The Problem

Insufficient price risk management tools are available to market participants to facilitate term hedging, load shape hedging, and dynamic rebalancing of hedges.

A Cash-Settled
Electricity Forward
Marketplace

An open and transparent marketplace where participants with bi-lateral contracts in place can buy and sell electricity forward contracts for a specified future date. These are cash-settled instruments as the price of a purchased contract is compared to the load weighted average price in the spot market (reference price).

  • If the contract is more than the reference price, then the buyer pays the seller the difference between these prices.
  • If the contract is less than the reference price, then the seller pays the buyer the difference between these prices.

The Singapore
Economy

A cash-settled electricity forward marketplace can help energize the economic growth of the Singapore by supporting both investment in additional electricity generation capacity and facilitating demand growth in the commercial and industrial sectors. Forward markets have historically helped reduce price volatility. As risk premium comes out of the market, prices generally trend down which will help all electricity consumers in the Singapore.

Investment in additional supply

New and existing electricity suppliers can analyze the forward price for electricity to calculate if it would be profitable to build a new plant. If it is, they can sell cash-settled forward contracts that mimic the generation from the new plant to lock in their exposure to price. The supplier can use these contracts to secure financing to build the new facility.

Growth in the commercial and industrial sectors

Forward markets have historically helped reduce price volatility and prices in general due to the reduction of uncertainty. This reduces the operating costs of commercial and industrial businesses giving them more capital to invest in growth.

Consumers can purchase cash-settled electricity forwards giving them the opportunity to create certainty in their price for electricity for months or years in advance. This allows these companies to more accurately forecast their electricity expenses which can free up capital for growth initiatives.

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