Review of the Forms of Credit Support in Singapore Wholesale Electricity Market
Credit support is essential for credit risk management in the Singapore Wholesale Electricity Market (SWEM). Low-risk and high-liquidity forms of credit support minimise losses and allow prompt payment to creditors in the event of a default.
This rule change paper reviewed the viability of current forms of credit support and considered the introduction of fit-for-purpose forms of credit support.
In addition to assessing current and potential forms of credit support, the paper also outlines a “tiered credit support” arrangement to enable retaining and/or accepting “good” credit support forms that are less liquid and cannot be paid within one business day, diversifying the market's risk exposure.
EMC consulted the industry on the above and the industry did not express strong interest in the proposed new forms of credit support and the tiered credit support arrangement. EMC also found that Treasury Bills, an allowable form of credit support, require more than one business day to liquidate, rendering it unfit for purpose without the tiered credit support arrangement to accommodate such less liquid forms of credit support.
Therefore, EMC recommended that the Rule Change Panel (RCP):
- Not support introducing the new forms of credit support and the tiered credit support arrangement at present; and
- Support removing T-bills as an allowable form of credit support
The RCP unanimously supported EMC’s first recommendation and, by majority vote, supported EMC’s second recommendation.
EMA approved the Market Rules reflecting the RCP’s decision, and the new rules took effect on 13 November 2024.
For more details on the rule changes mentioned and for future updates, please visit our website.