Skip Navigation LinksHome|News & Analysis|News Features|News Feature Detail


Singapore's electricity markets - trailblazer or flicker of light?

S&P Global Platts news and analysis feature

By Eric Yep

In the industrialized zone of western Singapore some of the only night owls are electricity traders on 24-hour shifts, bidding prices for a commodity traded at half-hour intervals because it cannot be stored and shipped like oil or gold.

Singapore has come a long way from a government-regulated power supply era. In 2018, it will have a fully liberalized power market where even household consumers can choose to buy the cheapest electricity from a laundry list of suppliers.

In addition to competitive wholesale and retail electricity markets, Singapore also has a fledgling futures market in the works.

The question is where does it go from here?

Can power trading in Singapore rival mature markets in Europe? Or can Singapore become the template for deregulated power markets within Southeast Asia, possibly underpinning the ambitious ASEAN gas and power grids that have been elusive for over two decades?

Domestically, will associated carbon and gas trading markets develop fast enough to support the power market? Does great power mean great liquidity -- can the paper markets generate enough liquidity and trading interest in the longer term?

Singapore electricity demand


Singapore has gone from a handful of power producers to 14 generators, 17 wholesale market traders and 16 retailers, totaling 47 market players including a small number of solar power producers as of December 2016. This year the number had crossed 50.

Currently business accounts, which are consumers with an average monthly electricity consumption of at least 2,000 kWh, account for around 80% of Singapore's total electricity demand, according to the Energy Market Authority. They can already choose their power supplier and by the second half of 2018 around 1.3 million families will also be able to do the same.

This is estimated to result in savings of S$435 million ($323 million) over five years for consumers through free market competition, according to a 2016 report published by consultancy Sapere Research Group, for the Energy Market Authority.

The wholesale trading market itself is fairly sophisticated with algorithms using 50,000 mathematical equations to calculate demand, supply and pricing levels, according to the Electricity Market Company. On the Singapore Exchange, independent retailers can buy and hedge their electricity positions using electricity futures.

But being on a tropical island has its drawbacks.

Singapore electricity demand

Power trading in mature markets like Nord Pool is possible because of variations in demand-supply caused by intraday peaks, summer and winter demand, storms, cross-border trade between countries and multiple fuels like coal, natural gas, renewables and nuclear.

In Singapore, most of these variations are non-existent, severely limiting trading arbitrage.

For instance, 95.2% of Singapore's electricity comes from natural gas, whereas in Europe renewables have proliferated to the point of annoyance, as wind and solar do not provide stable supply.

In October, Singapore's deputy Prime Minister Teo Chee Hean said the city-state has an immediate solar power target of 6% by the end of this decade, and potentially as much as 20% in the long term if new technologies are implemented.

Compared to electricity consumption of 48.6 TWh in 2016, and generation capacity of 13,348.4 MW as of end-March 2017, Singapore's grid-connected installed solar capacity remains minuscule.

Cross-border trading is also absent in Singapore.

In Europe, countries have an interconnectivity target of 10% of installed capacity in the near term and as much as 15% by 2030 has been proposed.

But in Singapore, regulators are still conducting feasibility studies with Laos, Thailand and Malaysia for cross-border electricity trading, and only a small amount of electricity is actually traded with Malaysia's southern Johor state.

Cross-border trading will remain a difficult proposition in Singapore because of energy security considerations that curb dependence on foreign power suppliers, who may also have access to cheaper fuels and lower capital costs.


Singapore has also launched its own electricity futures market.

As of October 1, 2017, total volume traded in the electricity futures market was 4,744 lots or 5,196 GWh since they were launched in early 2015, according to the Energy Market Authority. Comparatively, Singapore's actual electricity generation rose by 2.6% to 51.6 TWh in 2016.

This means traded volumes on the paper market are roughly 5% of actual demand. The ratio of paper versus physical trading volumes is a sign of how active the market is.

For instance, in oil markets, derivatives volumes are 10-15 times of the physical, in the New Zealand electricity market derivatives trade at around 70% of physical, and in the Australian market derivatives volumes are two to three times that of actual consumption.

There is clearly room for growth there.

"The development of the Singapore electricity futures market is being modeled on the New Zealand market due to the similarities between the two markets," William Prajogo, associate director of oil, power and gas derivatives at SGX said.

He said the electricity futures market is vital for the success of the Full Retail Contestability of the Singapore power market in 2018 as it lowers the barriers to entry for new independent retailers to enter the market, which in turn will create more retail competition.

"SGX will consider launching more electricity derivatives products in future depending on market demand and growing liquidity levels," Prajogo said, adding that he expects more market participants such as trading companies, banks and financial institutions to add liquidity to the market.


There is also a strong correlation between the gas and power markets. It is also vital to have free markets for the primary fuel to facilitate and incentivize free trading of electricity.

Products like spark spreads, which measures the profitability of a power plant depending on its primary fuel, are common in mature markets where both the fuel and electricity are actively traded and market participants can hedge the spread between electricity prices and fuel costs.

In Singapore's case however, primary natural gas supply is still tightly regulated.

Singapore electricity demand

Most of the gas is piped in from Malaysia and Indonesia at prices pegged to high sulfur fuel oil. Less than 25% of the gas burnt is seaborne LNG, and even that is controlled by the two appointed aggregators at oil indexed prices.

"None of us can predict the future but the common sense point to make would be that for a vigorous futures market in natural gas and electricity to work you need a market designed for a level playing field for everyone to participate in," Tilak Doshi, managing consultant at Muse, Stancil & Co (Asia) said.

"The answer lies in promoting contestability in power and gas markets," he said.

"Without further liberalizing market design changes, the outlook for full development of the futures market for electricity will be constrained," Doshi said.

Also in this feature: For the ASEAN power grid, politics is the biggest turn off

Copyright © 2018 S&P Global Platts, a division of S&P Global. All rights reserved.