Singapore, 4 November 2011

Singapore is looking at an electricity futures market that will allow industry players to hedge their pricing risk while providing new business opportunities for financial firms and energy traders, the head of the city-state’s energy regulator Chee Hong Tat said on Thursday [Energy Market Authority of Singapore (EMA)]

Such a market will help to raise transparency and reduce risk for new power generators and retailers entering the market, said Chee Hong Tat, the chief executive of the Energy Market Authority.

“An electricity futures market presents an opportunity for third parties such as financial intermediaries and energy traders to participate in investments and risk,” he told delegates at the Singapore International Energy Week.

The authority has started speaking with industry participants and will seek wider feedback at a later stage, Chee told Reuters on the sidelines of the conference, without giving a timeframe.

“We have some initial views from the industry which have been supportive, but we plan to launch a more structured consultation,” he said.

The government will study the power markets in Australia, the United Kingdom and New Zealand, which feature trading of electricity derivatives.

“For a long-term hedge market to develop, participants need to have confidence that the government is not going to step in,” Carl Hansen, the chief executive of New Zealand’s Electricity Authority, told Reuters. Contracts offered in a power derivatives market in Singapore could also allow players to hedge their fuel costs, said a senior executive at derivatives exchange Nasdaq OMX.

“The next step for Singapore could be to combine the gas and power markets, because the country is so dependent on the fuel. Then you could offer contracts that allow generators to buy gas and sell power at fixed prices,” said Kjell Asserlind, Head of Global Sales, Commodities Solutions, at Nasdaq OMX.

This will encourage generators to enter into long-teram contracts, he added. Singapore depends on natural gas for 80 percent of its power generation needs. A liquefied natural gas (LNG) import terminal is due to start operations in 2013 that will allow utilities to diversify their sources of gas.

The city-state’s electricity market has been partly liberalised, with around 75 percent of total electricity sales open to competition. It is currently studying the prospect of full retail competition for the market.

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