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Update on the National Electricity Market of Singapore (NEMS)

Presented by Nerine Teo

Economist, Market Administration Asian Apex New Delhi 7 March 2011

1

Agenda

1. Background on Energy Market Company 2. Update on the NEMS 3. Summary of Market Prices 4. Market Evolution 5. Market Performance and Outlook

2

Energy Market Company (EMC)

· Joint venture between Energy Market Authority and M-co

· Set up as the independent market operator of the NEMS in 2001 to take over operation of the Singapore Electricity Pool (SEP) and implement the NEMS.

· NEMS commenced operations on 1 January 2003

3

EMC's Role as Market Operator

· Pricing and scheduling · Settlement

· Market information and education

· Market evolution (rules change) · Market surveillance · Facilitator for dispute resolution

4

An overview of NEMS

· 5.1 Million people (2010 census) · approx 40km x 20km in size (710km2) · 2nd most densely populated nation · 4th highest GDP per capital

5

Products Traded

· Real-time Market (Half-hourly Trading Intervals) · Energy

· 3 classes of Reserve (can be provided by gencos and load):

Primary (8-second) Secondary (30-second) Contingency (10-minute)

· Regulation

· Procured Contracts (Annually)

· Black Start Ancillary Services

6

Key Stakeholders

Senoko Energy Tuas Power Power Seraya Generation Sembcorp Cogen Keppel Merlimau Cogen Keppel Seghers Tuas WTE* Senoko WTE* Shell Eastern Petroleum

NEA

* WTE ­ Waste-to-Energy

SP Power Asset

Wholesale Traders

·Diamond

Electricity Retailers

·Keppel Electric

·Sembcorp Power ·Senoko Energy Supply ·Seraya Energy ·Tuas Power Supply

Regulator Operator (EMA)

Market Operator System (EMC) Operator

System

Energy

·Air Products

Singapore

·Pfizer AP ·MSD Int'lGMBH ·IUT Singapore

Non ­ Contestable Customers Contestable Customers

(PSO)

Market Operator (EMC)

·Banyan Utilities ·ISK Singapore ·SOXAL

MSSL (SP Services)

Singapore

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Generation Capacity 2010

MW 3,500

Others Gas Turbine (GT)

3,000

Steam Turbine (ST)

2,500

Combined Cycle Gas Turbine (CCGT) Licensed Capacity Peak Load = 6294 MW Average Load = 5009 MW

2,000

1,500

1,000

500

0 Senoko Energy Power Seraya Tuas Power Generation Sembcorp Cogen Keppel Merlimau Cogen Incineration Plants Embedded Generators (>10MW) Generators (<10MW)

Note: Licensed capacity is the generation capacity licensed by the EMA. Registered capacity is the capacity registered with EMC to participate in the real-time market.

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Highlights of the NEMS

Category Features

System Modelling

·

·

Small, compact, well-engineered system

Sophisticated nodal price system which models power flows, losses and constraints

Trading and dispatch

· Mandatory real-time pool-based model · Offer-only market (i.e. no demand-side bidding) · Co-optimisation of energy, reserve and regulation · Dispatches on a merit-order based on generation stack (economic efficiency) approach and is technology neutral · No forward/financial derivative market

· Vesting contracts in place to mitigate market power (60% of market vested for 2011)

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Highlights of the NEMS

Category Settlement Generators Features · Market settled daily (20 days in arrears) · Paid based on nodal prices

Retailers

· Pay for electricity based on the Uniform Singapore Energy Price (USEP) that is calculated using a weighted average of all nodal prices in the wholesale market

· Large consumers (e.g. commercial) can choose to purchase from any of the five active retailers · Smaller consumers (e.g. households) purchase electricity from SP Services based on a regulated tariff

Consumers

10

Annual USEP and Ancillary Prices 2003-2010

$/MWh 180 160 140 120 100 80 60 2003 2004 2005 2006 2007 2008 2009 2010

$170.51

$5.14

$10.94

40 20 0 USEP Primary Reserve Secondary Reserve

Contingency Reserve

Regulation

$75.79

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$0.75

Daily USEP, System Demand and Offer Capacity 2010

MW 7,500

$/MWh 240

Offered Capacity

System Demand Forecast

USEP

200

6,500

160

5,500

120

4,500

80

3,500

40 Jan

2,500 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

· Prices above $240/MWh are not shown

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Annual Market Share by Plant Type 2002-2010

CCGT

100%

ST

GT

80%

75.0%

60%

78.0%

79.0%

81.5%

81.4%

79.5%

67.7% 60.7%

Decrease due to some CCGTs undergoing maintenance.

40%

44.0%

20%

0% 2002 2003 2004 2005 2006 2007 2008 2009 2010

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Market Evolution

·

Advancement of the NEMS has surfaced increasingly complex issues Some common themes discussed in 2010 included: · Re-visiting market design principles · Compensation issues

·

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Re-visiting Market Design Principles

Current Situation Proposed Change Discussion and Outcome

Reserve costs are allocated to generation facilities with scheduled energy of >10MW

Reserve costs should be allocated to load and generation facilities with scheduled energy of 10MW

· Cost allocation methodology based on the following design principles: · "Causer-pay" principle · Allocate risks to parties best able to manage them

· Regulation already covers risks caused by generation facilities with scheduled energy of 10MW Retain existing arrangements

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Re-visiting Market Design Principles

Current Situation Proposed Change Discussion and Outcome

Generators are allowed to submit offer quantities of 0MW even if the units are physically available

Generators allocated vesting contracts are required to submit positive energy offers, unless physically unavailable:

·Prevent capacity withholding or discourage exercise of market power

· NEMS operates on the principle of self-commitment

· Vesting contracts not structured to require gencos to submit positive offer quantities Retain existing arrangements

16

Compensation Issues

Current Situation Proposed Change Some generators provided regulation beyond their scheduled amounts Introduce compensation for these generators that provided excess regulation Discussion and Outcome · Excess regulation provision is insignificant from a system-wide perspective

· GRFs that are more responsive in providing regulation should be paid more, using pre-determined effective factors

but · Difficulty lies in designing effectiveness factors based on historical or technical data Retain existing arrangements

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Trends and Outlook

1. New investments into the market

· Building of new plants Island Power (2013), Sembcorp Cogen, Keppel Merlimau Cogen (800MW each), Tuas Power Generation (Clean Coal/Biomass) · Repowering of old plants Completed: PowerSeraya (800MW Cogen) Under construction: Senoko Power (860MW CCPs) Planned: Tuas Power Generation (oil-fired steam plant to 400MW CCGT) · Building of new plants by embedded generation Exxon Mobil (200MW Cogen), Shell (60MW)

2. LNG Terminal to be completed in 2013

· Initial capacity of 3 million tonnes per annum (Mtpa), with provision for expansion to 6 Mtpa

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