Published October 20, 2009

Power to the people at competitive bids

EMA may open part of vested consumer market to bidding by gencos in January

By RONNIE LIM

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(SINGAPORE) Come January, Singapore's generating companies (gencos) will start vying for a slice of the domestic electricity market here, sources say. This area had not been touched by competition so far, but the government is taking interim steps to open it up to benefit small consumers. The move could start impacting electricity tariffs from the second quarter onward.

The three biggest gencos now have foreign owners and the thinking is that they may bid aggressively to supply to this market segment of 1.2 million consumers, comprising mainly households and some small businesses.

Some 55 per cent of the electricity demand here is currently 'vested' or price-controlled. The Energy Market Authority may allow five gencos here to bid for as much as 3 to 12 percentage points of this pie.

'It has to be sizeable enough to be meaningful,' a source said. EMA could also divide the tender bids into smaller tranches so as to allow the smaller gencos to participate.

This means that as much as one-fifth of the vesting volume - currently accounting for 55 per cent of the 3 million mega-watt/hours monthly total electricity supply here - will be open to competitive bidding.

EMA will also reserve the right to withhold awarding the tender if the bids are not competitive enough, the sources added.

Vesting contracts were first introduced by the EMA in January 2004 to curb abuse of market power by any single genco and to protect consumers from excessive price volatility. The vesting contracts capped prices on 65 per cent of total electricity supply here at the start of the scheme, with the vesting prices set at the long-run marginal cost of the most efficient generation technology in use (ie. combined cycle gas turbines).

The vesting volume has since been brought down to 55 per cent, with the entry of new players, like Keppel Merlimau Cogen and Sembcorp Cogen, to a market dominated by the three biggies - Senoko Power, PowerSeraya and Tuas Power. The bid boys are now owned by Japanese/French consortium Lion Power, Malaysia's YTL and China Huaneng respectively.

Under the vesting scheme, the three big gencos - who collectively account for some 80-90 per cent of electricity generation - have to sell about one-third of their installed capacity(of about 3,000 megawatts each) into the wholesale pool at the vesting contract price.

The latest move to open part of the vesting volume to competitive bidding comes after months of consultations between the EMA and power players here, the sources said.

S Iswaran, Senior Minister of State for Trade & Industry, first disclosed in Parliament in February this year that EMA was looking at ways to inject more competition into the electricity market.

The government's objective is to fully open up the market so that all consumers will be able to purchase electricity from a range of retail packages offered by different suppliers, he said, adding that it is in the midst of a pilot project, the Electricity Vending System, to try to achieve this.

The EVS pilot studies at Marine Parade and West Coast are expected to be completed next month, with EMA studying the feasibility of deploying it on a larger scale.

In the interim, Mr Iswaran said that EMA will tender out a portion of the electricity demand for bidding by the gencos.

The overall price of electricity for domestic consumers will then be determined as a weighted average of the tender price and the price from the tariff formula.