Why tiny Singapore's solar energy sector can't go big despite technological lead

There is an increasing levels of solar penetration that will cut into peak demand even though no capacity is needed.

Singapore, even with a modern market design, has struggled amidst a significant market failure and a lingering challenge of excess capacity and commercial non-sustainability. More broadly, reducing subsidies, and moving to cost-reflective pricing should help in due course, but there is a long, long way to go. These are among the sectoral topics discussed in the Singapore leg of the 2017 Asian Power Utility Forum held at The Shangri-La Hotel Singapore in April 25, which was attended by over 30 key representatives from the Singaporean power market.

Mike Thomas, partner at The Lantau Group, said it is hard to look at Singapore’s market without some trepidation. There is slowing electricity demand growth as economy becomes less energy intensive, and GDP growth slows. There is an increasing levels of solar penetration that will cut into peak demand even though no capacity is needed. It is characterised by an idiosyncratically-designed Demand Response scheme that likely acts as an expensive “secondary price cap,” and there is collapse in wholesale prices, seen largely as a windfall benefit to consumers and an inconsistent policy / regulatory aversion to price spikes without a clarity on what it means for the future. “Lastly, there is oversupply in generation capacity due to investments seemingly following a herd mentality and over-contracted gas, alongside high take-or-pay clauses reducing flexibility. With slower growth, Singapore’s market is a tough place to launch new policies without further risk of stranded costs,” he said.

Solar in Singapore

Small Singapore is a technology leader when it comes to solar power, but the sector is still yet to move forward in the country. What are the main challenges in bringing lots of PV in Singapore? According to Gautam Jindal, research associate at Energy Studies Institute, National University of Singapore, to make this happen, the country will need space. In Singapore, there's only 45 sq km of net usable space where PV can be installed, and this is not counting the offshore installations. “We can get over 10GW of solar energy from this amount of space. Secondly, Singapore has to face the challenge of intermittency. As a tropical country, the output is very intermittent even during bright sunny days,” he said. Singapore's energy authorities have categorised solar as an intermittent generation source (IGS) and there's a whole new different framework for incorporating this in the country. Before 2014 there was a hard cap that we will not go beyond 350MWp of solar. Recently, in a speech by Minister for Trade and Industry Mr S Iswaran, he said that now Singapore can incorporate 1GW of PV into the grid. "It is something that's been said in the open, and it is going to happen," Jindal said. One of the reasons that has made this possible is the smoothening effect of spatial diversity. Passing clouds can change radiation at single points, resulting to 60 –70% reduction of peak insolation within seconds. Between two sites far apart, impact of passing clouds becomes uncorrelated.

Unique aspects of Singapore's market

Singapore's wholesale electricity market is a pool-based market model. Procurement of energy here is co-optimised, reserve, and regulation. “We have a 30-minute trading interval, and gate closure of 65 minutes before the dispatch. We have almost 90% of excess energy generation capacity, and most of our power units are fast-responding combined cycle gas turbine generators. Another important information about "operating reserves" in Singapore is that reserves are determined dynamically for every trading interval. Regulation is determined once a year, and determination method is not publicly available,” Jindal said.

So what will happen if Singapore enjoys a lot of PV? What must be changed in the local market? “We need to use shorter dispatch intervals of 5 minutes. Most markets in the US and Australia, for example, go for 5-minute intervals for dispatch rather than having a an hourly or half-an-hourly dispatch,” he added. This will result to the use of energy market for low frequency variability rather than having to use regulation or reserves. Singapore can also benefit from shorter gate closures and this can lead to an improvement in forecast accuracy. Another point is the the dynamic determination of regulation requirement. The country will also need storage to participate in regulation and incentivise storages by using performance payment. Lastly, there should be more consultation on policy framework for energy storage systems.

EPC vs EPC(M)

Engineering, procurement and construction firms are deemed essential part of the equation when building power projects. Why is there a need for EPCs? The necessity originated in the project lenders requiring protection when providing non-recourse loans to companies. “Working with EPCs effectively passes design, construction, and performance risks to a third party rather than the borrower itself. The downside is that passing the risk costs results in a premium being paid.,” Tony Segadelli, OWL Energy’s managing director, said.

EPC(M) does exactly the same role as an EPC. The difference is that the risk is being transferred on the owner, instead of the developer. Under an EPC(M) model, the owner is required to take the project risk. However equipment suppliers / contractors can be given liability for their scope if the contract boundaries are well defined. By taking on more risk the owner can remove the EPC Contractor’s contingency and thus earn a higher profit.

According to Segadelli, this set up is well suited to simpler projects that can be split into limited number of discrete packages, wherein there is one contract for supply of major equipment, and there is a general contractor for installation and commissioning. This is not to say that this set up will got well for more complex projects. This is also recommendable for new or updated technology that is still in R&D phase. It may also be suitable for a very complex project wherein the final design will be modified over the life of the project.

“In an EPC contractor delegation, the owner is also the EPC Contractor it may be beneficial to the project economics to use an EPC(M) model. The EPC Contractor may have to delegate the vast majority of its tasks but want to retain financial control. This requires strong ability for the EPC and EPC(M) to collaborate,” he said.

Lenders' issues

The lower the project cost the less concern lenders have with EPC(M) because they can portfolio the risk. The key here is to engage an experienced and qualified EPC(M) contractor and define the scope of risk. The owner has sufficient contingency in the financial model.

Segadelli added that the key to a good EPC(M) contract is cost management. Both parties must agree in contract which work is to be performed on lump sum and which is on time and expenses. Both must agree as well on a set of rates for both the fixed and T/E work plus any applicable escalation. There must be timesheets and receipts for all costs. Scope management is important as well. Define the scope to at least the level of detail of an EPC Contract and preferably more. EPC(M) is particularly important for interface points, and there must be regular meetings to discuss scope including opportunities to reduce cost and/or increase revenue.
Power market evolution

ABB is among the market players committed to assisting the region in hitting its energy targets. Its integrated IT/OT solutions serve 50% of electric utilities in the Platts Top 250 global ranking, 480 million electricity consumers globally, 55% of operating nuclear power plants globally, and 66% of global platinum mining production.

In conjunction with McKinsey, ABB has estimated the “level of digitalization” of various industries as a function of how long they have been pursuing it. In the 1990s, the Information & Communication Technology (ICT) companies embraced e-business and digitized most of their products (e.g. computers, routers, switches). Also the media industries are increasingly moving to digital formats away from traditional print media. Banks and investment companies increasingly operate as online companies (e.g. online brokerages) where customers rarely visit a branch but conduct most of their business on their computers or phones.

Tom O'Meara ‎senior vice president and general manager at ABB Enterprise Software, said that however, many industrial companies have been held back from embracing digital transformation because the digital technologies to unlock value were too expensive or unavailable. “What the consumer technology revolution has done is to make massive quantities of computing and storage available at dramatically lower cost (via the cloud). 3D printing, virtual reality (enabled by the innovations in mobile phones) are all finding applications in the industrial space. This is why we believe that many of our markets are currently primed for a dramatic acceleration in their adoption of digital technologies. Two examples of this are the energy revolution (adoption of renewables and the electrification of transportation) and industry 4.0 (the digitalization of manufacturing),” he said.

Asset performance management lets us use digital simulations of transformers and other products to optimize maintenance schedules. By combining ABB\s recent investment in Enbala with our existing power grid software systems, the company can integrate remote sources of energy generation, storage, and demand/response management into an integrated system.

“We can use our maintenance workflow management systems to schedule the optimal downtime window to inspect and repair energy infrastructure. Our energy market trading system is used by many liberalized energy markets to carry out the forecasts and trading of energy in the wholesale markets. Our automated digital substation combines solid state power electronics with fiber-optic digital communications to reduce outage times,” O’Meara said.

He added that ABB has a complete portfolio of wireless standard IP communications technologies that can enable use cases such as smart-metering and distribution automation. “Our microgrid solution contains all of the necessary hardware and software to act as a backup for the existing grid or to create completely autonomous grids in outlying areas.

These solutions deliver real customer benefits of up to 40% reduction in installation time, 50% less maintenance costs (thanks to predictive maintenance) and reduce outage times by half. Power Markets continue to evolve and our infrastructure and our operations systems are not adequate for a changing supply portfolio. Transmission and Distribution power grids need to be updated to manage intermittent renewable energy and new market designs. Sensor technology is now available for many devices but our information systems need to be able to support real-time data and be able to optimize and balance the grid,” he said.