Electricity market all set to crackle

SINGAPORE - An electricity futures market and a "demand response" scheme will allow big consumers to reduce their power demand if the prices are too high.

Announcing this at the Singapore Energy Summit yesterday, S Iswaran, Minister in the Prime Minister's Office and Second Minister for Home Affairs and Trade & Industry, said that such a market for forward electricity products will complement Singapore's wholesale market and yield several benefits.

"Firstly, independent retailers will be able to participate in the market by purchasing futures contracts and in turn offering competitive packages to customers. This will increase retail competition and benefit end consumers."

"Consumers will also be able to hedge their risks by locking in longer-term prices, while generating companies stand to gain by using the futures contracts to hedge against their fuel price and operational risks during plant outages."

Mr Iswaran said that while the government has no specific timeline in mind for implementing the futures market, "clearly, it's an initiative we would like to move on as soon as possible as there are tangible benefits to be had."

"Large power consumers, for example the electronics and petrochemicals and chemicals industries and a range of others for whom their electricity bill forms a large portion of their operating costs will benefit especially."

Mr Iswaran said that the government is studying the implementation options and will make a decision once it gets feedback from a public consultation launched by regulator Energy Market Authority yesterday.

The key challenge is to ensure sufficient liquidity, EMA said in its consultation paper, adding that it is therefore considering incentives for generators to enter into market-making agreements with an exchange.

The idea for an electricity futures market was first mooted in 2006, and gained ground this year with EMA's appointment of a consultant, followed by Singapore Exchange's acquisition of a 49 per cent stake in wholesale operator Energy Market Company in August.

The second power initiative covers incorporating "demand response" as part of the national electricity market here, Mr Iswaran said. "What that does is two things, at the consumer level it allows the company to lower its cost of energy, and at system level, it lessens system-level pressure at peak periods. So it benefits both sides."

"Demand response will allow consumers to participate more actively in the market and.. this can moderate price spikes, lower energy costs and generate systems-wide savings. Consumers who curtail their demand could potentially also share in these system-wide savings and be rewarded for taking action."

EMA said that an effective demand response programme improves the overall efficiency of the market by allowing consumers to respond to real-time market pricing signals.

Its proposed programme comprises two distinct features, namely demand side bidding for consumers to bid either directly or through aggregators, and incentive payments to demand response loads.

Mr Iswaran also announced yesterday the launch of the Singapore Energy Awards to acknowledge the achievements of energy players, both individuals and businesses, in developing the sector. The inaugural winners will be announced at next year's Singapore International Energy Week.