Development of an electricity futures market in Singapore

By Sandra Seah


The Singapore Energy Market Authority (EMA) is reviewing the development of an electricity futures market in Singapore and has issued a public consultation paper on its proposed approach.

The development of a liquid electricity futures market will benefit stakeholders across the industry by providing them with more options and facilitating a robust price discovery process. Such a development could also tap on Singapore’s position as a financial centre, and potentially create spin-offs in the trading of other energy-related commodities such as liquefied natural gas (LNG) related products.

Due to Singapore’s small market size, the main challenge to developing the futures market is to ensure sufficient initial liquidity. EMA is therefore also considering the appropriate incentives for generators to enter into market making (MM) agreements with an exchange.

The proposed incentive will take the form of a commercial arrangement called the Forward Sales Contract (FSC). To be eligible for the FSC, generators will be required to enter into MM arrangements with an exchange. FSCs are essentially CfDs which enable generators to have fixed volume indexed price contracts with a strike price based on the prevailing LNG Vesting Price or Balance Vesting Price.  The volume allocated for the FSC scheme would be a fixed MWh pegged at approximately 5-6% of the average forecasted annual electricity demand for three years from 2013 to 2015.

There will be 2 stages in the FSC scheme: the pre-qualification stage and bidding stage.

Companies with a generator class of licence are eligible to participate in the pre-qualification stage. In this stage, interested generators have to participate as market makers by signing a Memorandum of Understanding (MOU) with an exchange of the generator's choice. Only generators who have entered into an MOU with an exchange will be eligible to participate in the bidding stage.

In the bidding stage, eligible generators are invited to submit a single bid of their total MM volume in exchange for the FSC volume to be allocated in the bidding stage.

After the bidding stage, the EMA would inform the generators of the volume of FSC allocated and the expected MM volume.

The public consultation will close on 19 November 2012, after which the EMA intends to issue a final determination paper to detail its methodology for the development of an electricity futures market in Singapore.

This article was written by:

Sandra Seah

Other cases related to the Corporate Pulse newsletter for November 2012:

> Singapore Employment Act to be amended in 2013
> SGX proposes to improve IPO participation for retail investors
> Amendments to the Securities and Futures Regulation 2005 




Sandra Seah

Joint Managing Partner

Call me on: +65 6534 5266