Cross Border Power Trading in APAC

There have been great strides taken in the development of regional power trade in the Asia Pacific (APAC) region in recent years. ASEAN, in particular, has made great progress in its cross-border energy transmission infrastructure and inter-government cooperation in energy transmission projects. In the race towards net zero emissions, interconnected grids provide a viable solution to promote higher penetration of renewable generation and enhance network reliability. At the same time, countries with high energy generation capacity or potential, such as Lao PDR, may enjoy economic benefits from exporting renewable energy. With a growing number of trials and Power Integration Projects (PIPs), regional power trading now presents an exciting area for growth in APAC.

In the first phase of the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS-PIP), Singapore began importing 100MW of renewable hydropower from Laos via Thailand and Malaysia in 2022. In the second phase of the LTMS-PIP in 2024, Singapore’s power import capacity was doubled to 200MW to incorporate additional electricity import from Malaysia.

As part of a recent electricity import project which started in December 2024, Sembcorp Power Pte Ltd is importing 50MW of green electricity from Malaysia’s Tenaga Nasional Berhad (TNB) to Singapore over 2 years. This comes after Malaysia lifted its ban on exporting renewable energy to Singapore in May 2023. Such projects demonstrate the feasibility of scaling up multilateral electricity trading projects and serve as pathfinders towards actualizing the vision for the ASEAN Power Grid (APG). We understand that grid operators in Malaysia and Singapore have been collaborating closely for some time so both technical and operational feasibility would not be an issue. This project is hopefully the start of more opportunities for Malaysia-Singapore cross border electricity trading. 

Building on our earlier article published in June 2024 on Singapore and Malaysia’s power import policies and regulatory frameworks, this article offers an overview of the key legal considerations for exporters and importers (power traders) in navigating the cross-border electricity trade landscape. 

Regulations

Power traders must adhere to all applicable regulations and policies governing electricity export/import activities. These include licences, permits, and regulatory contracts.

On the export side, exporting countries may restrict the export of electricity, especially from renewable sources, to safeguard their own energy security. For example, Indonesia allows for power to be exported only if (i) the power needs of the local exporting area have been fulfilled, (ii) the sale price is not subsidised, and (iii) the sale will not compromise the quality and reliability of the local power supply.

Exporters need to be alert to the intense scrutiny of local communities and governments on their generation projects, including their licensing, construction, operations, maintenance, access, environmental attributes, and performance standards. 

Importers must likewise abide by onshore permitting and licensing regimes. For instance, in Singapore, prospective electricity importers must obtain an Electricity Importer Licence from the Energy Market Authority (EMA). This licence allows for the import and trade of electricity in the wholesale market up to the applicable maximum import capacity. Importers are also mandated to enter into a good number of regulated agreements: 

1. Importer Connection Agreement with SPPA (Transmission Licensee) to use interconnectors (for instance between Peninsular Malaysia and Singapore)
2. Connection Agreement with SP PowerGrid Ltd (SPPG) (Transmission Licensee Agent) Agreement
3. MSSL Agreement with SP Services (Market Support Services Licensee)
4. Market Participant (MP) Registration (and any additional agreement needed by Energy Market Company (EMC))

Transmission infrastructure

Another key consideration for electricity traders is the availability of reliable transmission infrastructure and the terms/pricing for using such infrastructure. In the absence of useable transmission infrastructure, the electricity trader may have to consider whether it would be feasible to install its own transmission pathway, which could greatly increase the complexity of the cross-border transmission project. 

Electricity traders also need to factor in wheeling arrangements and wheeling charges associated with the use of transmission infrastructure. Wheeling is the transport of electricity from an electrical grid to an electrical load beyond the grid. The methodology for the computation of such wheeling charges and any events which may trigger changes to such methodology may make or break the business case for power trading.

Contracts

The sale of power may be facilitated by a government-to-government bilateral agreement or business-to-business power purchase agreement. Parties to such agreements should be mindful of the condition precedents contained therein. They should also be aware of the local regulations and international obligations that may apply to the agreements. The Power Purchase Agreement (PPA) is the typical instrument used for the sale of power between an offshore generator/seller and an onshore offtaker or retailer. This could take the form of a virtual power purchase agreement (VPPA) or a sleeved PPA.  

PPAs are highly negotiated with the bulk of legal negotiations focussed on termination events, payments, change of law, and force majeure (e.g. whether innocent acts of third parties which damage subsea cables would constitute a force majeure event). Material Adverse Change (MAC) clauses which provide an exit in the event of a material adverse change in the business, operations, or condition (financial or otherwise) of a counterparty may also increasingly come into play though such clauses are typically harnessed for M&A and banking transactions. Plainly, PPAs have to account for all foreseeable potential risks, such as supply interruptions, disruptions at the generation source, or faults in the transmission lines. 

PPAs should also contain a sensible dispute resolution mechanism, accounting, where applicable, for the cross-border nature of the energy transmission. 

Last but not least, Singapore Standard (SS) 673 has been immensely helpful in providing a clear framework to improve the integrity of measurement, reporting, and verification (MRV) requirements for the issuance and management of RECs for renewable power projects. The framework provided by SS 673, which also applies to energy imports, has enabled the renewable energy industry to access a wider selection of trusted sources in the region to engage in the trading of RECs, which end-users can use to meet their sustainability goals. This supports Singapore’s energy transition efforts to tap on low-carbon electricity imports from regional power grids.

Accelerating regional power trading 

Various regulatory, political, infrastructural, and financial challenges need to be managed for regional power trade to gather greater momentum. Government support for regional power trade, clear regulatory frameworks, and a reliable system of power interconnections are fundamental to the success of cross-border electricity trading. 

In order to give rise to more favourable conditions for regional power trade, local regulations should be well-articulated, uniformly applied, and consistent with international law. Aligning regulatory frameworks across diverse jurisdictions could be challenging, given political differences and competing national interests between participating nations. That said, creating an enabling regulatory environment with clear, harmonised rules and the use of precedent documents where possible would assure investors of the financial viability of power trading projects and give confidence to offtakers to sign on PPAs. 

The buy-in of private sector investors is crucial, especially given the capital-intensive nature of renewable energy generation and transmission projects. The World Economic Forum noted that ASEAN needs a projected US$150 billion in annual clean energy investment by 2030 to be on track to hit the climate goals set out in the Paris Agreement. However, ASEAN countries attracted less than US$30 billion annually in 2021. Given this significant investment gap, policy-makers in ASEAN should double down on efforts to improve investor confidence by developing clear regulatory frameworks and guidelines, actively engaging in collaborative projects with private sector players, and promoting Projects of Common Interest. Projects of Common Interest borrow from the European Union’s experience, where governmental funding, accelerated planning approvals, and better regulatory conditions enable the realisation of infrastructure projects on a scale that would otherwise be more difficult. 

A successor agreement is in the works to replace the present ASEAN Power Grid MoU, which is valid until end-2025. If this successor agreement is able to offer a coherent regional approach to regulatory developments, dispute resolution mechanisms, infrastructure development, and financing strategies, the agreement could be instrumental in accelerating the development of multilateral power trading in ASEAN. 

Concluding note

A well-considered power trading regime would facilitate the efficient operation of power systems and provide a buffer against short term spikes in the price of power. These would in turn fortify the security of power supply and attract investments in renewable energy projects. A coordinated energy market would ultimately yield long-term economic benefits for connected nations and advance their energy transition and climate goals. 

The development of a functional regime for regional power trading would require regulators, grid operators, funders, project developers, and subject matter experts to actively seek avenues for conversation and collaboration and to avoid duplicative efforts. The ASEAN Centre for Energy, for example, has been instrumental in providing such avenues for cooperative capacity building. We believe that the immediate focus should be on achieving quick wins, learning from successful interconnection projects, and each nation being willing to finetune its regulations in order to achieve harmonisation in the long run.