Issue 155: Singapore's natural gas challenge; Temasek keeps bets on renewables

Business Times

5 days ago

This week in ESG: Singapore approves carbon capture and storage studies; Temasek explains 'geopolitically resilient' thesis
Energy transition
Singapore's tough choices on natural gas
As Singapore looks more seriously into carbon capture and storage (CCS), it needs to begin making some tough decisions about its power sector's heavy reliance on natural gas.
Singapore's Energy Market Authority (EMA) is advancing CCS feasibility studies in the power sector, with co-funding approvals for five site-specific projects that will be undertaken by Keppel's infrastructure division, PacificLight Power and YTL PowerSeraya. All the plants involved in the studies use natural gas, which is primarily methane.
CCS refers to solutions that extract carbon dioxide from emissions sources such as power plants or industrial facilities, then permanently store the captured carbon. Carbon capture is distinct from carbon removal, which refers to solutions that extract carbon that is already in the atmosphere.
The feasibility studies will explore two different CCS approaches. The first is pre-combustion CCS, which extracts carbon from natural gas before combustion; the process leaves behind hydrogen, which is used to generate power. The second solution is post-combustion CCS, where an on-site unit captures carbon emissions after the natural gas is burned for power.
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The studies will help EMA to assess the feasibility of using CCS to decarbonise Singapore's power sector, and to identify infrastructure and site-specific requirements, the agency said.
The need
Singapore relies on natural gas for more than 90 per cent of its electricity generation.
If Singapore is to meet its climate targets, it will need to address the emissions from its power sector. The most effective way to decarbonise the sector would be to replace natural gas with lower-carbon alternatives, but the fossil fuel is proving difficult to replace.
The country's decarbonisation strategy for the power sector rests on four pillars: solar, regional power grids, emerging low-carbon alternatives and natural gas.
While solar power is the most mature and economically feasible solution, it also requires a lot of land, which Singapore does not have. The country's 2030 target for 2 Gigawatt-peak (GW-peak) of solar capacity will be enough to meet only 3 per cent of total projected electricity demand that year.
Electricity imports via regional power grids have seen considerable progress with conditional approvals for 10 projects granted so far. Six of those have progressed to conditional licences, but are still far from actual operations – the projects must still obtain relevant regulatory approvals in all relevant jurisdictions, achieve financial close, build, test and commission before commercial operations can begin. Singapore is aiming to secure 6 GW of electricity imports by 2035.
The emerging low-carbon alternatives are, as the term suggests, still nascent, with considerable uncertainties about feasibility and long timelines if viable. These alternatives include CCS, as well as low-carbon hydrogen, nuclear and hydrothermal power.
The reality is that many questions remain about how Singapore will be able to wean itself off natural gas. As EMA says on its website, 'natural gas remains a key fuel source' while Singapore scales up renewable energy deployment.
An important natural gas strategy for Singapore is therefore improving the efficiency and reducing the emissions of natural gas electricity production. If CCS works well enough, it could extend the window for natural gas in Singapore's power supply mix.
The risk
CCS is no silver bullet.
The technology faces considerable feasibility challenges. In terms of emissions reduction, CCS faces some inefficiencies that can be quite considerable. This is especially so for Singapore, which does not have any suitable domestic storage capacity and must therefore transport the captured carbon to wells in neighbouring countries. These circumstances raise the risk of leakage during transportation and storage.
CCS solutions also require energy input. A grid that is predominantly reliant on natural gas reduces the net reduction of CCS.
CCS is also costly. A study commissioned by the Singapore government and published in 2021 estimated that CCS for Singapore's energy and chemicals sectors would face a weighted average cost of US$85 per tonne of carbon dioxide. For natural gas power, the estimated CCS cost is US$100 per tonne.
At that price, it's debatable whether power producers will voluntarily adopt CCS. For instance, Singapore's carbon tax is only S$25 per tonne of carbon dioxide at the moment. The rate will increase to S$45 per tonne in 2026 and 2027, with a policy target to reach S$50 to S$80 per tonne by 2030. From a business standpoint, a power plant operator would be better off paying the tax than investing in CCS.
The decisions
CCS can only be a stopgap for Singapore's power sector. It's expensive, and eventually there won't be enough room to store all of that carbon. There's no escaping the eventual need to shift away from natural gas towards lower-carbon alternatives if Singapore intends to hit its climate targets. The country has committed to achieving peak emissions and then reducing emissions to about 60 million tonnes of carbon dioxide equivalent (MtCO2e) by 2030. By 2035, Singapore aims to reduce emissions to between 45 and 50 MtCO2e. The goal for 2050 is net-zero emissions.
However, while Singapore has articulated plans for increasing capacity for solar and electricity imports, it's less clear how the country plans to reduce its use of natural gas. If natural gas is intended to be a transition fuel for Singapore, that intention should ideally be supported by a transition plan.
It's understandably challenging for the country to commit to winding down natural gas when it's still unclear which of the emerging low-carbon alternatives can replace it. Nevertheless, it's worth taking a harder look at the extent to which better guidance can be given about the transition strategy. For example, could Singapore commit to some limits on new natural gas power infrastructure?
That visibility is important because the returns from infrastructure and research can take a long time to manifest. Is it worth building pipelines to transport captured carbon to sequestration wells in Malaysia? Should Singapore build new natural gas power plants? What's the best way to allocate Singapore's budget for decarbonising the power sector? Would Singapore have to revise its climate goals?
There are no easy answers for Singapore on the natural gas problem. But it's also a good idea not to leave too many unanswered questions.
Sustainable investing
Temasek still hot on renewables
Good news for renewable energy companies: Singapore government investment firm Temasek thinks renewable energy technologies remain good investments.
Temasek's thesis is that there are compelling opportunities within the sector that are geopolitically resilient, at scale and with more predictable outcomes.
For example, solar energy projects with energy storage are cheap, quickly deployable, inflation-protected and cashflow-generating, says Temasek chief sustainability officer Park Kyung-Ah.
Furthermore, concerns about policy headwinds may have negatively affected valuations for some companies in the space. But where the concerns are short-term, a long-term investor like Temasek could see a buying opportunity.
Temasek's rationale seems sound. Perhaps some solar panel makers may not be great investments amid a supply glut and rock-bottom prices, but they don't form the entire renewables supply chain. Cheap solar panels can be a boon for installers and project developers.
Cheap solar cells are also fuelling a significant rise in solar power capacity, which leads to increased demand for firming infrastructure such as energy storage and smarter grids. The International Energy Agency estimates that between 2024 and 2030, solar power will account for 80 per cent of growth in global renewables capacity. As Park says, the economics behind these trends are compelling enough to provide some insulation from political volatility.
But there are long-term risks in the sector as well. For instance, the solar supply chain has yet to fully confront end-of-life issues, especially with most installed capacity still relatively young. Without good solutions, demand for solar electricity could cool in the future when old, unusable panels pile up.
That said, the wind sector has not fared as well as solar. Because of high upfront investment costs and long build times, the technology is more exposed to inflation and interest rates, both of which have not been favourable in recent years. Wind projects are also more susceptible to politics, as changes of control in government can lead to cancellations. Wind, which has dominated the renewables sector over the past two decades, is expected to cede the leading spot to solar before 2030.
The lesson here is that the recent changes in policies and macroeconomic conditions have not hit the renewables sector uniformly. There are winners and losers, and taking the time to figure out who they are could be a profitable exercise.
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