Many nations have been working towards decarbonizing their energy sectors in recent times. One of the most important ways to achieve this is through the adoption of an open electricity market in Singapore. The growth of the renewable energy sector has been remarkable, with wind and solar energy playing important roles in meeting increasing energy demand. Given the importance of this sector, many countries are actively pursuing various options to promote the use of clean energy. One of the most effective ways of promoting clean energy is adopting an open electricity market. This article explores the advantages of an open electricity market in Singapore and opportunities and challenges associated with this approach.
What is an Open Electricity Market?
An open electricity market is a system whereby producers and consumers of electricity are able to trade electricity with each other, either for the short-term or the long-term. This contrasts with a closed electricity market, where producers of electricity cannot trade their surplus energy with those who need more energy than what they produce themselves.
Advantages of open electricity market in Singapore
The open electricity market in Singapore is a market where anyone can generate, consume, trade or sell electricity to their heart’s content. It imposes few or no restrictions on trading and allows the price of electricity to be determined by supply and demand.
In a closed electricity market, such as in Singapore, only companies with an Operating License are allowed to sell power. This means that all other companies and consumers have no choice but to buy power from these licensed companies. The Central Energy Market Company (CEMC) determines the electricity prices for consumers who purchase from licensed suppliers. Businesses who want to sell renewable energy into the electricity grid must first auction their renewable energy production capacity before selling the energy back into the grid. On the other hand, in an open system, anyone is allowed to buy or sell electricity freely at a price set by the market forces of supply and demand. The open system also provides more opportunities for both large-scale businesses looking for long-term contracts and small players with short-term requirements.
Challenges of an Open Electricity Market
A major hurdle to adopting an open electricity market in Singapore is the potential for monopolies. Monopolies are caused when power companies control the supply and distribution of electricity and its prices. They have the incentive to limit competition by charging high prices and restricting supply so that they can profit from their market dominance. In some cases, monopolies may even try to influence political decisions in order to stay dominant.
Another challenge for an open electricity market in Singapore is the reliance on importing fossil fuels to generate electricity. Renewable energy sources like wind and solar cannot meet base-load demand because they are intermittent (dependent on weather conditions). Fossil fuel plants are needed at times when these renewable sources cannot produce enough electricity. Landmark studies show that fossil fuels will be required for some time until renewables can meet base-load demand alone or with the help of nuclear power plants. However, fossil fuels emit carbon dioxide, accelerating climate change, potentially undermining any environmental gains from transitioning towards clean energy sources.
Additionally, managing a large-scale transition towards renewable energy without disrupting the current system can be challenging. The amount of jobs within utility companies is substantial and many workers would need to be retrained if they were displaced due to a shift away from traditional sources of energy. It would also require significant capital expenditure by consumers to actually effect a change in their behaviour. Many people have not transitioned away from traditional sources of energy even though it might mean better health and lower costs over time.
In an open electricity market, a company can choose the electricity supplier rather than being assigned one. This has a number of advantages, including:
• The possibility of buying lower-cost electricity
• The possibility of buying green electricity
• The possibility of building a long-term relationship with a supplier