Download The Electricity Industry Milestones

REGULATING SINGAPORE’S
ELECTRICITY INDUSTRY
11 April 2011
Outline
•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
About the Energy Market Authority of Singapore
•The Electricity(EMA)
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.
Overview of Singapore’s Energy Landscape
Gas from
Indonesia
• 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 of
Reforms
- 2000 Industry
Restructuring
the Electricity
•
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
ELECTRICITY
INDUSTRY
1995
Electricity
Industry STRUCTURE
Structure in IN
1995
Singapore Power
Senoko Power
ENV
Tuas
Power
SembCorp
Cogen
IPPs
PowerSeraya
PowerGrid Ltd
T&D
System
Operations
Power Supply Ltd
Franchised
Sector
Nonfranchised
Sector
Franchised
Consumers
Utilities
Support
Services
Pool
Operations
since Apr 98
Private Electricity
Suppliers
Utilities
Support
Services
Progressive
extension of
competition
Nonfranchised
Sector
Non-franchised
Consumers
Contestable Business
Non-contestable
Business
ELECTRICITY
INDUSTRY
STRUCTURE
IN Today
APRIL 2001
Electricity
Industry
Structure
Senoko
Power
Power
Seraya
Tuas
Power
NEA
IPPs
EMA
Industry
Regulator
PowerGrid
Singapore
Power
T&D
SP Services (formerly
Power Supply)
Franchised (Small)
Consumers
System
Operator
Market to be
fully opened
ultimately
Electricity
Retailers
Non-franchised (Large
Industrial & Commercial)
Consumers
Energy Market
Company
Market
Operator
Electricity Flow
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
 regulate revenue/prices
 rely on market signals
 incentivise efficient behaviour
 ensure level playing field
 Set performance standards to
prevent “cutting of corners”
 Low barriers to entry
 Transparent rules and
consistent application of rules
 share cost savings with
consumers
 Open access
•The Electricity Industry Milestones
Contestable Sector:
Generation
Wholesale
WholesaleElectricity
Electricity Market
• Gencos bid half-hourly to sell
electricity
Market
Mechanism
•
Energy
•
Reserve: Primary, Secondary
and Contingency
•
Regulation
• Retailers/contestable consumers
buy electricity
Market
Operator
• EMC
• Perform market clearing and
settlement functions
Market Power
Wholesale Market
VestinginContracts
• Wholesale Market is dominated by three large gencos, with combined
market share of close to 80%.
• Gencos can push prices up by witholding supply.
Demand
Price
P2
Genco
C
P1
Genco
B
Genco A
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.
Genco
B
Genco
A
Quantity
Q
Vesting
VestingContracts
Contracts(1)
Solution:
• Introduced Vesting Contracts in 2004 - Gencos to sell a specified
amount of electricity at specified price.
Vesting
Cover
Vesting
price
2004
Mid-2007
2011
2012
Ultimate
Goal
65%
55%
60%
55%
0%
LRMC of most economic power plant in Singapore
• 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
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.
•The Electricity Industry Milestones
Regulatory Practices
Key Points on 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
•The Electricity Industry Milestones
Key Lessons
Key Lessons (1)
•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 (2)
•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.
Results achieved so far
•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.
THANK YOU