It’s a paradox of power markets that the most tradable form of energy is the least-traded.
Ask a grid planner the best way to get the kilojoules trapped in a remote coal seam into urban consumers’ plug sockets, and the answer is straightforward. It’s much easier to build a generator at the mine and transport the electricity through a power cable than to cart sooty rocks to a power plant closer to someone’s home.
Those rules are reversed as soon as you cross an international border. About 85% of the world’s oil is consumed in a country other than the one where it’s produced, and 25% and 20%, respectively, of its gas and coal. The equivalent figure for electricity is just 2.1%. Outside a handful of places — the European Union; the US and Canada; Brazil and Paraguay; mainland China and Hong Kong — electrical power is almost absent from cross-border commerce.
That’s why Singapore’s approval last month of plans to import 2 gigawatts of solar and battery-powered electricity from Indonesia (following a similar 1 gigawatt deal with Cambodia earlier in the year) represents an important breakthrough. The repercussions could stretch beyond energy, too — to diplomacy and the state of war and peace in the 21st century.
Electricity tends not to be traded much because it grants neighboring powers so much leverage. If you think Vladimir Putin was able to do a lot of damage to the EU by cutting off gas last year, just imagine what he could have done if the continent’s grids could be shut down with the flick of a switch in Moscow. Only countries with the friendliest of relations are prepared to put themselves at the mercy of foreign capitals in such a way.
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Singapore’s unique geographic circumstances as an almost entirely urbanized island give it little alternative to such dependence. Too small for significant renewables or nuclear power, about 95% of its electricity has traditionally come from gas, with the bulk imported via four pipelines from Malaysia and Indonesia. That’s left it at the mercy of the global energy squeeze in the wake of the invasion of Ukraine. Prices of long-term pipeline gas and LNG contracts rose 20% and 50% respectively in the year through August 2022, according to the government, with spot LNG purchases up 224%.
Worse still, the fields feeding the Malaysian and Indonesian pipelines are increasingly being used to supply domestic users. That risks leaving the city-state more dependent on costlier LNG. Such shipments will comprise more than half of the gas mix by the mid-2030s, according to S&P Global Ratings.
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All of that means rising costs for households. Without the buffer of zero-cost renewables or nuclear, Singapore’s wholesale electricity price this year has been about 60% higher than the equivalent in the UK. The cost of buying energy in local bills rose by about a quarter in 2022 alone. Even if you incorporate the significant price of transporting it through undersea cables, solar power can now be procured from Indonesia and Malaysia for about half what locals are currently paying.
Singapore’s current plan is to procure a further gigawatt to give it 4 GW of imported renewables by 2035 — equivalent to about a third of its current 12 GW generating capacity, or about a sixth of its total electricity needs. That’s a relatively modest target next to proposals in the US and UK to achieve zero-carbon grids by the same date, but it’s in keeping with Singapore’s long-standing fears about national security that it is moving slowly at first.
Politicians shouldn’t let this deter them from boldness. Instead they should seek inspiration from one of the unlikelier success stories of cross-border energy cooperation. In the aftermath of World War II, French Foreign Minister Robert Schuman proposed a radical plan: To pool access to the coal and iron ore reserves on the lower reaches of the Rhine, which had contributed to three continental wars since 1870.
The bet was that instead of fighting each other for the spoils of industrial development, France and Germany would be more prosperous if they exploited them collaboratively. Schuman’s proposal was the foundation of the European Union, and his insight has been lasting: It wasn’t the reinforcement of energy security that brought about peace in Europe, but the decision to put collective interests before short-term national advantage.
Singapore has much to learn from that example. Like Schuman’s birth country Luxembourg, it’s a small, rich country in an occasionally tense neighborhood. The lesson of its energy dilemma — that a world pursuing net-zero needs to build grids that span not just borders, but continents — applies from the Americas to Africa, and Europe to Asia. Luxembourg turned the solution to its national security problems into a template that would eventually integrate an entire continent in peaceful commerce and trade. Singapore should do the same with its electricity question. - Bloomberg Opinion
