Commentary: Importing electricity from Malaysia is a good thing
Singapore will embark on an experiment that could lead to a profound change in the country’s energy mix, says Philip Andrews-Speed of the Energy Studies Institute.
SINGAPORE: On Monday (Oct 26), Minister for Trade and Industry Chan Chun Sing announced that Singapore plans to import electricity from Malaysia, starting with a two-year trial.
This move, according to Minister Chan, will eventually “allow the region to share the clean energy sources that different countries may have”.
The decision may have come as a surprise to some, but it has been many years in the making and reflects a change in government priorities.
A REGIONAL POWER GRID
There are two components of the historical context of Malaysia’s and Singapore’s power-sharing arrangements.
First, underwater cables have connected the electricity grids of Singapore and Peninsular Malaysia since the mid-1980s.
Their purpose is not commercial, but rather to help each country manage grid stability and supply security when necessary – for instance, in case of sudden failure of a power plant, or technical problems with the local grid.
Second, and more recent, was the proposal in 2013 for the governments of Lao PDR, Thailand, Malaysia and Singapore to launch an experimental electricity trading system known as LTMS-PIP: The Lao PDR-Thailand-Malaysia-Singapore Power Integration Project.
The rationale of LTMS-PIP was to export some of the huge excess of Laos’ hydropower to its southern neighbours. The trading system would not only provide countries access to additional supplies of electricity, but these supplies would also be low-carbon.
The plan was to transmit 100 megawatts (MW) from Laos to Singapore via existing transmission lines that connect each of the four countries to its neighbour.
LTMS-PIP is part of broader strategy to develop a multilateral power market across the Association of Southeast Asian Nations (ASEAN).
An ASEAN-wide market would allow electricity to be traded across its ten member states and would take advantage of the ASEAN power grid, the construction of which has been progressing slowly since the 1990s.
SINGAPORE’S EXCESS ELECTRICITY
However, Singapore did not join LTMS-PIP immediately after it was mooted in 2013.
The likely reason for this is that Singapore had and continues to have a large excess of generating capacity that amounts to some 80 per cent of peak demand. As a result, additional supplies of electricity are not needed.
Moreover, local power generating companies were already under heavy commercial pressure due to the surplus capacity. This excess capacity had driven down prices to levels where profits were difficult to achieve and some generators were running at a loss.
For this reason, Singapore’s generating companies would not have welcomed additional supplies from outside.
So, LTMS launched without the “S” and electricity started to flow from Laos to Peninsular Malaysia in 2018. The amount was just 100 MW, equivalent to about 0.5 per cent of Peninsular Malaysia’s peak demand.
Two years later in 2020, the quantity was raised to 300 MW.
LTMS-PIP TO BE OPERATIONALISED FULLY
The Oct 26 announcement shows that Singapore is now joining the other three countries and that LTMS-PIP is about to be operationalised fully, some seven years after initial conception.
As in the original plan for the project, the quantity of electricity for the first two years starting in 2021 is 100 MW. This is equivalent to just 1.5 per cent of Singapore’s peak demand.
The government will select a company to import the electricity based on these criteria: The electricity should be low-carbon, the price must be competitive in Singapore’s power market and the importing company must have a track record of reliability.
In the intervening period, the existing transmission cables from Malaysia will be upgraded and utility boards of the two countries will need to review and, if necessary, improve the existing technical and regulatory frameworks.
With goodwill on both sides, this should not be a major undertaking.
A POLITICALLY SIGNIFICANT MOVE
Singapore’s decision to rejoin LTMS-PIP is politically significant. For many years, commercial considerations were the highest priority for the power industry.
But in December 2015, Singapore played an active role in the formulation of the Paris Climate Agreement.
The following year, the Government issued its Climate Action Plan which included a commitment to reduce the intensity of greenhouse gas emissions by 36 per cent from 2005 levels by 2030, and for these emissions to reach a peak at around 2030.
Earlier this year, the government made a further commitment, aiming to halve the level of peak emissions by 2050 and achieve net-zero emissions “as soon as viable in the second half of the century”.
Rejoining LTMS-PIP gives Singapore the option of importing progressively larger quantities of low-carbon electricity in the future – starting first with hydroelectricity.
It would also place it in a strategic location between Peninsular Malaysia and Sumatra as the ASEAN Power Grid expands and multilateral power trading develops across the region.
READ: Southeast Asia faces a number of energy-related challenges, but remains a ‘critical’ region: IEA
WHAT THE TRIAL MEANS FOR USERS
What does this mean for Singapore’s electricity users?
The answer is not much, at least in the short term. The cost of new supply will have to be equivalent to or lower than prevailing market prices, and so it should cause no increase of end-user prices.
Likewise, it will have no effect on security of electricity supply, as the quantity of electricity is so small and the excess capacity of Singapore’s generating capacity is so large.
If the transmission of electricity from Malaysia is interrupted for any reason, the lights in Singapore will not go out.
As the quantity of electricity available through the LTMS-PIP to Singapore increases steadily in the longer term, the consequences for Singapore will depend heavily on the price of carbon in Singapore.
The government introduced a carbon tax in 2019 as part of its policy package to constrain carbon emissions. This tax is currently at a very low level.
As it rises in the coming years, the tax will provide progressively greater encouragement for renewable energy of different types and discourage power generation from natural gas.
LONG-TERM IMPLICATIONS ON COSTS AND SECURITY?
Given that natural gas provides more than 95 per cent of the Singapore’s electricity supply, the scope for renewable energy is potentially vast.
Much of this renewable energy is likely to be imported, on account of the relatively limited potential for domestic sources of renewable energy on our small island.
The main sources of supply are likely to be Laos and Australia as both have the potential to deliver large quantities of renewable electricity. Plans are progressing to build a cable that transmits renewable energy from Australia to Singapore.
The implications for end-user electricity prices are difficult to predict in detail. However, the carbon tax will necessarily raise the cost of electricity produced from natural gas as power generators pass it onto consumers.
In addition, importing renewable energy over such long distances from Laos and Australia will involve significant costs relating to the construction and maintenance of transmission cables.
Constraining and eventually reducing Singapore’s carbon emissions from energy consumption will likely incur costs. However, the scope for price rises should be constrained by a competitive power market.
Likewise, security of electricity supply need not be threatened provided Singapore has at least two sources of imported clean electricity supply as well as adequate level of domestic power generation capacity, both natural gas and renewable - although domestic renewable energy can only provide a modest share of Singapore’s future electricity needs.
That being said, prolonged droughts in the Mekong River Basin could easily reduce the availability of hydropower for sustained periods.
The Minster’s announcement marks the start of an experiment in electricity supply that could lead to a profound change in Singapore’s energy mix and sources of supply.
Philip Andrews-Speed is Senior Principal Fellow at the Energy Studies Institute, National University of Singapore.