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Stricter rules for energy retailers among new moves to tackle energy crunch, address gaps in S'pore's power sector: MTI

SINGAPORE — In a bid to weather "potentially more turbulent times ahead" amid a global energy crunch, the Government will soon require energy retailers to have sufficient capital and a good business plan to withstand market volatility before they are allowed to enter the market.

Stricter rules for energy retailers among new moves to tackle energy crunch, address gaps in S'pore's power sector: MTI
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  • MTI said that some gaps have been identified in Singapore's energy market structure amidst a volatile global market
  • This includes the risk of gas supply disruptions and price shocks, and the sudden exit of energy retailers who are insufficiently prepared
  • To address these gaps, EMA will progressively introduce three measures from 2023
  • Among them is requiring energy retailers to have sufficient capital and a good business plan before they enter the market
  • To ensure sufficient power generation capacity, investments in new generators will be centralised under a competitive tendering process

SINGAPORE — In a bid to weather "potentially more turbulent times ahead" amid a global energy crunch, the Government will soon require energy retailers to have sufficient capital and a good business plan to withstand market volatility before they are allowed to enter the market.

Set to be progressively introduced in 2023, the Ministry of Trade and Industry (MTI) also announced on Tuesday (Oct 25) two other measures to ensure adequate natural gas supply to Singapore, as well as sufficient power generation capacity, in anticipation of further energy shocks.

Referring to last year's volatility due to unexpected supply shortages and demand spikes for electricity, Minister for Trade and Industry Gan Kim Yong said "this is unlikely to be the last energy crunch we will face".

Coupled with the hurdles caused by the global clean energy transition, Mr Tan said Singapore can expect continued volatility going forward.

"To navigate the dual challenges of the energy transition and energy security, we need to strengthen our energy market structure," he said.

Mr Gan was speaking on the first day of the annual Singapore International Energy Week conference, a four-day event for professionals, policymakers and thought leaders to discuss key issues and pressing challenges in the energy industry.

The conference, which is now in its 15th edition, is organised by the Energy Market Authority (EMA), a statutory board of the MTI.

The moves follow EMA's review of the power sector in Singapore amid heightened geopolitical tensions and volatility in the global energy market, and come after several electricity retailers exited the market in October last year as gas prices surged.

The ministry said that the three new measures, or “guardrails” as Mr Gan called it, aim to address gaps that have been identified in the current energy market structure, which the EMA currently regulates by setting performance standards.

The authority does not, however, intervene in gas contracting, generation capacity planting and electricity pricing in order to ensure a competitive market.

Nevertheless, MTI said that while the new measures will improve the stability and security of Singapore’s power sector in the long term, it also acknowledged that these moves will reduce choice for both market participants and consumers "to some degree".

Mr Gan said: "Generation companies cannot plant new capacity as they wish. Consumers may have fewer retailers to choose from. Some may not be allowed to purchase electricity from the wholesale electricity market.

"However, these measures will bring about a stronger and more secure power system collectively."

In any case, he said that MTI will consult the industry and the public on these proposed changes and put in place such enhancements progressively.

"Having strengthened our ship, we will be able to focus on our journey towards net-zero emission. This is a challenging, but worthwhile journey," he added.


In a statement issued to the media, MTI said that Singapore has a liberalised power sector, where private generation companies, or gencos, procure fuel, generate electricity and sell it to consumers.

Within this structure, the EMA plays a regulatory role, but otherwise allows companies the ability to set prices, negotiate contracts, and determine how much electricity to generate.

But while such a “competitive market structure” has served Singapore well over the past two decades, MTI said some gaps have emerged.

For instance, the ministry identified the risk of gas supply disruptions and price shocks as a downside to current Singapore's energy structure.

At present, gencos have the flexibility to decide on the amount of gas to contract and the duration of their contracts.

However, MTI said that such an approach does not provide sufficient assurance that there will be sufficient contracted gas on aggregate to meet system demand.

“Indeed, when gas prices are high, gencos are less inclined to contract for gas for fear that they would be left stranded when gas prices moderate,” it said.

Without the assurance of back-to-back electricity contracts, MTI said gencos are also reluctant to enter into longer-term gas contracts which typically offer a greater guarantee of delivery and lower prices.

“Gencos also tend to exhibit herding behaviour in gas procurement, which can lead to either over- or under-contracting of gas, or gas contracts expiring at the same time,” said MTI.

“This magnifies the power sector’s exposure to global market conditions, which may be unfavourable.”

A second gap MTI noted was the risk of insufficient power generation capacity, due to mismatches in supply and demand caused by investments in new generation capacity being driven by a company’s commercial considerations.

Presently, gencos can decide to expand power generation capacity by investing and building power plants, based on various factors such as their own business plans, or their outlook for electricity demand.

But as it takes four to five years to build a new generator, companies may not be able to respond in time during a volatile market when electricity prices are high.

Uncoordinated investments into new generators can also lead to excess capacity, said Mr Gan.

Finally, MTI said that there is also a risk of market failures as industry participants are not sufficiently equipped to deal with volatile market conditions.

“As part of the liberalisation of the retail market, EMA had allowed independent retailers to enter and compete with genco-retailers to sell electricity to consumers,” said MTI.

While consumers have benefited from more competitive electricity prices and a wider range of retail price plans, MTI said some electricity retailers were not sufficiently equipped to deal with the extreme market volatilities observed in the fourth quarter of last year and the first quarter of this year.

As a result, they either exited the market or prematurely terminated contracts with some of their consumers.

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MTI said in its statement that it will protect consumers from disruption by enhancing the regulatory requirements that apply to electricity retailers.

These include imposing stricter qualifying criteria for retailers such that only industry participants with “sufficient financial strength and sustainable business propositions to withstand some degree of market volatility” can enter the market, said MTI.

It added that there will also be plans to impose higher capital and hedging requirements on retailers to ensure that they are sufficiently resilient against market volatility.

Currently, open electricity market retailers have to demonstrate that their management team possesses relevant experience in energy retailing and trading, as well as to consistently hedge at least 50 per cent of their wholesale electricity price risk, and have their financial health assessed by submitting financial statements to EMA. 

Tuesday's statement did not provide details on what the future requirements are.

Beyond these rules for retailers, MTI said that it will also introduce additional protections for consumers as a safeguard against retailers prematurely terminating contracts.

There will also be a tightening of eligibility criteria for consumers on wholesale electricity price plans, so that only those who are equipped to deal with the risks of price fluctuations can purchase electricity at wholesale electricity prices, said Mr Gan.

He added that all consumers can still enter into retail contracts, while consumers who qualify for the regulated tariffs can still continue to do so. 


Late last year, EMA implemented a slew of temporary measures to tackle the global energy crunch, which included requiring gencos to contract sufficient fuel to operate.

The energy crunch, which has seen global gas prices tripling since the first quarter of 2021, had resulted in five electricity retailers here announcing their exit from the open electricity market in a span of three weeks in October.

Given the “uncertainties and volatilities in global energy markets”, Mr Gan said on Tuesday that the authorities will turn the temporary measures into permanent features to ensure Singapore’s energy security.  

This will also include the maintenance of a Standby LNG (liquefied natural gas) Facility to address risks of gas supply disruptions.

The facility was first introduced last year to allow gencos to draw upon for electricity generation in the event of gas supply disruptions. 

MTI said the facility will similarly safeguard Singapore’s energy security, as it expects gas supply disruptions to be “more prevalent in the future” due to depleting piped natural gas supplies, among other reasons.

Under the crisis measures, which will expire in end-March 2023, authorities can direct gencos to buy sufficient fuel to generate electricity based on their available capacity, as well as to use fuel from the standby facility if they are unwilling to draw on their gas reserves.  

Another crisis measure that the authorities introduced was the Temporary Electricity Contracting Support Scheme. The scheme helps large consumers with an average monthly consumption of at least 4MWh secure fixed price plans and retail contracts with significant fixed price components.

Moving forward, Mr Gan said that EMA will work with the industry to explore ways to aggregate gas procurement and obtain contracts that are both longer and more secure.  


To ensure sufficient generation capacity to meet system demand, EMA will introduce a structured process to facilitate private investments in new power generation.

While each genco will make rational decisions in building power generation capacity, there is no assurance this will translate into sufficient generation capacity for Singapore's national needs, said Mr Gan.

The minister added: "Therefore, to ensure we have sufficient generation capacity in time to come, we will need to plan for capacity building at the national level."

When the new measures kick in, any company that wants to build and operate a new power generation plant must do so through a tender about five years in advance of when the generation capacity is projected to be required. 

The most competitive proposal, said MTI, will be awarded a licence to build, own and operate the new power generation plant.

The ministry added that such a process will coordinate the building of new generators to avoid risks of over- and under-capacity.

In the event there is insufficient private sector interest in these tenders to build new generation capacity, EMA will do so as a last resort, the ministry added. The Energy Market Authority Act and Electricity Act were amended in 2021 to provide EMA with the powers to do so.

Mr Toh Seong Wah, chief executive officer of Energy Market Company, which operates Singapore’s wholesale electricity market, said it supports EMA's decision.

"The guardrails proposed by EMA will go some way in stabilising the market in times of sustained price spike," he said.

"A centralised approach to new power generation and the aggregating of gas procurement will help enable secure electricity supply, while the enhancement to the regulatory requirements on electricity retailers will better safeguard consumers against errant retailers and volatile prices."

Dr David Broadstock, a senior research fellow and head of the Energy Economics Division at the National University of Singapore's Energy Studies Institute, added that the announcements are a "very natural evolution for the power sector" due to the industry's volatility in the past year, and the market's future prospects.

Because the extent of global energy market uncertainty today does not have a historical benchmark, Dr Broadstock said it is difficult to assess whether the measures will be sufficient.

"Notwithstanding this, the announcements display a strong commitment to bolstering domestic resilience of energy supply while preserving the underlying characteristics of competition which the market has been developed around," he said.

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electricity Open Electricity Market Gan Kim Yong

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