Curbing speculationm Singapore seeks to regulate new power futures market

Updated: Tuesday October 29, 2013 MYT 7:34:27 AM

Curbing speculation Singapore seeks to regulate new power futures market

SINGAPORE: Singapore will seek to regulate electricity trading to prevent speculation as Asia’s oil hub prepares to open the region’s first power futures market. Singapore Exchange will begin a trial for the contracts in 2014 and intends to start trading by the end of next year, S. Iswaran, the second minister for trade and industry, said in a speech during Singapore International Energy Week yesterday. Six power generation companies had said they were interested in the market, including Keppel Merlimau Cogen Pte, Sembcorp Cogen Pte, Senoko Energy Pte,Tuas Power Generation Pte, Tuaspring Pte and YTL PowerSeraya Pte, he said.“We do not want to become the object of speculative activity, we are quite clear about that,” Iswaran told reporters on the sidelines of the conference. “We want to ensure that even as we create derivatives, that they serve the purpose that they are designed for.”

The island nation of 5.4 million people has about 10.5GW of installed generation capacity operated by 14 licensees, according to the Energy Market Authority (EMA)website. By contrast, the UK has capacity of about 93GW. Singapore generated 46.9 twh last year.

The government wanted the futures market to help larger electricity consumers better manage price volatility by allowing them to secure longer-term prices, Iswaran said.

“A futures market will also provide an alternative avenue for independent retailers to enter the market by enabling them to purchase longer-term hedges,” he said. “The entry of such independent players can in turn further spur retail competition to the benefit of end-consumers.”

Households in public and private housing consume on average about 369kwh and 778kwh of electricity per month, respectively, according to the EMA. The average UK household consumed 352kwh a month last year, according to government data.

An industry group was developing the electricity futures contracts and establishing a market-making arrangement to ensure sufficient trading liquidity, Iswaran said.

“We will want to make sure the rules, and the way players participate in this market are carefully structured,” he said. “Our market is small, which is why it’s important the key players in the market come in. If that doesn’t happen then that will be a difficult task.”

Singapore is also vying to become a hub for liquefied natural gas, supercooled gas shipped by tankers rather than pipelines. It opened its first LNG terminal in May with an initial annual capacity of 3.5 million tonnes, increasing to 6 million tonnes by the end of the year. Natural gas supplied 84% of electricity in 2012, according to the EMA.

A fourth tank is planned to take capacity to 9 million tonnes by 2016. That will allow Singapore to offer last-minute deliveries, or spot cargoes, to buyers in Asia seeking an alternative to long-term contracts.

“We are starting to see some evolution in gas contracts,” Iswaran said, adding that “several large traders” had set up in Singapore to establish a gas-trading base. “Increasingly now, we’re seeing greater diversity in contract durations, contract volumes, more spot traded. And also the opportunity to find new indices are arising.”

Solar energy is Singapore’s most viable source of renewable energy, Iswaran said. As the government seeks to prepare for solar power in the energy mix, it started a public consultation on the regulatory framework for “intermittent generation sources,” or energy that isn’t continuously available.

“One area for consultation is how the market registration procedures can be simplified to allow small consumers with intermittent generation sources to be paid for supplying their excess electricity to the grid,” he said. “Another is the procurement of reserves to manage intermittency.”

The EMA lifted a cap on how much power that intermittent generation sources such as solar could supply to the grid to 600MW at peak from 350MW, Iswaran said. –Bloomberg