 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.
Review of Vesting Price
•The Electricity Industry Milestones
Regulatory Practices
•The Electricity Industry Milestones
1) Transparency
• Publication of licencing requirements and procedures• Advance publication of new or amended regulations and
procedures• Public consultation process 2) Application Procedures
• Non-discriminatory and consistent application of rules in the processing of applications for a licence
• Incomplete applications: inform applicant and process applications as much as possible in the meantime
• Target timeframe of processing: 12 weeks • Rejection of applications: inform applicant, reasons provided
Key Points on Regulatory Practices
•The Electricity Industry Milestones
Key Lessons
•The Electricity Industry Milestones
1) Need for Consultative Approach
• Increased transparency and increased trust. • Valuable source of ideas: better outputs and outcomes at a lower
cost.
• To get buy-in: greater acceptance and compliance with policies
Best Practices:
(a) Need to establish consistent guidelines and procedures on consultation.
(b) Need to allow adequate time for consultation. (c) Need to provide adequate feedback.
(d) “E-Consultation” to rapidly reach large numbers of people at low cost .
Key Lessons (1)
•The Electricity Industry Milestones
2) Need to Provide Regulatory Certainty
• Given that energy projects typically are planned years in advance and require huge sums of money, investors need to be confident that rules would not be changed in the middle of the game.
• Regulatory uncertainty results in increased regulatory risks, which would increase costs for companies, and deter investment (both local and foreign), thereby affecting security of supply.
Best Practices:
(a) Clear and transparent regulatory regime -> reduces regulatory discretion, and promotes accountability.
(b) Consistency in regulatory decisions -> promotes predictability.
Key Lessons (2)
•The Electricity Industry Milestones• Competition has motivated gencos to switch from oil-fired steam plants to more cost efficient gas-fired plants. If not, electricity prices today would be about 15 per cent higher.
• Liberalisation of the electricity market has also seen consumers benefit from greater choice of retailers, and pricing plans. Today, around 75% of demand have retail choice, and we are working on how to let the remaining 25% also enjoy the benefits of competition.
• In the monopoly sector, regulation has also brought about lower rates, while maintaining the high performance of the grid .
• The results thus far can be attributed to the effective regulatory framework and the close partnership between EMA and the industry. Nonethless, there is scope for further improvement and we are still learning! Moving forward, we recognise that as regulatory frameworks evolve, it is important that we continue to learn from international best practices.
Results achieved so far
THANK YOU