The changing power game that gencos play

Impact of Senoko's sale to Lion Power consortium expected to be felt soon
Ronnie Lim, Business Times 11 Sep 08;

THE dynamics of the power game here are set to change - and likely pretty soon too, some observers suggest - as the second of the three biggest generating companies (gencos) here, Senoko Power, was sold by Temasek Holdings last Friday for S$4 billion to yet another foreign owner, the Japanese/French Lion Power consortium.

While market sources say that Tuas Power's strategy, under new Chinese owners China Huaneng since mid-March, is not apparent in the electricity market here yet and may only surface later, they add that it may be a different ball game with Lion-owned Senoko, given that four of its five consortium members are very experienced power players.

'We may see the impact of this (sharper marketing) from Lion as soon as in the coming three months,' one source said. 'Electricity tariffs may come down as a result of increased competition, which is good for consumers. But margins will be trimmed for the gencos.'

China Huaneng - China's largest coal-fuelled power producer - is seen to have bought natural gas-firing Tuas Power for technology transfer and to learn about gas, plus also to have a stake outside China for business expansion.

But the opposite also holds true, as Tuas Power could also possibly go the coal route in future, given its owner's access to coal, once appropriate technology, such as for coal waste disposal, becomes available.

Both China Huaneng and Lion are said to have paid high prices for their respective Singapore power assets, with Tuas, the smallest but newest of the three Singapore gencos, having been sold for a whopping S$4.23 billion. But as one observer said, especially of Lion's latest purchase: 'They are buying a stake in the future.'

This is because Senoko Power's new Japanese/French owners are clearly going to play the LNG (liquefied natural gas) card. Consortium leader Marubeni Corp (with 30 per cent) and France's GDF Suez (30 per cent) are both big LNG buyer/ traders, and the latter also has stakes in LNG terminals worldwide, as well as 30 per cent in the upcoming S$1 billion Singapore LNG terminal being built by PowerGas on Jurong Island.

Two other Lion members, Kansai Electric Power and Kyushu Electric Power (with 10 per cent stake each), are also LNG consumers. But Lion will be constrained in the meantime from doing its own LNG trades for Senoko Power, as it has to wait till an LNG-buying monopoly given by Singapore to UK's BG Group runs out.

BG, appointed the sole LNG aggregator by the Energy Market Authority, will initially supply between 800,000 and 1.2 million tonnes per annum (tpa) of LNG starting in 2012 when Singapore's LNG terminal is operational, with the imports building up to three million tpa by 2018, or whichever comes earlier.

Lion, however, could route some of its own LNG shipments through Singapore - without injecting it into the gas system here - parking it at the Jurong Island terminal (where GDF Suez has a 30 per cent stake) for arbitrage purposes.

This - if allowed - would give Lion consortium members, such as the Japanese gencos, the flexibility to re-route some of their LNG here during periods of low electricity demand in Japan.

There has also been a buzz of activity following each genco's sale, with the deep-pocketed new owners planning to re-power older plants at the Singapore gencos to make them more efficient and competitive. China Huaneng is, for instance, looking at building a cogeneration plant on Jurong Island, and also 're-powering' some of its older steam plants and converting these to gas-firing combined cycle gas turbines (CCGTs). As earlier mentioned, coal-firing remains on the cards.

Marubeni Corp is also on an expansion path, with its executive officer Chihiro Shikama announcing on the day of Senoko's acquisition that 'Lion has committed significant additional investment to construct new, more efficient gas-fired units' at Singapore's largest station.

With 3,300 MW capacity, only 1,945 MW or 60 per cent of Senoko is currently CCGT, which leaves another 40 per cent to be boosted.

PowerSeraya, the last big genco here being sold, has in the meantime been diversifying from being just a power company (with power generation accounting for 80 per cent of its net profits) into an integrated energy company where in five years' time, it expects oil and gas trading to account for half of its net profits. It has also gone into desalination, to enable it to sell water and steam to industries.

While some feel that PowerSeraya should perhaps remain locally owned, whose hands it ultimately ends up in, whether foreign or local - such as Sembcorp or Keppel Corp - depends on which party considers it the best fit for their own plans and their willingness to pay for the genco.