“Pressure is mounting in the Singapore power generation sector. Mired by massive overcapacity for the past few years, all generation companies (Gencos) but one have slipped into the red.” writes Andrea Soy in the Singapore Business Times of 9 April 20181. Power generation in Singapore relies largely on efficient gas fired CCGT power plants. The combination of the overcapacity of this generation segment and fierce competition has pushed wholesale prices of electricity, the Uniform Singapore Energy Price (USEP), to the Short Term Marginal Cost of CCGT power production. And in the long run, no CCGT generator makes a profit.

Power Generation sector crushed by massive overcapacity

The EMA is “taking the stand that investments in generation capacity are commercial decisions taken by companies themselves”. In itself this is correct, however the decisions also depend on the rules and regulations set by the EMA. The decisions for new CCGT investment was a direct result of the introduction of the LNG Vesting Scheme. This LNG Vesting Scheme provides profit protection in favour of new capacity at the expense of incumbent capacity. And it was introduced for the purpose of influencing companies to invest in new CCGT capacity to underpin the economical justification to build a LNG gasification plant in Jurong2.

Resolving the issue of CCGT overcapacity is more complex then one might think. In ‘How to solve a problem like Maria‘ we explained that the most obvious solution is not a good solution. Retirement of Steam Turbine generation plants, which are currently not in use, reduces the overall available capacity in the market. But it does not resolve the wholesale pricing issues and it undermines the stability of the Singapore grid. As a matter of fact, in a competitive market, the Steam Turbine generation capacity is required to bring wholesale prices to levels economical for these turbines to operate. These higher wholesale prices provide the basis required to turn CCGT capacity to long term profitability.

Previously some Gencos defended the position that Vesting Contract Levels should be raised. In practice this would channel more revenue from consumers to the gencos. But it would be strategy with no return as it does not resolve the CCGT overcapacity. To resolve the matters for the longer term, one must seek a solution in which either Singapore starts exporting electricity to other markets or CCGT capacity is taken out of the market through retirement or ‘mothballing’ of plants.

“The industry recorded losses of S$357.1 million after tax in 2016 compared to a profit after tax of S$558.3 million in 2013, latest available figures from the Accounting and Corporate Regulatory Authority (Acra) show. Even the lone profitable generation company, YTL PowerSeraya which is owned by Malaysian YTL Group, has seen profit after tax plunge 89 per cent since 2013 to a low of S$25.3 million in 2016, though this has recovered to S$41 million in 2017….. Olivia Lum, chief executive of Hyflux, which owns Tuaspring power plant, said at the firm’s results briefing in late February: If the whole industry is losing more than a billion dollars every year, it makes the whole industry very vulnerable. I feel that it’s just not sustainable….. And if the situation persists, there is a possibility a Genco could go bust, some warn”.1 In the end Singaporean customers must pay more for their electricity than they do today.

1. Business Times of 9 April 2018, Andrea Soy.

2. Loss-making Power Generation Sector in Singapore requires Bold Steps.

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Martin J. van der Lugt

Martin works as an independent consultant for the energy industry. He gained wide ranged experience in the gas and power markets in Northwest Europe working for European and American energy companies and as an independent consultant. He has a particular interest in the developments of the Southeast Asian markets and is open to discus opportunities.


  1. Hi Martin,

    You are spot on and one of the gencos, hyflux has faltered recently .

    Can you share what is the relationship between gencos and SP power such that I can’t understand why SP power has a profit of $ 900+ million in 2015 and 2016 while the gencos are bleeding .

    Does SP power benefit when the USEP prices are low or the vesting price is low?

    I don’t understand why EMA is concerned about the market power of gencos while they are not concerned about the market power of SP power which seems to be the true monopoly in their segment .

    And why does EMA state that vesting contracts are between SP power and the gencos?

    Aren’t EMA the ones who allocate the vesting contracts , determining their quantity and determining their vesting price OR SP power is the one who does this?

    Thanks for your articles, I understand the situation much better

    1. Hi Stephen,

      SP Group does a number of things. First of all SP Group owns all the power lines, connections and associated infrastructure. It charges a rate to all consumers for use of this as part of the regulated tariff. It is referred to as ‘Network Costs’ as shown on the SP Group website. The amount of money SP Group is allowed to earn as a return on its assets is regulated and set by the Energy Market Authority (EMA).

      It also charges non-contestable consumers for electricity consumed, referred to as the ‘Energy Costs’. However, SP Group does not make any money on the delivery of power as the ‘Energy Costs’ are effectively a pass-through on behalve of the generators. I recently clarified this in my post The Success of Full Retail Competition. The ‘Energy Costs’ for non-contestable consumers consists of the wholesale costs of electricity plus a charge as a result from the Vesting Contracts.

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