SMS S. Iswaran's reply to Parliament Questions on liberalisation and privatisation of power generation companies

Question No. 224 in Notice Paper No. 236 of 2009

Name and Constituency of Member of Parliament
Mr. Viswa Sadasivan, Nominated Member of Parliament

Question
To ask the Minister for Trade and Industry (a) how Singaporeans have benefited from the liberalization and privatization of power generation companies; and (b) whether competition in this sector has helped to reduce costs on a sustainable basis through the desired efficiency gains.

Answer
The electricity industry was liberalized in 2001.The government established a regulatory framework for a competitive electricity sector, and created the Energy Market Authority, or EMA, as the industry regulator. The objective was to foster competition in the market, so as to encourage energy industry players to reduce costs and become more efficient, and thereby benefit customers. Since liberalization, we have seen the entry of new power generation companies. Keppel Merlimau Cogen has entered the market, and Island Power is planning to do so.

We have already seen the benefits of competition in the electricity market. Power generation companies have moved towards newer and more efficient technologies. Prior to liberalization, most of our electricity was generated by steam plants powered by fuel oil. Today, more than 80% of our electricity is generated by combined cycle plants fuelled by natural gas. Such gas-fired plants enjoy better efficiencies that translate into lower costs.

These lower costs have benefited consumers directly. For example, over the past 8 years, since the liberalization of the electricity market, the price of fuel oil (to which our gas price is pegged) has increased by 160% (from $38.30/bbl. in Apr 2001 to S$99.38/bbl. in Jan 2010). Fuel accounts for about half of the total cost of generating and transmitting electricity to homes. Yet, the electricity tariff for households has increased by only 15% (from 19.87¢/kWh in Apr 2001 to 22.87¢/kWh in Jan 2010). Along with competitive prices, the reliability of our electricity supply has remained amongst the highest in the world.

As in any market, effective regulation plays an important role. Under the Electricity Act, EMA has the powers to act against behavior which could have an adverse impact on competition in the market. EMA will continue to review and enhance the regulatory and legislative framework to ensure that the market functions properly and that all consumers enjoy the benefits of competition.