2004 IEEE Intemational Coference on Electric Uslity Deregulation, Restuctring and Power Technologies (DRPT2008) April 2004 Hong Kong
Deregulation in the National Electricity Market
of Singapore: Competition and Efficiency
YL.
Absirct ~ The National Electricity Market of Singapore
(NEMS) is a horizontally unbundled electrilty market
under an industry regulator. It sustains competion and
regulation in its market structure. Its deregulation reform
has started in 1995, and generation is fully open to
competition and wholesale and retail markets are gradually
being opened to competition. At the end of 2003 the
‘contestable market covers 75 percent ofthe total electricity
‘demand and is expected to increase as more consumers
become contestable in 2004. Concentration measures like
(C34 and the HHL show that the generation market of the
[NEMS is highly concentrated but the market has more than
effective numbers of competitors. The NEMS has seen a 9.5
percent reduction of the electricity tariff during 2002/2003,
tnd it remains to be seen whether the benefits continue to
came asthe NEMS moves to fll competitive market
Keywords ~ Electricity market deregulation, competition,
Enicieny gains, Price responsiveness
1. INTRODUCTION
whe power industry in Singapore is horizontally
connected under the Energy Market Authority
(EMA) as an industry regulator and system operate, and
the Energy Market Company (EMC) 3s a market operator
Generation is now open to full competition while
wholesale and retail markets are partially open,
Generators supply power tw consumers throwgh a
Wholesale market operator, retailers or market support
services licensees (MSSLs) while the generated electricity
is conveyed through the transmission and distribution
network owned by PowerGrid' There are two types of
consumers by electricity usage level ~ contestable and
ron-contestable. Retailers sell the power to contestable
consumers while the MSSLs provide power to small
contestable consumers who have not chosen retailers and
non-contestable consumers
‘As a sole market operator, the EMC connects power
generators to consumers through wholesale and retail
‘markets. There are two markets in the National Electricity
‘Market of Singapore (NEMS): a wholesale market and a
‘retail market, The wholesale market consists of two more
subemarkets, The real-time or spot market for energy,
Y. HL. Chang is withthe Deparment of Eeonomics, Naina
Univesity oF Singapore, Singapore 117570 esl eset us)
SP Powerass(SPPA) and SP PowerGid(SPPG).SPPA oss al gd
‘he purpose ofthis paper SP PowsAsst and SP Powered ae rd
twoollctvey a Power
0-7803-8237-4/04S17.0002004TEEE
Chang
regulation and reserve is one and the procurement market
for other ancillary services to ensure the security and
reliability ofthe power system isthe other, Generators are
required to provide electricity to the spot market and
reserve capacity to the spinning reserve market. The
electricity spot market is a realtime market to meet
projected demand while spinning reserve make i served
as backup for securing the power system, which is @ spot
market established 10 enable generators to bid to sell
spinning reserves. Among the two types of consumers,
contestable consumers may purchase electricity from a
retailer, MSSL or directly from the wholesale market
while non-contestable consumers are required to remain
served by a MSSL until the full completion of contestable
electicity market.
‘This paper reviews the paths taken in deregulation of
the power sector in Singapore in section IL. It overviews
the market structure of the NEMS and presents a few
studies relating to competition and corresponding
efficieney gains in the NEMS in section IIL Section IV
concludes this paper with afew remarks
I. Part 70 DeweGULATION tN THE ELECTRICITY MARKET
The electricity industry in Singapore was a wholly
government-owned vertically integrated monopoly. The
Public Utility Board (PUB) was responsible for supplying
electricity, piped gas, and water in Singapore, With the
eventual sim of introducing competition into the energy
Sector, the government of Singapore transferred the
electricity and piped gas functions of the PUB to
Singapore Power Ltd (SP) in 1995. Although SP is a
corporate entity, itis stil wholly government-owned as it
is held under’ the government holding company —
Temasek Holdings. PUB subsequently fulfilled a
‘regulatory function with regard to the energy sector.
‘Singapore set up an electricity pool in April 01, 1998
as a primitive step or forerunner for competitive
electricity trading. Generation companies sold their
electricity via the mandatory Singapore Electricity Poot
(SEP), 2 day-ahead electricity market and precursor to
competitive electricity trading. PowerGirid, a wholly
owned subsidiary of SP, was the grid owner and also the
system operator forthe SEP. Following a review in 1999,
ditional reforms were carted out in 2000 to liberalize
the electricity industry. Liberalization takes the form of
unbundling of the potentially competitive retail and
tzeneration sectors and non-competitive elements of SP so
that SP divested its two power generation subsidiaries, 2004 IEEE International Conference on Plcrc Utility Deregulation, Restrcturing and Power Technologies (DRPT2004) April 2008 Hong Kong
PowerSeraya and PowerSenoko to its parent company,
‘Temasek Holdings. Therefore, Temasek Holdings owns
all three largest generators in Singapore including a third
penerator, Tuas Power, which was formed in March 199
8 its subsidiary.’ The interim structure with SEP lasted
until April 2001 when a new market regulator and a new
market operator were formed and power generation
capacities were fully divested from SP.
‘Thus, at this stage of deregulation, the generation sector
is already fully open to competition while that for the
retail sector, partially so. Under the partial deregulation,
consumers “are deemed “contestable” if they have
‘maximum power requirements exceeding 2MW and can
choose to buy power from either reialers or Power
Supply Ltd (now itis known as SP Services Lid), the
retail arm of SP. Power Supply Ltd is also the designated
Public Electricity Supplier (PES) and retails electricity 10
the non-contestable consumers
‘As liberalization proceeds, a new statutory board —
the Energy Market Authority (EMA) was established to
regulate the energy industry in April 2001. At the same
time, the Energy Market Company Pte Lid (EMC) was set
up asa joint venture between the EMA and the M-co (the
‘Marketplace Company) Pte Lid of New Zealand to
implement and operate the new wholesale electricity
‘market. However, electrical output was still transmitted
Via the transmission and distribution (T&D) network
‘owned and operated by PowerGrid, a wholly owned
subsidiary of Singapore Power Ltd, and T&D prices
remain regulated. The NEMS has started on January 1"
2003. The NEMS consists of seven players: an industry
regulator, market operator, a grid owner-cur-operaor,&
rmurket Support services ‘licensee, generators (seven
‘generation licensees), retailers (six retail licensees) and.
two types of consumers (contestable and non-coatestabe).
Next section presents the market structure of the
[NEMS and examines how the introduction of competition
ino the electricity market has brought expected efficiency
‘ans from the competition in the NEMS.
III, Maker STRUCTURE, COMPETITION AND EFFICIENCY
Although NEMS is still a mandatory pool, it is
fundamentally different from its precursor SEP. It is a
spot matket for electricity and reserves operated by the
EMC. An independent Power System Operator (PSO)
Under EMA instead of PowerGrid carries out dispatch
hile electical output continues fo be transmitted vi the
‘T&D network owned and operated by PowerGri. Along
withthe EMA as the market regulator and the EMC as the
‘market operator, there are other players in the NEMS. As
‘mentioned, the PSO, a division of the EMA, works as the
system operator while PowerGrid serves as the
transmission and metering provider and SP Services Lid
7 The ewocalip care ofthe cei compnis on the
‘evesmen ar ofthe Singapore yovemmen, Tenasck Hadi, Wl
‘inna ntl leet sc re vate [1
‘works as the market support services licensee (MSSL) for
‘market participants. Generators supply power to
consumers through a wholesale market operator, retailers
fr the MSSL, and retailers sell the power to contestable
consumers while the MSSL provides power to small
ccontestble consumers who have not chosen retailers and
non-contestable consumers. The MSSL provides market
support services such asthe reading of electricity meters,
facilitation of consumer transfers between retailers, sale of
electricity to non-contesable consumers and provision of
other services related to access to the wholesale market.
For example, it provides contestable consumers, who wish
to buy directly from the market, with access to the
wholesale market. SP Serviees sheds its previous role asa
retailer to fulfill the role of a MSSL, The NEMS is
divided into two markets ~ wholesale and retail markets.
‘The wholesale market consists of two markets ~ a real
lime or spot market for energy, regulation, and reserve,
and a market for other ancillary services. Auction pricing
is used to settle transactions in the real-time market, and
‘overall leas-cost dispatch schedule and market prices are
determined cach half-hour based on both price-quantity
‘offers by generators and the load forecasts from the PSO.
Since July 2001, the consumers with maximum power
requirements exceeding 2MW are able to purchase
celecticity from retailers oftheir choice. The retail market
is being further opened up in three phases. In Phase I, all
‘consumers with an average annual consumption
exceeding 240MWh targeted to be able to choose their
retailers. In Phase Il, all consumers with an average
annual consumption exceeding 120MWh targeted to be
able to choose their retilers six months after Phase I is
completed. The rest of the one million consumers would
bbe open to competitive reuiling in Phase III by 2004. In
the meantime, contestable consumers have @ choice of
buying from either the retailers or from the wholesale
market via the MSSL or by trading directly in the market.
Electricity tariffs for non-contestable customers. will
continue tobe regulated until the successful conclusion of
Phase II above. About 250 consumers had become
contestable since July 2001, which represent about 40
percent of the total electricity demand. Since June 2003,
5,000 non-domestic consumers. with average monthly
clectricity consumption of more than 20MWh have
become contestable. Another 5,000 consumers with
average monthly consumption of 1OMWh have become
ccontestable at the end of 2003 and the total contestable
‘market covers 7S percent ofthe total electricity demand
(2.
‘Among others, perceived failure of cost of service
regulation, availablity of economically viable small-scale
ower generation and the faith of market forces are
suggested as main drivers for a market reform in the
electricity industry [3]. What i expected to result from
‘the market reform are mainly lewer prices, more choices
for consumers and consumer savings. ‘Through the 2004 IEEE Intemational Conference on Electric Lily Deregulation, Restuctring and Power Technologies (DRPT2004) April 2004 Hong Kong
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