Address by Prime Minister Lee Hsien Loong at the 2010 Singapore Energy Lecture, Singapore International Energy Week

Excellencies

Distinguished Guests

Ladies and gentlemen

I am very happy to join you this morning for the 3rd Singapore International Energy Week. This year’s event has attracted the largest ever participation from the region and beyond and this strong turnout reflects the growing priority that all countries are placing on energy issues today.

We consume energy in the course of almost all parts of our daily lives. It makes possible the way we live, work, play and travel. And ever since the Industrial Revolution and especially over the past century, mankind has relied on cheap supplies of fossil fuels to drive economic progress. But this dependence will be very difficult to be sustained.

There are two sets of concerns. First, fossil fuel resources are finite and depleting. Easily tapped supplies will gradually diminish and then the next supplies will become more expensive;in more inaccessible areas, deeper under the ocean, with new complex technologies involved in extracting the fossil fuels. The concentration of oil and gas supplies in just a few countries also raises serious national security concerns.

On the demand side, demand is going up sharply. China, India and other rapidly growing economies have rising energy needs and although they may be using energy more efficiently, their growing appetite for more power as a result of rapid economic growth far outpaces any efficiency gains.

But on the supply side, it is not all pessimistic news. There is hope for new sources of supply. Time and again experts have warned that oil and gas deposits will soon be depleted and they calculate the year beyond which mankind will be out of oil and gas. But such talk of peak oil has been proven wrong many times in the past. And they may yet proved mistaken again because each time you think you have run out, oil companies have consistently discovered not just new reserves but also developed new ways of extracting reserves that previously could not be taped. Drilling in deeper waters, innovations like drilling tight shale rock formations to get that unconventional gas, better management techniques on oil fields so that you get out not just one-third of the oil which is there but even two-thirds of the oil which is there, which can make a tremendous difference. And in any case, whatever the prospects with oil and gas, as far as coal is concerned the supplies are sufficient to last mankind for centuries.

So on the demand side, demand is going up. It is going to be qualitative different this time because you are talking about several billion people being lifted out of poverty and they are aiming for middle-class status and middle-class consumption, kilowatts hour per year per person. But on the supply side we are hoping that new technology, new sources, new management techniques will save the day.

So maybe supplies may not tighten. But even if we do not have a price trend upwards, there could still be price spikes. There could be supply disruptions, there could be war. There could be market instabilities. You can have a bubble followed by a crash. These had happened in the 70s, in the 80s and most recently just before the financial crisis and many experts think contributing to the financial crisis. The oil prices went up sharply and then came back down again and we must expect from time-to-time, such instabilities in the global energy market even though as we were discussing with the ministers today, touch wood, right now the energy market seem quite stable.

Therefore, we need to think about alternative energy sources and prepare for a future scenario of higher energy costs, not a prediction but a scenario which we must be ready for. So that is the first issue: Fossil fuels - will the supplies be there?

The second issue is fossil fuels produce greenhouse gases and contribute to global warming. There are efforts underway to forge a global consensus to curb climate change and the negotiations under the UN Framework Convention on Climate Change, the UNFCCC. These are the most complicated and difficult negotiations, I think, which the countries have ever been involved in. They are going to meet again in Cancun in a few weeks time. It is not all certain that an agreement will emerge out of these negotiations. But whether or not there is an agreement this is going to have a major impact on Singapore.

If there is a global deal and countries agree to cut back on carbon emissions then Singapore will have to do our part to cut back on our carbon emissions. This is very difficult to do because Singapore is what is known as an alternative energy disadvantaged country. That means no solar, no hydro, not much wind and very difficult to do nuclear. And therefore we have not much choice but to rely on fossil fuels and imported fossil fuels to boot.

Secondly, it is very difficult to do because it is not just a matter of changing energy-saving light bulbs, but over time making a transformation which is going to affect our whole society. We will have to upgrade our energy infrastructure, adapt our economy to higher prices of energy and change our lifestyles and this takes time and even then it is not easy.

If there is an agreement we have to make difficult changes. If there is no coherent international agreement, then all countries will suffer the consequences of climate change which will be drastic over the longer term. Individual countries may go their own way. They may impose local or regional rules like border tax adjustments and global trade will be disrupted by arbitrary and inconsistent rules, and Singapore’s very open economy would be severely affected. Therefore, between a deal which we must adjust to and no deal which then we do not know how it will affect us, Singapore hopes for a positive outcome and will do what we can to support the negotiations. These concerns over higher oil prices and environmental impact are concerns shared in many countries around the world. And they have unleashed a wave of innovation and research. And there are three broad areas of R&D, which are being pursued.

Firstly, clean and renewable energy like solar and wind-power. Solar panels, windmills, these have become quite common sights in many countries. But the reality is green power is still more expensive than fossil fuels by a very significant margin. Furthermore, green power tends to be intermittent in nature and low in power density, which means that you need large amounts of land to generate meaningful amounts of power. Therefore, green power lacks the scale to replace more than a small proportion of fossil fuel use. If you are lucky ten per cent, the Europeans have more ambitious targets but they will not be easy to achieve.

Nevertheless the technology is progressing steadily and it is important for countries to invest in that research and development in green power to bring cost and efficiency improvement as well as solutions for energy storage. So that is the first area of research in green power.

The second area of research is in conventional sources of energy. New ways of capturing CO2 from major sources like coalfire-powered plants and sequestering it underground. Also not easy to do; we have nothing more to show then a few pilot projects so far but something which we have to continue to pursue. There is also revived interest in nuclear power with new reactor designs that are safer, cheaper and more secure.

The third area of research is in energy efficiency improvements. If you look at the industrial countries today compared to the 1970s before the first oil shock in 1973, these countries are twice as energy efficient as they were then. That means energy consumed per unit GDP is half what it used to be. And in particular countries like Japan and some European countries like Denmark have made tremendous national efforts and huge gains in energy efficiency.

But the potential for further efficiency improvement is still large. There are innovations like more efficient cooling, lighting and building systems and more efficient vehicles which are progressively being developed. We are researching smart grids where infocomm technologies are woven into the power grid to enable consumers to track and to optimize their energy usage or even to sell energy back into the grid in various co-generation schemes.

So these are all areas for energy research and there is growing interest and participation in these projects. Private equity and venture capital firms are injecting money into promising solutions and innovators are getting involved in other areas too. Google for example has formed a subsidiary called Google Energy to push out clean energy and efficiency solutions. Some people think Google is in too many areas but in this area if it can do good that is good for Google and I think good for the world. Bill Gates has invested in a startup company to develop a new generation of smaller and safer nuclear reactors. Young people worldwide are excited about energy R&D and bright young minds are being drawn in to undertake research that can lead to new scientific breakthroughs as well hopefully as save the Earth.

The world needs more research into new and sustainable energy solutions. So far the research into energy technologies has been episodic. Each time oil prices shoot up, there is a surge of new initiatives and monies. But when oil prices come down, funding peters out and the efforts are abandoned. What we need is a sustained research effort to develop and improve new technologies, to drive down costs and to accelerate the deployment of promising new techniques and solutions. And only then can we make significant breakthroughs to transform the world’s entire energy system.

This technology revolution unfolding in energy over the coming decades will take many forms. Nobody can predict which new technologies will work best but it is certain that the energy landscape in two or three decades time will be different from what we see today. Therefore, it is useful to have conferences like this Energy Week to bring together policy-makers, researchers and business leaders to share expertise and experience, to discuss technology developments and to propose pragmatic solutions to tackle our energy challenges.

In Singapore, we are preparing ourselves for a new energy future. The uncertainties are major and there are three questions which we ask ourselves: Will future energy prices rise significantly? What will be the global regime on climate change? And what new technologies will emerge?

Our challenge is how do we get energy which is competitive, energy which is secure, energy that is clean and sustainable? We do not have all the answers but we have a response. We are investing in knowledge and capabilities to give us more options for the future. We are building a smart energy economy that is innovative, resilient and sustainable, and we are developing a long-term energy master plan and sustainable development master plan to guide the evolution of Singapore’s energy landscape.

Our strategies follow these lines – First we promote competitive markets. We make full use of market forces and we try to apply sound economic principles. As far as possible we use market forces and price signals to act in the energy sector. We price energy properly and we avoid subsidies so as to subject households and businesses to the correct incentives. Because if you under price energy and then you try to make other rules to encourage people not to waste what is cheap, you are pushing uphill and it is very difficult. You will not succeed. But if you put the prices right, then people know that this is scarce, this is precious or this is polluting. And in addition to that, if I have national campaigns, I have messages, I have rules to push people in the same direction then I have some hope of changing behaviour and consumption patterns.

We foster competition in producing and supplying energy so as to operate efficiently and respond nimbly to changing conditions. Singapore was the first country in Asia to liberalise our electricity and gas markets. Because of the competitive pressures, many of our power plants which are originally fuel oil-powered have now switched to more efficient gas-fired turbines, bringing down costs and passing on benefits to the rest of the economy. It has lowered our carbon intensity as well and our electricity prices. But unfortunately it has also resulted in concentrated dependence on piped natural gas and this is a dependence which we are now addressing as I shall speak about later.

We should also work through the market to deal with carbon emissions. Efficiency gains are important for more efficient cars, better ways to produce electricity, more energy efficient homes and so on, e.g. greener air-conditioners. But efficiency gains alone are not sufficient because of the rebound effect. Because if the air-conditioner consumes less electricity and it is cheaper to operate you may decide to run it for more hours or you might decide to set the room cooler and therefore overall consumption will go up. Economists tell us so and our experience confirms that this is what actually happens. Therefore, there is a need to impose a charge to induce consumers to change their behaviour so that they feel the cost of the consumption and they make the right choices.

The best approach is to apply a carbon price, whether you have a tax on carbon or a cap and trade scheme. This depends on the institutional circumstances on the countries. But that you must price the carbon. That is a fact you cannot run away from. And the energy prices when you tax the carbon will take into account not just the price of extracting and producing the fuel or the electricity, but also the social cost of the carbon emissions.

We do not have a carbon tax at present. But we calculate a shadow price of carbon in our cost benefit analysis so that government policies and decision-making can be better informed and can be rational. So even though we do not price it, we calculate and say how much is it costing us in order to reduce electricity consumption or carbon emissions in this area if I introduce such a regulation, if I make such a rule, if I set such limits? Then you ask yourself is that worth it or is there a better way to achieve the same target.

So we do not have a carbon tax yet but we have a shadow price which we work on in the government. If there is a global regime to curb carbon emissions and that means that Singapore will have to reduce our own emissions more sharply than we are doing now, in order to comply with international obligations, then we will have to make the carbon price explicit, to send the right price signals.

So the first strategy is use economics and market forces.

The second strategy is to diversify our energy supplies. We need to secure access to energy resources and protect ourselves against supply disruptions and price fluctuations. We are almost completely dependent on imported oil and gas for our energy needs. 80 per cent of our electricity comes from gas-fired power plants using piped natural gas, which means they come from not very far away places. Therefore our first priority in diversification is to diversify our sources of gas by importing LNG - liquid natural gas - because once it is liquefied it can come from anywhere in the world.

We are building an LNG terminal. It will be ready by 2013 and that will allow us to plug into the global gas market and access gas sources from around the world. Indeed, under the contracts we have, some of the initial gas which we will be getting will come from halfway around the world, from Trinidad and Tobago. And it is hard to get further away than that.

Beyond LNG, there are several energy options that can meet our longer term needs. One possibility is coal where new technologies are reducing the environmental impact, for example gasification plants which can create synthetic gas from coal or from heavy petroleum residues with relatively low emissions, and this has the potential to generate cost effective base load electricity in the future.

Another possibility is to import electricity from nearby sources. In fact it makes sense for the regional countries to collaborate on a larger grid because such a system would be more economical, more resilient. ASEAN in fact has a long-term vision of a regional power grid but progress has been slow and we should give this a bigger push.

We encourage the power industry to pursue this diversification options commercially and the Energy Market Authority will create an open and flexible framework for diversification to take place on a market basis. There is one more big solution for diversification. Big, but very difficult to do. And that is nuclear and it is not something you can lightly undertake but it is something which we are thinking about and I will say more about this later on.

The third strategy we have for dealing with energy is to build robust infrastructure for the future. We need robust, advanced and extensive electricity grids and gas grids in Singapore. Then we can operate the energy markets more efficiently, open new areas for economic development and enhance our energy security. Some investments will meet commercial hurdle rates. Other projects may require government support not because they are not profitable but because the projects may have security rather than economic justifications or there may be large infrastructure projects subject to major uncertainties beyond the capability of the markets to handle.

One major infrastructure project which we are piloting now is the development of an intelligent power grid. We already have a high quality electricity grid system. It is efficient, robust and you can automatically reroute electricity to bypass local breakdowns and to maintain power supplies. But nevertheless, emerging smart grid technologies offer tremendous potential improvements in energy efficiency and supply reliability.

The Energy Market Authority and SingPower have embarked on an intelligent energy system pilot project to evaluate new applications and technologies along the smart grid. It will involve 4,500 customers in a mix of residential, commercial and industrial settings and they can select their own electricity retailers and packages and also monitor and manage their own electricity usage using smart meters and other automated devices. And if the applications are found to be cost effective and viable, SingPower will roll them out on a wider scale and upgrade our national grid to the next level.

There is some evidence from overseas that if you do it this way and people pay attention to how much they have to pay, how much the electricity cost, day time, night time, on peak, off peak, how much the air-conditioners cost, their computers, their devices, their washing machines, then they will modify their behaviour and make a 20, 30 per cent difference to their electricity consumption. It is not absolutely unambiguous but it is promising and it is a way we ought to go. It will become increasingly feasible with smart systems, smart devices and the right infrastructure in place. I think this is one way we can help households to adjust and to use, consume less electricity.

The fourth strategy we have is to invest in energy R&D. We have already invested considerable sums in energy R&D and will continue to do more in this area. Recently we allocated one billion Singapore dollars to the National Innovation Challenge. And the idea is to develop innovative solutions to challenges which face us as a nation not just pure research but challenges facing Singapore which is susceptible to a concerted effort, new ideas and something which can be implemented on a national basis. And the first challenge which we have identified is energy resilience for sustainable growth. To develop cost competitive energy solutions to help Singapore to improve our energy efficiency, to reduce our carbon emissions and to increase our energy options.

Our aim is not to make a major breakthrough on new energy sources. We are not researching fission or cold fusion. That would be beyond our scope. But we can come out with many good ideas in areas such as energy consumption and distribution or urban design to cut our energy intensity.

Besides laboratory R&D, Singapore is well-placed to be a living laboratory for companies to roll out their technologies because they could start with pilots and demonstration projects and later develop and deliver the technologies on a full-scale and commercial basis. And we are creating new platforms for this purpose. We have the CleanTech Park which is the first eco-business park in Singapore or indeed in the region. It will be the focul point for large-scale test-bedding demonstration of system level solutions.

We have also attracted major players from the industry to set up their operations here. For example REC, Renewable Energy Corporation, has made Singapore its home for one of the world’s largest integrated solar manufacturing complexes. Vestas, the wind-power company has established its global wind R&D centre here. We encourage more companies to plug into this vibrant ecosystem and research network to develop energy solutions not just for deployment in Singapore but also to be exported to the region and to the world.

Finally let me say something about nuclear energy. Globally, nuclear energy would be an important part of the solution to mankind's energy problems and to tackle global warming. It is clean, it gives off low carbon emissions, in fact no carbon emissions, but of course harnessing nuclear energy is a complex and long term enterprise. There are significant issues relating to safety and the nuclear fuel cycle and disposal of nuclear waste. And there is often strong resistance in countries, from the Green movement, from populations who have witnessed accidents like Chernobyl and are fearful and anxious about their safety. But if we look at this rationally, without nuclear energy, the world cannot make sufficient progress in dealing with global warming. Hence, countries are expanding their nuclear energy programmes, particularly countries like France, like China, Japan, Korea. And the US has announced that it is going to be building more nuclear plants for the first time in 30 years. And even Germany where there is a very strong Green movement and where they had committed to phasing out their nuclear plants by 2020, totally shutting them down, Angela Merkel's government has had to pass a law, change this policy against tremendous opposition and extend the operating date of the nuclear plants in Germany, because they know that unless they keep those plants going, indeed unless one day they build some more although it is not speakable, they have no hope of achieving their green emission targets.

In Southeast Asia, several countries have expressed their intention to build nuclear powered plants. Developing countries will have even more challenges achieving this than developed countries because they have first to build up not the plant but the capability base and institute proper systems and safeguards and standards, to develop a strong safety culture and high standards across many industries before they can safely embark on a nuclear project.

For Singapore, our small size poses additional challenges. Safety is a major concern because of our high urban density. A plant, if we ever build one, is very difficult to put very far from the population because no place in Singapore is far from population. And yet we cannot afford to dismiss the option of nuclear power altogether. So we should keep up with new developments, the technologies are advancing, smaller, safer reactors with more fuel efficient designs that reduce the amount of nuclear waste produced, and we must keep up with experiences in other countries, how they are using it, how they are deploying it, how they are managing the sentiments and concerns of the population and working out practical, sensible solutions to these problems. It will be a long time before we make any decision on nuclear energy but we should get ourselves ready to do so. And that means to give Singapore the ability to exercise the option should it one day become necessary and feasible. Therefore we have to start building up the capabilities now, to get in touch with the experts in the field, to train a few of our own engineers and scientists and then we can critically assess developments in nuclear technology and decide on the feasibility of nuclear deployment one day in the future.

So what do these all mean for Singapore? The future world is likely to be fossil fuel constrained and carbon constrained. Singapore is readying itself for such a world, developing the infrastructure, diversifying the supplies, keeping our options open. The impact over time will be far reaching. Year to year perhaps not so, but over decades will be far reaching. There will be impacts on our lives, we will have to make lifestyle adjustments, for example go for Green Mark products or use energy guzzling appliances like air conditioners less often and certainly more efficiently. We have to make changes in our daily habits, taking public transport more frequently rather than private cars. The economy will have to change. Industries will have to become more efficient in their energy use and indeed the structure of the economy will probably have to change over time to emphasize less energy dependent activities.

But I am confident that we can make these changes and progress to a smart energy economy because we are small, compact and we can organize ourselves well and undertake rational policies on a very long term basis so as to get to the right phase over the horizon. The choices we make will affect not just our generation but the next generation and generations to come. But with far sighted planning and creative implementation, we can keep Singapore both economically vibrant and environmentally sustainable and build Singapore into one of the most livable cities in the world. Clean, green, safe and efficient now and for a long time into the future.

Thank you very much.

Source: Energy Market Authority