Energy – Brendan Wauters, President and CEO – Singapore
Brendan Wauters describes Senoko Energy’s transition from oil based fuel to gas, the implications this has had for the company and the government policy that drives it. This is all in the wider context of the Singaporean energy mix, and he praises solar power as another source which might one day compliment Senoko’s gas turbines as a power resource for the island city. He also discusses Senoko’s operations today, including its novel pricing schemes to attract custom.
Recently Senoko Energy launched a new pricing mechanism for SMEs which allows them to tailor the tariff they pay to their consumption. How is Senoko positioning itself in the market to retain its competitive edge in a power market as dense as Singapore?
We refer to our pricing schemes as ‘products’. Basically, there are currently three dominant products in the Singapore electricity retail market – a fixed price product, where the consumer pays a fixed price for the duration of their contract; a ‘discount off’ tariff’ product, where the consumer pays a rate at a discount over the regulated tariff; and a fuel-indexed product, where the tariff mirrors the variation of national commodity prices. Most consumers would choose the first two types of products; typically only a select group of large customers would buy a fuel-indexed product.
In a market at this stage of maturity, Senoko Energy believes it is important to innovate in a number of ways. One of those is through development of new products, typically variations of the three main offerings described above. What customers want is the prime motivation in our product development. Singapore is still a relatively young market, and so the variation of products is more limited than what we see in more mature markets like Australia or Europe.
One of the competitive edges of Senoko Energy is our ability to utilise our link with our shareholders- an international consortium of four international utility companies and a Japanese bank. This allows us to tap into a great deal of experience with regard to generating sales and conducting intelligent marketing in deregulated markets.
Senoko Energy was the first energy provider to move away from oil based generation, retrofitting your plants to use gas as a feedstock. In August 2012, the company fired up two natural gas burning turbines. With Singapore’s ambitions to become a LNG hub, how are you ensuring your assets will provide a healthy return in this emerging context?
Gas and the story of its introduction to Singapore go some way back. Senoko was not only a pioneer in using natural gas, but also in the use of combined cycle gas turbines to burn that gas. A third innovation that Senoko pushed forward was that of ‘repowering’ its facilities.
Before 2010, at the Senoko Power Station, the company had five older oil fired units, three combined cycle GT26 Alstom gas turbines, and four Siemens V94.2 gas turbines. The latter were were constructed in the early 90’s and were the first to use the natural gas in 1992. That gas was sourced from Malaysia- the power station is directly connected to the Malaysian gas transportation network.
Originally, those Siemens machines were constructed in open-cycle mode. In 1996/7 we ‘closed the cycle’ and reconfigured the gas turbines. They then became the first combined cycle plant in Singapore.
The GT26 Alstom units were the first power generating units to which we applied the ‘repowering concept.’ This means that the majority of the old oil fired plant was demolished with the exception of selected components, which were refurbished and connected to the new Alstom gas turbines. This allowed the re-use of a substantial part of the existing equipment, and secured a lower total investment cost.
In August of 2012, as you stated, Senoko completed stage two of its repowering process. We sought to replicate the Alstom concept and built two new gas turbines –MHI technology – to work into this unit. This work was completed on time and on budget.
All this work has modernised our generating assets and this means we are producing power more efficiently.
What implications will increasing imports of LNG to Singapore have for Senoko?
Obviously Senoko is one of the major customers for LNG in Singapore. Our shareholders acquired this business in September 2008, just four days before Lehman Brothers collapsed. This meant that early on, financial pressures globally made access to capital more difficult. At the time of closing the acquisition, the Stage 2 repowering initiative was included in the package. This gave Senoko some impetus with which to continue developing its facilities- this was a billion dollar expansion package. This project hinged on LNG being introduced to Singapore because government policy prevented generating companies like ourselves from contracting further piped natural gas in order to create a critical mass for demand in LNG.
Making the investment decision to go ahead with this infrastructure overhaul was in effect Senoko casting a vote of confidence in Singapore’s LNG future.
The move to LNG delivers secondary benefits to society- particularly to the environment, and wider society. How is Senoko developing corporate policies to maximise this positive effect?
Singapore and Senoko both have a very positive story to tell with regard to sustainability. The carbon intensity of gas fired generation is around 40 percent lower than that of oil fired generation. It is striking that in 1990, all of our generation was oil fired; in 2000, 80 percent; and today all our production is gas-fuelled.
Our carbon intensity has reduced by two fifths over that time but even more significantly we generate less carbon dioxide than before in total, even with increased generation capacities. Carbon dioxide is a global issue, but NOX and SOX emissions are local ones. Gas is the cleanest conventional fuel so there have been notable improvements with regard to reducing emissions of those pollutants as well.
Gas use, therefore is a very positive development.
In 2011, Senoko Energy purchased an electric vehicle as a pilot project to test the viability of such transport means. Should all of Singapore convert to electric vehicles, this would have a significant effect on power consumption patterns. More broadly, how might changes in demand affect Senoko Energy’s future business model?
The biggest driver, with regard to energy demand here is of course the performance of the wider Singapore economy. Different energy user profiles have different energy usage patterns and so would be affected in a diverse range of manners.
In purchasing Senoko Energy, our shareholders of course were indicating their confidence in the long term growth of the Singaporean economy. In contrast, in other mature economies, demand growth has reversed. In Europe and Australia for instance, rather than positive demand growth, at the moment there is a situation where demand is actually in decline. Singapore is currently seeing annual demand growth of between three and four percent.
A number of the factors driving outcomes in other developed markets are less significant in Singapore – the obvious one being renewable energy. The only renewable source in Singapore with any reasonable potential is solar energy.
While the short transmission network in Singapore means that transmission losses for centralised power generation is lower, gas prices –particularly those from the pacific basin- are steadily increasing, and the cost of electricity reflects that. As solar developments have fallen significantly in cost, there is potential for that form of power- estimates indicate that solar could satisfy, at a peakten percent of Singapore’s energy demand.
On the demand size, there is significant emphasis on energy efficiency here in Singapore. The Energy Efficiency Act came into force in 2013 and aims to reduce the energy intensity of the Singaporean economy by 30 percent by 2030.
Senoko welcomes the emergence of electric vehicles. Such transportation is more environmentally friendly, particularly given Singapore’s power generation profile, and Senoko can play its part in satisfying this demand. If there is one market where electric vehicles should work, it is Singapore.
Last year, you closed a 2 billion Singaporean dollar syndicated loan facility. What effects has this had on your fiscal standing?
We are very happy with the financing structure and conditions we put in place last year. The previous financing package was one we had to implement in the midst of the global financial crisis- November 2010. Those were challenging times and so this time we were able to greatly improve our financing terms and conditions, flexibility and the right.
The five core banks involved in this transaction- including DBS and OCBC- were very collaborative. It has created significantly more financial flexibility. However, at the moment there is significant pressure on the Singaporean power industry at this time, due to surplus capacity in part as a reaction to the emergence of LNG and government incentives to encourage its use as a fuel. Along with the installation of recent major infrastructure, this refinancing is a significant milestone for the company, securing Senoko’s future.
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