Preparing NEMS for the New Energy Market Landscape Presented by Paul Poh

Transcription

1 Preparing NEMS for the New Energy Market Landscape Presented by Paul Poh Executive Vice President Market Administration 1

2 Agenda Market Reform Milestones National Electricity Market of Singapore (NEMS) Lack of Investments in Other Markets Australia Europe What about NEMS? 2

3 Market Reform Milestones May 1963 Formation of Public Utilities Board Supplies water/electricity/ga Oct 1995 Corporatisation of electricity/gas Apr 1998 Formation of Singapore Electricity Pool (SEP) s to Singapore Mar 2000 Decision to deregulate further Temasek Holdings Holding Company (Singapore Power) 2 gencos (Power Senoko, Power Seraya) 1 T&D company (PowerGrid) 1 electricity retail company (Power Supply) 1 gas supply company (PowerGas) 1 genco (Tuas Power) Apr 2001 Further restructuring PUB restructured as water authority under MEWR EMA to regulate electricity and gas industries PSO to take over system operations EMC formed to operate and administer wholesale electricity market 3

4 Market Reform Milestones Jan 2003 Commencement of NEMS Real-time wholesale market for electricity Phased contestability of consumers 2008 Sale of Gencos May 2013 LNG terminal began operation Apr 2016 Implementation of Demand Response Programme Jan 2004 Implementation of Vesting Contracts Implementation of Interruptible Load Mar - Tuas sold to Huaneng Group Oct - Senoko Power sold to Lion Power Dec - Power Seraya sold to YTL Power Jun 2015 Launch of Electricity Futures Market USEP Quarterly Base Load futures 4

5 5

6 Industry Stakeholders Generators Sembcorp Cogen NEA Keppel Merlimau Cogen Senoko WTE Shell Eastern Petroleum Keppel Seghers Tuas WTE ExxonMobil Asia Pacific PacificLight Power YTL PowerSeraya Tuaspring TP Utilities Singapore Refining Company Regulator (EMA) SP PowerAssets Wholesale Traders Diamond Energy Managers Pfizer Asia Pacific MSD International GmbH Banyan Utilities Green Power Asia Singapore LNG GSK ECO Special Waste Management CGNPC Sunseap Leasing LYS Genco Beta Solar C&I Singapore District Cooling Nanyang Technological University GreenSync Holdings Sun Electric Energy Assets Air Liquide Singapore Changi Mega Solar Electricity Retailers Keppel Electric Sembcorp Power Senoko Energy Supply Seraya Energy Tuas Power Supply Diamond Energy Merchants PacificLight Energy Hyflux Energy Red Dot Power Buri Energy Sun Electric Power Sunseap Energy Best Electricity Supply I Switch Charis Electric Environmental Solutions Union Power Just Electric Cleantech Solar Management Energy Supply Solutions System Operator (PSO) Market Operator (EMC) Non-Contestable Consumers Contestable Consumers MSSL (SP Services) 6

7 Products Traded Real-time spot market (half-hourly trading intervals) Energy 3 classes of reserves (can be provided by gencos and load) Primary (8-second) Secondary (30-second) Contingency (10-minute) Regulation Procured contracts (annually) Black-start ancillary services 7

8 Location Map of NEMS Generators (Existing & Upcoming, excluding EG) Electricity interconnection with Malaysia Natural gas pipeline from Malaysia Senoko Energy Tuaspring Tuas Power Generation PacificLight 8 Keppel Cogen SRC PowerSeraya ExxonMobil SembCorp Shell LNG Terminal Natural gas pipeline from (West Natuna) Natural gas pipeline from Sumatra (Asamera) Represents incineration plants Note: The Locations indicated on this map have been approximated and stylised. They do not accurately represent the actual physical location of individual facilities Embedded generators and small generators (below 10MW) are not depicted in this map.

9 Features of NEMS Objectives Promote competition Efficient prices to guide investment, production and consumption decisions Market structure Relatively concentrated market with a high degree of vertical integration in generation and retail Vesting contracts in place to mitigate market power Consumers Retailers charged at Uniform Singapore Energy Price (USEP) Contestable consumers buy from retailers/ MSSL (at spot prices) Non-contestable consumers buy from MSSL at a regulated electricity tariff 9

10 Features of NEMS Mandatory Energy-Only Real-Time Gross Pool Spot market for 5 products - energy, 3 types of reserves and regulation ½ hourly trading periods with 65 minute gate-closure Supply offer market with interruptible load and demand bidding being demand-side participation Market settled daily (20 days in arrears) Dispatch of electricity Market clearing engine: co-optimisation of energy, reserves and regulation, modeling of power flows Locational marginal pricing, with about 860 nodes 10

11 11 Lack of Investments in Other Markets

12 12 Australia National Electricity Market

13 Annual Average Prices The Australia NEM has high wholesale electricity prices since 2016 Annual average prices by region (AU$/MWh) $ $ $80.00 $60.00 $ $20.00 $- NSW1 QLD1 SA1 TAS1 VIC1 13

14 Electricity Prices Australian Energy Market Commission expects Wholesale power costs to rise between 5% and 15% each year until 2019 Average electricity bills have more than doubled over the past decade to about $2,020 a household, making electricity the fastest rising household expense 14

15 High Electricity Prices Issues with renewables Decline in traditional generation (i.e. coal-fired power plants) Limited management of renewable energy s intermittency Traditional sources of energy are pertinent when renewable generation dips Renewables do not have characteristics to support and stabilise the electricity system 15

16 High Electricity Prices High domestic gas price 3 massive new LNG terminals at Gladstone contracted to supply Asia with gas Exporters struggle to fulfil contracted orders written years ago - Raid gas from the domestic market to meet their contracts Suppliers took advantage to raise prices and place onerous conditions on buyers Lack of financial incentive for landowner hampers development of new gas fields to increase domestic supply 16

17 High Electricity Prices Constrained Interconnectors Heywood Interconnector High penetration of wind/solar generators led to closures of synchronous generators Became very reliant on importing energy from Victoria The interconnector is required to keep the system frequency in balance Basslink Interconnector Reliant on the Basslink interconnector from Victoria E.g. In December 2015 (faulty interconnector) Tasmania could not generate sufficient hydro power Necessary to restart a closed gasfired power station and commission emergency diesel generators 17

18 High Electricity Prices Issues with renewables High domestic gas price High Wholesale Electricity Prices Constrained Interconnectors However, investment in generation is still low!! Provide investment signal 18

19 Lack of Generation Investment Uncertainty of government policies Policy instability and uncertainty driven by numerous reviews into the renewable energy target and a lack of clarity about the policies to reduce emissions after 2020 Overlapping renewable energy (emissions reductions) targets at the state and federal levels Carbon policy indecision led to uncertainties in investment of new power generation 19

20 Closure of Coal-Fired Plants COLLINSVILLE WA NT SA NORTHERN 240MW Closed 2016 MORWELL 165MW Closed 2014 PLAYFORD B 240MW Closed 2012 ANGLESEA 150MW Closed 2015 QLD NSW VIC TAS HAZELWOOD 1600MW Closed MW Closed 2012 WALLERAWANG 1000MW Closed 2014 SWANBANK B 480MW Closed 2012 REDBANK 151MW Closed 2014 MUNMORAH 600MW Closed

21 Lack of Generation Investment Uncertainty of domestic gas prices Uncertainty as to whether sufficient gas will be available to meet future domestic demand. This is due to supplies being diverted to meet international LNG supply contracts. Low levels of exploration, restrictions on onshore exploration and infrastructure constraints resulted in uncertainty in domestic gas supply, which ultimately creates uncertainty for investment in new power generations 21

22 Australia Energy Plan Future Energy Plan South Australia In March 2017, the state government unveiled AUD550 million power plan Build a state-owned 250MW gas-fired power station for emergencies Support building the nation s largest battery to store renewal energy Encourage the construction of a new privately-owned power station by tendering 75% of State Government electricity over next 10 years Giving the state energy minister powers to direct generators to operate and NEM to control flows on the interconnector 22

23 Australia Energy Plan Future Energy Plan Australia NEM In June 2017: Australia s chief scientist Dr Alan Finkel made 50 recommendations to improve the NEM Federal Government has agreed to 49 of the recommendations Except for the Clean Energy target recommendation 23

24 24 Europe Electricity Markets

25 Scissors Effect Scissors effect falling profitability of conventional gencos Profit Falling revenue/margins for generators Stagnating demand Increase in renewables fall in average and peak prices Increase output from renewables fall in running hours - excess generation capacity Consumers face rising final prices increase incentive for auto consumption, energy efficiency and demand response Rising costs Tightening environmental standards System costs to integrate renewables 25

26 Stagnant Demand in Europe Electricity Demand in the EU-27, Source: Power Statistics and Trends, Eurelectric, various years 26

27 Renewables in Europe Growth of renewables Policy driven Has been leader in industrial development and installation of renewables especially wind and solar EU governments have levied significant funds through electricity tariffs to finance out-of-market payments to developers of renewable power Past 10 years, 80% of new generation capacity in OECD Europe has been renewable capacity 27

28 EU Electricity Generation European Union electricity generation by source and CO 2 intensity in the New Policies Scenario Source: World Energy Outlook 2014, EIA 28

29 EU Primary Energy Generation Generation by primary energy outlook in the EU 27 Source: Power Statistics and Trends 2013, Eurelectric 29

30 Impact of Renewables Renewables impact conventional generators revenue/margins Lowers average wholesale electricity prices Peak prices falls lead to inability of conventional generators to recover fixed cost; as such plants rely solely on energy market to recover their cost Output effect For conventional generators to recover their fixed cost they must run sufficient hours where prices are greater than their marginal cost. Growth of renewables has lowered capacity utilisation of conventional generators. 30

31 Falling Wholesale Prices in Europe Wholesale market prices in selected EU countries, Source: OMIE, EEX 31

32 Declining Wholesale Prices Across Europe with Rising Costs Source: BDEW, Moody s 32

33 Operation of Gas Fired Plants (Spain) Hours of effective operation of gas fired plants in Spain ( ) Source: CNMC 33

34 Growth in Demand Response High final prices faced by consumers incentivise auto consumption, energy efficiency and demand response Smart technologies reduce the cost of coordination and aggregation makes demand response more feasible More auto consumption, energy efficiency and demand response lower demand and lower capacity utilisation of conventional generators 34

35 Current Electricity Market Design Current electricity markets are designed for the technology of the 20th century The primary objective is to reflect the industry s cost in prices Conventional plants fall naturally into a merit-order approach Low marginal cost and inflexible plants like nuclear at the bottom, high marginal cost flexible plants like OCGTs at the top and base load plants like coal in the middle 35

36 Stylised Merit Order Source: Hunt,

37 Lack of Generation Investment But increasing share of renewables in the energy mix which does not have flexibility and essentially zero marginal costs has depressed both average and peak prices resulting in the missing money problem for conventional generators There is thus no incentive to invest in peaking plants or those needed to balance the system due to variability of renewables energy output 37

38 Potential Solutions Range of potential solutions mooted Drop out of market support for renewable resources Central planning and control of system i.e. abandon liberalisation and revert to more centralised approaches but retain some market elements (e.g. auctions for capacity) Refine energy only markets (e.g. introduce capacity mechanisms) 38

39 Potential Solutions Introduce more flat rate or demand related elements into pricing (e.g. charge consumer an access fee to cover fixed charges and a separate marginal cost to cover incremental cost) Investments Markets Hive off the investment problem by creating a market for the long term operating on the basis of competitive arrangements like auctions Retain short-term markets along same lines as present 39

40 Potential Solutions X 2 A Two-Market System Create two separate power markets for generators Consumer choice between 2 different sets of supply As available power at relative low prices at times when sufficient supply available from low-carbon inflexible generators On demand power available at all times but at significant higher prices 40

41 The Two-Market System On demand (flexible) generators As available intermittent generators Support for low carbon generators Income from flexibility market Operator dispatches generators Income from as available market On demand consumption Electricity System operator Suppliers draw power from grid Suppliers consumers As available consumption 41

42 42 What About NEMS?

43 Installed Capacity MW 16,000 Installed Capacity (MW) Average Forecasted Demand (MW) CCGT/Cogen/Trigen (MW) Peak Forecasted Demand (MW) 14,000 12,000 10,000 8,000 6,000 4,000 2,

44 Quarterly Average USEP vs Vesting Price, The Lantau Group defines three periods in NEMS 1. Ample supply of PNG 2. PNG supplies became scarce 3. Increase in availability of natural gas $240 Quarterly Average USEP $/MWh $190 $140 Hedge Price (PNG) BVP $90 LVP (LNG) $ Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 44

45 Energy-Only Market Economic Theory of Energy-Only Market Energy-only markets with scarcity pricing provide efficient price signals for generation investments Generator s sole remuneration is only from energy spot payment In a competitive market, spot price = short run marginal cost (SRMC) During supply scarcity, spot price > SRMC. Price spikes allow generators to recover fixed capital costs. Price Demand (normal) Baseload Marginal Cost Peaker Marginal Cost Demand (high) Quantity (MW) Use prices as signals Prices spike when supply cushion is tight Incentivise generation investment in the long run 45

46 Quarterly USEP VS Estimated SRMC 2013 Q $/MWh Quarterly Average USEP Quarterly Average Estimated SRMC

47 Vesting Contracts Vesting Contract Coverage (%) Vesting Contract Rollback Schedule (Initial vs Actual) Initial Rollback Schedule Actual Schedule Year 47

48 Rise of Solar Installed Capacity of Grid-Connected Solar PV Systems Target of 1000MWp >2020 MWp Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Source: EMA Statistics

49 Demand Profile with 1000MW Solar :30am to 7:30pm (Period 14 Period 39) 6500 Demand (MW) Period Weekday Weekend/ Public Holidays Net Weekday profile (with 1000MW solar) Net Weekend profile (with 1000MW solar) *Estimated using 2016 data 49

50 USEP Profile (2016) USEP ($/MWh) Weekday Weekend/Public Holidays 50

51 Carbon Pricing in Singapore Singapore government will introduce a carbon tax on large direct emitters of greenhouse gases (GHGs) such as power stations from 2019 Singapore is looking at a carbon tax rate of $10-$20 per tonne of carbon dioxide-equivalent GHG emissions The final tax rate (to be decided) needs to provide sufficient price signal to incentivise behavioural change and energy efficiency improvement Singapore has committed to reducing emissions intensity by 36% by 2030 compared to 2005 levels 51

52 Thank you Disclaimer: This presentation is being made available for general information only and is subject to change without notice. While EMC has taken reasonable care EMC does not represent and makes no warranty whatsoever whether express, implied or statutory that the information provided in this presentation is current, accurate, complete, fit, suitable or valid for any purpose or use whatsoever and EMC shall not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, and/or any reliance on such information. Any recirculation, transmission or distribution of this presentation or any part thereof to and/or by any third party requires the prior written permission of EMC. 52