Bilateral Electricity Trade between Singapore and Malaysia: Economic Efficiency and Welfare Implications

The Association of Southeast Asian Nations (ASEAN) has been trying to connect member countries’ power grids in the region and integrate their electricity markets. Four member countries of ASEAN, namely, the Lao People’s Democratic Republic (Lao PDR), Thailand, Malaysia, and Singapore, jointly announced in 2014 a power integration project entitled ‘Lao PDR, Thailand, Malaysia, and Singapore (LTMS) Power Integration Project (LTMS-PIP)’ to examine the feasibility of cross-border power trade. After examining related policy, legal, and commercial issues, the four countries initiated cross-border power trade of up to 100 MW at the 38th ASEAN Ministers on Energy Meeting in November 2020.Using a dynamic linear programming framework in the power generation and cross-border electricity trade, this study evaluates how bilateral power trade between two countries in the region affects the economic efficiency of the electricity markets. The model also considers the cost of cross-border power transmission, transmission loss, and carbon emissions from power generation and the carbon cost of power generation. The model is solved using General Algebraic Modelling System.This study takes a specific case of bilateral trade between Singapore and Malaysia under the LTMS-PIP setting. The discounted total cost for ASEAN appears to increase, but the impacts of the unilateral import of electricity on the two trading countries are different. The unilateral import of electricity from Malaysia seems not to affect the discounted total cost for Singapore but for Malaysia. This is mainly due to Malaysia needing to deviate from the most efficient least-cost solution for supply and export to meet Singapore’s unilateral import of electricity. The negative impact appears to deepen when the unilateral import of electricity from Malaysia applies to both the peak and non-peak periods.