Competition in the power market – especially after the government’s divestment of the three biggest generating companies to new, foreign owners – is working so far, says the Energy Market Authority.
But it also stresses that ‘electricity supply is too critical to Singapore’s economy to be left entirely to market forces’. Government intervention, in the form of a ‘visible hand’ to complement the market economy is still needed, it said.
Calling it Singapore’s ‘energy trilemma’, EMA said that the key national energy challenges comprise: how to have energy that is competitive, secure and sustainable at the same time.
‘We have made good progress in these areas since the EMA’s formation in 2001,’ says chairman Chan Lai Fung in EMA’s 10th anniversary book, Brighter Electricity in Singapore: From Beginning to Beyond, launched yesterday.
To ensure energy security, EMA, for instance, stepped in during the 2008 global downturn to take over the S$1.7 billion LNG terminal project. The coming LNG from mid-2013 will help gencos to diversify their supplies of natural gas, which currently accounts for 80 per cent of their feedstock, beyond just Indonesian and Malaysian piped gas.
EMA also has contingency planning and stockpiling requirements to maintain power system security. Every power station is required to maintain at least 90 days of fuel reserves, with at least 45 days worth kept on-site, it disclosed.
As for electricity prices, EMA says that ‘the evidence so far suggests that market competition is working’. Since the market’s liberalisation, the price of fuel oil (to which gas is pegged) has increased by 196 per cent from April 2001 to April 2011, while the electricity tariff for households is up by just 29 per cent.
This is mainly due to higher operational efficiencies and keen market competition among the gencos. Over 3,000 megawatts of new capacity – mainly for more efficient and cleaner gas turbines – will be added over the next seven years, EMA’s latest annual report says.
But EMA also has to keep the electricity market delicately balanced – to ensure that it delivers competitive prices for consumers, while also enabling market players to earn reasonable returns so that they will continue to expand and upgrade.
This is what a subcomittee’s report last year for the Economic Strategies Committee warned, that ‘the market, on its own, may not help with (energy) diversification as it will gravitate towards the lowest-cost solutions’. ‘Hence, government intervention may also be necessary to balance our energy portfolio on account of security and environmental concerns, or where large capital investments are required.’
