SINGAPORE looks set to start an electricity futures market - a move first mooted by regulator Energy Market Authority (EMA) in 2006 - with the Singapore Exchange (SGX) being the market maker for the trading of electricity derivatives and other products.
This could also create spin-offs in forward trading of other energy-related products, including possibly liquefied natural gas (LNG) which is a primary feedstock for power plants here.
SGX's announcement this week that it had acquired a 49 per cent stake in Energy Market Company (EMC), the wholesale electricity market operator here, paves the way for this, industry observers say.
They add that this will help to enhance an electricity market here "that is already working well".
A futures market will support the trading of forward electricity products, where a price is agreed today for the delivery and payment of products occurring at a specified future date.
While there is no formal forward market now, the electricity sellers, namely the generating companies/retailers, provide hedging to consumers/industries in the products they offer, which range in tenures from three months to two years, one official explained. "Through these contracts, the gencos already provide hedging (for the consumers) in the fuel component which can fluctuate," the official said.
The plan for an electricity futures market here first surfaced in EMA's Statement of Opportunities in 2006, when the regulator revealed its intention to commission a feasibility study "to assess the level of uptake, volumes, cost and hence viability" for this.
"Such a futures market can potentially provide benefits such as increased retail competition, enhanced options for risk hedging for both consumers and generators, as well as strengthening long-term generation investment signals," it added.
The electricity futures plan by EMA - which has been looking at markets in Australia, the UK and New Zealand - has gained further momentum in recent months, with the regulator actively discussing it at recent conferences, industry players said.
In January this year, it called a tender for a consultant to study the implementation of a futures market here, with the consultant tasked to identify possible models for this.
EMA chief executive Chee Hong Tat said that apart from improving the transparency and pricing competitiveness of energy contracts, a futures market would help reduce entry barriers for new players as they will have greater access to hedge cover.
In its latest newsletter, EMA also said that an electricity futures market here "could tap on Singapore's position as a financial centre with well-established capital markets and could create spin-offs in the trading of other energy-related commodities like liquefied natural gas (LNG)".
Singapore will start importing LNG for gencos and industries here from early next year when the LNG terminal on Jurong Island starts up, and already numerous international gas producers and traders have set up offices here in anticipation of the Republic's plan to grow a regional LNG trading hub here.
The regulator said in April that it has initiated a study to identify key challenges and factors critical to the development of an electricity futures market, and that it will consult players from the power and financial industries on this.
EMC's CEO Dave Carlson told BT this week that the wholesale electricity market operator has been supporting EMA with the study.