The most industrialised and urbanised country in Southeast Asia, Singapore is often lauded as a model city for sustainable growth and a trend-setter in the region. An important catalyst behind this achievement is a holistic national energy policy framework introduced by the government in 2007, which set out to balance the objectives of economic competitiveness, energy security and environmental sustainability.
Singapore’s Liberalisation Journey Since 1995, Singapore’s government has progressively restructured and liberalised the electricity and gas industries. Over 20 years, a state-owned, vertically integrated electricity industry with just three main players transformed into a competitive and efficient market with more than 50 participants ranging from commercial generation companies and electricity retailers, to large consumers and financial traders participating in the wholesale, retail and futures markets for electricity.
Singapore’s electricity industry has transformed into a more competitive market
The first step in Singapore’s market reform journey was the opening of the generation sector to competition, which successfully attracted investments from the private sector. In the last 10 years alone, over 2,000MW of new generation capacity – equivalent to 30% of the country’s peak demand – was invested. The new plants, comprising mostly the efficient combined-cycle gas turbines, bring electricity demand served primarily by the much cleaner natural gas to over 95%. They reduced Singapore’s reliance on the less efficient, oil-fired steam turbines while helping the power system remain one of the most reliable in the world.
The benefits of reforming the generation sector did not end there. Efficiency gains cascaded down to benefit electricity consumers eventually. From as early as 2001, large consumers – mainly commercial and industrial users – were able to choose from the offerings of different electricity retailers, which gave them more options to manage their costs. The choice of purchasing from a retailer was gradually extended across the consumer base over the years. By 2006, 75% of Singapore’s total electricity demand had been opened up to competition.
Singaporeans now have the option to choose an electricity retailer that fits their needs
The deliberate, phased approach used in the opening of the retail market enabled the regulator and retailers to educate consumers, and finetune systems and processes. It ensured a smooth transition to full retail contestability. By May 2019, full retail competition was achieved as every household became contestable under the Open Electricity Market. At present, residential consumers can instantly attain more than 20% savings from the regulated electricity tariff by choosing from the price plans offered by 12 participating retailers.
The electricity industry plays a critical role in the Singapore economy. A reliable supply of electricity, coupled with competitive prices achieved from market liberalisation, underpins Singapore’s ability to compete domestically and internationally. At the same time, its citizens benefit from better access to cleaner, more affordable and reliable electricity.
Singapore’s liberalisation journey was led by a government that firmly believed in the benefits of deregulation, and years of careful and deliberate planning followed the decision to restructure. It helped that the industry understood the necessity of market reform and worked in collaboration with the government throughout the journey.
Energy Market Company (EMC) was formed in 2001 as the independent operator of the wholesale market through which generation companies bid to sell electricity. It played a pivotal role in introducing market mechanisms into the electricity market to enhance economic efficiency through competition, attract private investment, and produce more accurate price signals to guide production and consumption decisions, among other things.
Right from the start, Singapore adopted a technology-agnostic approach towards deregulation. This key design principle in the Market Rules and related governing documents created a fair marketplace for all energy players which was critical in attracting new investors. Besides embracing this and other good design principles in driving the market’s evolution, EMC also provides fair and effective governance and surveillance of market activities which further assured participants and investors of a level-playing field.
Singapore adopted a technology-agnostic approach towards deregulation
Regular engagement and tight coordination with the various stakeholder groups have also been a key theme for the market. EMC has constantly been in the centre of industry consultations, providing an avenue for industry players to provide timely feedback on Market Rules or policy changes. In 2019, EMC further initiated the setup of a Market Advisory Panel as a platform for industry leaders to gather and provide thought leadership on strategic and long-term issues. The importance of a collaborative environment cannot be overemphasised, in balancing the interests of diversified stakeholders and steering all towards the benefit of the market.
Finally, a collective strive for excellence has sustained the drive for continuous improvement within the industry. Faced with rapid technology changes, market operators must constantly assess if and how new solutions enabled by technology can improve operational performance and the efficiency of the electricity market. New market clearing algorithms, additional fuel sources, innovations in systems control and rapid developments in distributed energy resources have all contributed to the NEMS’ dynamic progress. With a right attitude towards adopting technology, Singapore is in a good position to address future challenges in the energy market.
Electricity markets around the world are in a state of flux. Grid infrastructure is struggling to keep up with the demands of small, distributed generation and the costs of climate change are starting to hit the industry. Extreme weather in the form of heatwaves, storms, wildfires and floods are becoming more frequent and severe, resulting in disrupted supply to consumers and higher insurance premiums for coal and other ‘dirty’ generation. At the same time, technological innovation is providing a source of optimism and growth. Weather-variable renewables are increasingly competitive with fossil fuelled generation. The EV rollout has the potential to integrate seamlessly with solar PV generation. And digitalisation is empowering customers, leading to the provision of new services from data-savvy companies.
Technological innovation is providing a source of optimism and growth
These trends are facilitating a move away from conventional generation, leading to escalating levels of intermittent renewable penetration. For instance, in Ireland, over 35% of generation is currently from renewables (mainly wind) and this is expected to rise to over 60% by 2040 (albeit a government aspiration of 70% by 2030). But as renewable penetration increases, it tends to depress prices at times of high (renewable) generation, and in doing so, cannibalises its own revenue. This is a trend observed across the world from California to Germany to Japan.
To unlock its potential value and limit its cost to the grid, intermittent renewables need to be coupled to sources of flexibility, which could be split into four different timeframes: seasonal, peak demand, within day and balancing. Within day and balancing flexibility are the most relevant for renewables and are traditionally provided by thermal generation. However, the paradox is that increased solar and wind generation (which will always run ahead of fuelled generation due to its lower marginal cost) tends to erode the running hours of conventional thermal generation, making the flexibility it provides costlier.
Fortunately, there are emerging solutions to the various flexibility needs – energy storage like batteries (including EVs), demand side management, and interconnection that is fuelled by digitalisation and cross-border cooperation.
These new flexibility sources are not yet self-sufficient in market terms. Battery storage projects in Europe to date have been dominated by utility-scale (i.e. front-of-meter) batteries, led by Italy, Germany and the UK, but mainly under central tendering programmes for ancillary support or capacity contracts. The roll out of EVs has largely been successful in countries with attractive subsidy schemes like Norway, where EVs currently account for 10% of the total car stock. Meanwhile, Singapore aims to deploy 200MW of energy storage solutions beyond 2025, but a more aggressive and broader rollout will require a supportive regulatory regime.
Coordinating with neighbouring markets helps with cost reduction
Demand side management is still in its infancy in Europe and mainly consists of unsophisticated contracts with large, geographically dispersed, industrial users. Singapore on the other hand, could take on a much more far-reaching form of integrated demand side management by developing into a smart city using planned EV charging and traffic management, smart sensors, cognitive learning, and context awareness (ability of IT systems to adapt to real-time environmental changes) to balance the development of solar PV and reduce the need for standby capacity without compromising the end-user’s comfort.
In Europe, increasing interconnection and better coordination with neighbouring markets through market coupling is one of the most cost-effective ways of accommodating more intermittent renewables. Indeed, Europe now relies extensively on coupling day-ahead and intraday markets across borders, extending to balancing services shortly. As the Distribution System Operators (DSOs) start to actively manage flows for their own flexibility purposes, there is a new need for effective interaction between the Transmission System Operator (TSO) and the DSO – in planning network connections and access, in procuring services and in coordination of activities in operational timeframes.
To unleash potential smart energy-related services, there needs to be transparency in the roll-out of these flexibility solutions. Transparent data platforms are a prerequisite for this. In Estonia, for example, a data platform allows third parties (with the consent of the customer) to review the data and make suitable recommendations like the installation of solar panels or heat pumps. A collection of TSOs and DSOs are now promoting a European Data Alliance to allow innovative start-ups to access smart meter data across Europe. The arrangements for data access and data rights are enabling platforms for future innovation, and are among the most important building blocks of the future energy system.
Singapore is on the brink of EV and solar revolutions. With a government that is committed to harnessing renewable energy and a coherent vision for the future energy system, it has the potential to leap-frog more mature energy markets, unleashing innovation and reducing cost and emissions at the same time.