Singapore sets the standard

Singapore is on the verge of implementing a wholesale electricity exchange which will be the first of its kind in south-east Asia. With many other nations in the region implementing reform, all eyes will be on this new market when it goes live later this year.

Singapore’s New Wholesale Electricity Market (NWEM) will be south-east Asia’s first competitive electricity pool. Designed to promote the efficient supply of competitively-priced electricity, NWEM will help the government reach market reform objectives, including opening the retail market to full competition, allowing certain assets to be privatized, and encouraging private investment in Singapore’s power system infrastructure.

At present, the Singapore government owns most power system assets through its investment arm, Temasek Holdings. Since 1995, those assets have been structured to facilitate commercialization and subsequent privatization.

In a first step towards market reform, the Singapore Electricity Pool began operating in 1998. The NWEM represents a progression to fully competitive wholesale and retail electricity markets.

The Energy Market Company (EMC) was formed in 2001 to operate and administer the NWEM. EMC is a joint venture between the market regulator ” the Energy Market Authority (EMA) ” and M-co Singapore, a subsidiary of M-co International. The EMA owns 51 per cent and M-co Singapore owns 49 per cent of EMC.

The complexity of the new market design meant that a new software system had to be developed
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M-co New Zealand operates the New Zealand Electricity Market, the implementation of which EMC’s chief executive, Allan Dawson, was heavily involved in.

“EMC is in a unique position of being industry servant as well as industry leader,” says Dawson. “We have a good, experienced, skilled team in place that is working hard with the market participants to ensure a smooth transition to the new market. Our channels are open to our customers, the market participants, and there has been good forward momentum thus far.”

M-co was chosen as a partner for EMA largely due to its experience in setting up and operating the New Zealand electricity market, on which parts of Singapore’s new market is modelled, and in developing a market for trading green electricity in Australia.

“The design of the Singapore market is similar in key aspects to the New Zealand wholesale electricity market,” said Philip Bradley, CEO of M-co New Zealand, in June 2001. “EMC provides a great opportunity for an international exchange of knowledge … [and] will enable a great cross-fertilization of skills. We believe Singapore will benefit from M-co’s depth of expertise, and New Zealand will profit from M-co bringing this experience back to its home country.”

Software development

Preliminary testing of the software of the NWEM was completed in the first half of 2002, and the individual IT systems of the various market participants have also been subjected to four rounds of testing. Market trials for the system started on June 24, 2002, and were expected to take eight weeks to complete. As PEi went to press, EMC said that the trials were progressing well, with open unstructured trialling underway with the market players.

Due to the level of complexity of the market, a new software system had to be designed. The software comprises two distinct parts ” the energy market clearing engine and market settlement system managed by EMC, and the electronic business transaction and retail settlement system managed by Power Supply Ltd. Other market participants, such as generating companies and retailers, have also developed their own software systems to enable them to participate in the market.

The software for the existing power pool took three years to develop and test. For the NWEM, the original plan was to have the software completed within one year. This, however, has proven to be a challenge.

Apart from the need to flush out bugs in the software, time was needed to achieve convergence on what rules are appropriate for the new market. These rules relate to trading, business procedures and operational relationships between the market participants. The views of the participants had to be taken into consideration, and this often had an impact on software design.

There are currently around 200 contestable consumers in Singapore (consumption above 2 MW) and seven licensed retailers. After the NWEM opens, another 5400 consumers will become contestable, i.e., those with a consumption of over 240 000 kWh. This will be followed by another 5000 consumers in 2003.

Key players

The NWEM was established under the authority of the Electricity Act 2001. It will be largely governed by the wholesale market rules and associated manuals and by the electricity licences and codes of practice issued by the EMA. The Energy Market Authority of Singapore Act 2001 created the EMA and the Electricity Act 2001 allocates to the EMA responsibility for regulation of the electricity sector.

Authorization for an entity to conduct electricity-related functions is granted by an electricity licence issued by the EMA. The licences require that licensed entities comply with relevant codes of practice and other standards of performance.

The EMA is also responsible for making the initial set of wholesale market rules which, along with market manuals, the system operation manual and specific market-related agreements, provides for the establishment and operation of the wholesale electricity market. They also govern the conduct of EMC, the Power System Operator (PSO), market participants and market support services licensees (MSSLs).

EMC’s functions are to operate and administer the wholesale electricity market, prepare schedules for generating units, loads and the transmission system, settle accounts of market participants, facilitate the planning and augmentation of the transmission system; provide information to facilitate decisions for investment and the use of resources; and exercise and perform the functions, powers and duties assigned to the EMC under the Electricity Act 2001, its electricity licence, the market rules and applicable codes of practice.

The new wholesale market is designed on principles of robustness, transparency and equity
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Under the market rules, some of EMC’s functions are carried out by persons, panels or committees appointed by EMC.

In certain cases, the market rules require that the Board of Directors of EMC itself take action. In other cases, the market rules allocate responsibility to persons or panels appointed by the EMC. These include the Rules Change Panel, the Market Surveillance and Compliance Panel and the Dispute Resolution and Compensation Panel.

The Power System Operator: PSO is a division of EMA. Its role is to ensure the security of supply of electricity to consumers and to arrange the secure operation of the power system. Its functions include:

  • Maintaining the reliability of the power system
  • Forecasting and reporting on conditions on the transmission system
  • Coordinating the outage of facilities
  • Providing network status and load forecasting to EMC for the purposes of market clearing
  • Coordinating the actions of EMC and market participants during emergencies
  • Dispatching facilities.

Further to its responsibility for maintaining reliability, PSO will direct the operation of the transmission system under an ‘operating agreement’ with PowerGrid, the transmission licensee.

Market participants: A market participant is an entity that has an electricity licence issued by the EMA and has been registered with EMC as a market participant.

The wholesale market is a compulsory market in the sense that any person that wishes to convey electricity over the transmission system must be registered as a market participant.

Market participants may be:

  • The transmission licensee
  • Generation licensees
  • Retail electricity licensees
  • Persons other than generation licensees and retail electricity licensees that have been licensed to trade in the wholesale market. These are expected to be predominantly large contestable consumers but could also be wholesale traders.

Real time design

The wholesale market is a ‘real-time market’ or spot market for energy, regulation and reserve.

In a competitive electricity market, prices are used to determine the dispatch of electricity. This is in contrast to traditional centrally-planned systems where the system control centre determines dispatch according to a series of rules that are based on a merit order ranking determined by the system operator and other technical considerations.

NWEM is designed to provide confidence for all parties influenced by the market. It is designed on the basis of principles that are expected to ensure effective operation and to reduce the risk to market participants and the public. Specifically, the applicable design principles are:

ࢀ¢Robustness: The market must perform reliably and consistently under a wide range of operating conditions.

ࢀ¢Transparency: Market participants and external observers must be able to see how the market operates, so that they can be certain that the market outcomes are appropriate.

ࢀ¢Equity and fairness: The market must provide a level playing field, offering equal and open access for all parties who wish to participate in it.

ࢀ¢Minimize transaction costs: Unnecessary transaction costs are to be avoided. This means that each design principle will be applied to the extent that the long-term gains outweigh the costs of giving effect to the principle.

The real-time market uses a form of auction pricing to settle transactions in the market. This encourages the economically efficient scheduling of generation facilities in the short term, and provides incentives for new power system investment in the long term.

Each half-hour the spot market will determine:

ࢀ¢The dispatch quantity that each facility is to produce

ࢀ¢The reserve and regulation capacity required to be maintained by each facility

ࢀ¢The corresponding wholesale spot market prices for energy, reserve and regulation.

These quantities and prices are based on price-quantity offers made by generators and load forecasts prepared by EMC based on demand forecast information received from the PSO.

Market clearing engine

The overall least-cost dispatch schedule and market prices are determined each half-hour by a computer model called the Market Clearing Engine (MCE). The MCE takes account of a full range of system constraints and generates energy prices ” referred to as nodal prices ” that will vary at different points on the network. The differences in nodal energy prices reflect the transmission losses and physical restrictions on the transmission system.

ࢀ¢Each dispatchable generator is paid the market price for energy at the node to which it has been assigned.

ࢀ¢Each generator or load facility that has been registered to provide reserve or regulation is paid the market price for reserve or regulation. The price for reserve varies according to the class of reserve and reserve group to which the facility belongs Buyers pay the Uniform Singapore Energy Price (USEP) for energy. This is a weighted-average of the nodal prices at all off-take nodes.

ࢀ¢The payments for reserve are made by generation units according to how much they contribute to the need for that service.

Regulation is paid by for loads (and to a minor degree by generators).

In NWEM, the real-time dispatch of electricity is determined by the operation of a wholesale spot market run every half hour.

Generators offer their capacity into the market and the PSO provides a prediction of the expected load along with any system constraints for that half hour. The market then determines the least-cost dispatch quantities and the market clearing prices based on the offers made by generators.

This results in a dispatch schedule that is at minimum cost to the market while respecting transmission and system conditions and constraints, reserve and regulation requirements and the dynamic characteristics of generation plant and meeting the projected load at each node on the transmission system.

The wholesale spot market prices reflect the least cost market solution to the dispatch of energy and the provision of reserve and regulation. This means that each generator that submitted an offer below the market price will be dispatched and a generator that submitted an offer above the market price will not be dispatched.

The market price for energy that the dispatchable generators receive is a nodal price, which may vary according to the location on the network of the node to which the dispatchable generator has been assigned. Buyers in the wholesale energy market pay the USEP for energy. This is a weighted average of the nodal prices at all of the off-take nodes in each half hour.

Volatility risk

In addition to trading in the spot market, participants can enter into bilateral contracts. These are purely financial arrangements whereby participants buy and sell on the spot market and settle between themselves any financial difference implied by their bilateral contracts. Such contracts create price certainty for the parties and limit their exposure to spot market volatility.

Bilateral contracts do not affect dispatch or pricing in the spot market, although the parties may choose to use EMC’s settlement system to settle the financial differences under their contracts.

Vesting contracts are a form of bilateral contract imposed on generators by the EMA for a transitional period as a means of limiting the potential for the misuse of market power by the larger incumbent generators and to provide price certainty for non-contestable consumers.

The MSSL is the counterparty to all of the vesting contracts, which are settled with the MSSL and generators through the EMC’s settlement system. The MSSL then settles vesting contracts with consumers or their retailer.


In the NWEM it is mandatory for all generators above 1 MW to be licensed. It is also mandatory for generators above 10 MW to be dispatchable, and for the relevant facilities to be registered as dispatchable facilities with EMC.

Generators between 1 MW and 10 MW have the option of being dispatchable or not, and if not, then they need not register their facilities except as ‘generation settlement facilities’ for settlement purposes. Making market participation mandatory for all but the smallest generators ensures that all generators are subject to the market rules, that most are included in the dispatch process, and that they pay their share of system and market costs such as reserve and regulation charges.

Registering as a dispatchable facility includes more onerous requirements than the market participant registration process.


Contestable consumers are entitled to purchase electricity from the wholesale market, from a retailer of their choice or from the market supply services licensee, Power Supply.

The retailer itself may also purchase directly from the wholesale market if registered as a market participant, or may obtain supply through the MSSL.

When a contestable consumer transfers to a retailer, it pays for energy at the price agreed in their contract. The retailer may also offer the consumer other services, including billing for and collecting transmission charges that may be owing from the consumer.

It is expected that, of the first tranche of contestable consumers, a significant number will opt to purchase from a retailer rather than Power Supply. As more consumers become contestable, the role of retailers is expected to increase.

Other traders

At the commencement of the NEM, there are not expected to be any traders in the wholesale market other than generators, retailers and the MSSL. The market rules do, however, accommodate participation by other persons that are licensed to trade and that meet the prudential and other requirements for registration as market participants.

These would include large contestable consumers that wish to purchase directly from the wholesale market or to provide reserve to the wholesale market.

These may also eventually include load aggregators and brokers.

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