SINGAPORE - The Energy Market Authority (EMA) will introduce stricter requirements for electricity retailers and consumers as part of plans to overhaul Singapore’s electricity market to cope with volatility in the global energy market.

This comes after gas prices shot up during the global energy crunch in 2021, sparking the departure of six retailers and affecting about 140,000 households and 11,000 business accounts – equivalent to 9 per cent of consumers in Singapore.

Singapore’s electricity market was “severely tested” during the recent global energy crisis, said Minister for Trade and Industry Gan Kim Yong on Tuesday at the opening of the Singapore International Energy Week. He added that the exit of several retailers suggests that they had not been sufficiently prepared for market volatility and had taken large unhedged positions.

Going forward, stiffer regulatory requirements for retailers will be introduced such that “only credible industry participants with sufficient financial strength and sustainable business propositions will be allowed to retail electricity to consumers”, he said.

Separately, the Ministry of Trade and Industry said it plans to impose higher capital and hedging requirements on retailers to ensure that they can cope with market volatility, and additional protections for consumers if retailers prematurely terminate contracts.

EMA will also be looking into protecting more buyers from volatile prices by restricting the wholesale electricity price market to consumers that can withstand its fluctuations, said Mr Gan.

“We are mindful that these adjustments will reduce the flexibility of some market participants... However, these measures will bring about a stronger and more secure power system,” he added.

These enhancements to strengthen the energy market structure will facilitate Singapore’s transition to cleaner energy sources as it commits to achieving net-zero emissions by 2050, said Mr Gan.

This year, Singapore is facing “a perfect storm” of soaring energy prices induced by shortages in fossil fuel production, triggered by under-investment in energy projects and exacerbated by the Ukraine war, as well as severe disruptions in renewable power around the world, he said.

As an island state that imports almost all of its energy, Singapore is inevitably affected by global turbulence, he added.

The response of the energy market as fuel prices rose sharply in 2021 has exposed issues, including the inability of the wholesale market to function rationally under extreme price volatility, said Mr Gan.

To ensure sufficient power-generation capacity amid volatile conditions, the Government will also facilitate the building of generation capacity when required within the next five years, he said.

Should there be inadequate interest from private investments, EMA will build the required new capacity, he added.

To enhance the security of Singapore’s gas supply, the Government will also make permanent several temporary crisis management measures introduced in 2021, which include the setting up of a standby fuel facility to guard against the risk of gas supply disruptions.

Under these measures, generation companies have to contract sufficient fuel for around 60 per cent of their installed capacity, said an EMA spokesman.

Enhancements to the energy market will be progressively implemented from 2023 after the industry and the public are consulted over the next few months, she added.

Dr David Broadstock, a senior research fellow at the National University of Singapore’s Energy Studies Institute, said the safeguards are designed to address new and deep uncertainties in the global energy market, such as the large-scale and rapid removal of Russian oil and gas.

“A culmination of quite unprecedented conditions has eroded ‘normal’ market conditions, and what remains now is something very uncommon – a sustained period of extreme volatility,” he said.

The proposed measures help create more robust boundaries around which fair competition can occur, while adding safeguards for when external market conditions are unattractive, Dr Broadstock added.