High voltage: Oversupply electrocutes energy segment as new players flood power market

Power generation capacity has outgrown demand.

Too much of a good thing is proving to be disastrous in the city-state’s power market, as the overcrowding has caused Singapore’s power generation capacity to overtake the demand for power.

According to a report by Macquarie, the past 5 years saw new players such as Keppel, PacificLight Power and Hyflux enter the market, joining incumbents Senoko, Seraya and Tuas, which have expanded their own capacity as well.

“Capacity registered a 5.3% CAGR over the past 10 years while demand has lagged behind at a 3% CAGR for the same period. Electricity demand factor (Peak demand as a percentage of total capacity) has fallen to 55% from 65% just 5 years ago,” the report said.

Macquarie also adds to expect the Singapore energy segment to remain weak as most of Singapore’s power plants have entered long-term take-or-pay agreements for LNG/PNG which require them to buy the gas supplies or pay hefty penalties.

Bound by these agreements, companies have little choice but to produce even though the market is in oversupply.

“Power bidding in Singapore requires generation companies to submit bids to sell their power; the lowest bids are then chosen to be included in the ‘pool’. The final sale price however, is determined by the highest price at the cut-off amount, not at the bidder’s price,” the report said.