DISTRICT COOLING BILL

Order for Second Reading read.

The Acting Minister for Trade and Industry (Mr Peter Chen): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, the District Cooling Bill is another industry-specific legislation that will be administered by the Energy Market Authority of Singapore (EMA). The main objective of the Bill is to designate the EMA as the regulator for the provision of a pilot district cooling service in an area at the New Downtown at Marina South.

A district cooling system supplies chilled water through a network of pipes for the air-conditioning of buildings located within the service area. The conventional method is to have individual buildings put up their own stand-alone air-conditioning plants. A centralised district cooling system has two major benefits. First, it takes up less land space, an important consideration in land-scarce Singapore. Second, it significantly reduces water and energy consumption through economies of scale. There is also an aesthetic advantage, as the roof-tops of individual buildings can now be better designed, besides being put to better use.

District Cooling Systems have been successfully implemented in certain parts of Yokohama and Osaka of Japan. Based on such experience, the advice is that a District Cooling System should serve a total gross floor area of about 1.25 million square metres for optimal efficiency. URA has therefore parceled out a section of the New Downtown at Marina South for a pilot District Cooling System to be tried out. The projected saving in gross floor area in the pilot area is about 7,000 square metres. The remainder of the New Downtown can be parceled out into four zones of similar size for future District Cooling Systems, if the pilot proves successful.

Given the high capital and operating cost, the district cooling system will be viable only if all buildings in the service area subscribe to it. As some building owners may be unfamiliar with this new centralised service, they may choose to stick to the conventional air-conditioning plant. This would increase the operating cost of a district cooling system. To reap the full benefits of economy of scale of such a system, it is necessary to require all building owners in this zone to subscribe to it. We have made the use of this service mandatory by specifying this in the Government land sale condition for the designated land parcels in Marina South. In Japan, the use of District Cooling System in designated areas is also mandated. Since we have made the use of the district cooling system mandatory for this pilot phase in Marina South, we must use Government regulation to safeguard the interests of building owners and users. The users of this cooling system must not be subject to high charges or poor service by the monopoly operator. EMA will regulate this service provided by an operator. The operator will be price regulated to ensure that the cost of cooling using this centralised system would be lower than that using conventional methods. This is to ensure a passing-through to consumers of some of the savings from using a centralised cooling system. Price regulation will also encourage it to improve its efficiency and productivity.

Key Features of the Bill

Sir, I shall now touch on the main provisions of the Bill. Clauses 3 and 4 spell out the functions and duties of EMA as the regulator of the district cooling industry. These include, inter alia, the:

(a) granting of licences, monitoring licensees' performance and enforcing compliance with licences and the relevant provisions provided in the Bill;

(b) regulating prices of the operator within its service area; and

(c) establishing, monitoring and enforcing technical and performance standards and codes of practice. Mandatory Use of District Cooling Services

Clause 7 provides for the Minister to declare, by notification in the Government Gazette, an area to be a service area wherein district cooling services are to be provided and consumers have to subscribe to the service. Clauses 8 and 9 outline the Minister's authority in connection with making changes to the service areas.

Control Mechanism and Protection of Consumers' Interest

Clauses 10 to 13 stipulate that any person who provides district cooling in the designated area must be authorised by a licence granted by the EMA. The provisions also provide for the circumstances where the EMA may suspend or cancel the licence.

If the regulator is satisfied that a district cooling licensee has contravened any condition of its licence, any provision of the Bill or any direction issued, the regulator is empowered to:

(a) require a licensee to provide a performance bond;

(b) impose a financial penalty not exceeding 10% of the annual turnover derived from the district cooling services of the licensee in Singapore;

(c) require the licensee to replace its management with appointees approved by the Regulator; and

(d) cancel the licence.

Under clauses 14 to 16, the district cooling licensee is required to comply with the codes of practice and performance standards issued or approved by the regulator. The regulator may also give direction to its licensee to observe the code of practice and keep to the performance standards.

Clause 18 specifies the general duties of a licensee, which are to:

(a) maintain a reliable, efficient and economical district cooling system;

(b) ensure public safety with respect to the provision of district cooling services;

(c) ensure that it will not do or not omit to do any act which will adversely affect the reliability and stability of the services provided to consumers.

Clause 19 ensures that the prices to be charged by a licensee and which are to be paid by its customers must be in accordance with the conditions of its licence. Therefore, prices will be regulated and can be reviewed by the EMA. This clause also disallows the licensee, in fixing prices for its service, to give undue preference to or discriminate amongst its customers.

Special Power

The provisions under clauses 21 to 23 empower the Minister to make a special administration order upon application by the regulator. The order would direct that the affairs, business and property of the licensee be managed by any person appointed by the Minister if the Minister considers it necessary in the interest of security and reliability of the provision of district cooling services, or in the public interest, among other circumstances.

Appeal Process

Clause 42 outlines the appeal process. Any person aggrieved by any decision of the regulator in the exercise of its powers under the Bill may appeal to the Minister whose decision is final.

Sir, the Bill will provide safeguards to protect the interests of consumers in the pilot district cooling project in Marina South. The mandatory requirement is necessary to get the pilot project off the ground. As the benefits of district cooling become better known to Singapore consumers, we hope to lift such mandatory requirement. The experience in Marina South will also help us decide if there is any need at all in future to extend such a mandatory requirement to other new developments in Singapore in order to promote the greater use of district cooling systems.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee: Mr Speaker, Sir, the District Cooling Bill is introduced to enable the Minister to declare that it is mandatory for the occupiers of premises in a designated area to use district cooling. The idea of district cooling, as I understand it, is that cooling or the provision of airconditioning in an area is provided by a central facility. District cooling works on the assumption that a centralised facility will be more efficient, enjoy lower cost due to the higher economies of scale and sharing of common services. Sir, I support this Bill in view of this potential benefit of district cooling. However, I do have some concerns which I would like the Acting Minister to clarify.

Sir, the concept has been talked about for several years, but this is new and untested in Singapore. My main concern is that the structure is too rigid. To make it work, the system has to be made mandatory so that everyone is forced to use it. This means that the operator of district cooling services is a monopoly in a designated area. So there are the evils of monitoring and regulating a monopoly. As it is, being the sole proprietor of a cooling facility, any failure of the system means that there will be no alternative. We may say that it is not a life threatening event if no airconditioning is provided. When the system is down, people just get hot, or hot under the collar, so to speak. However, I want to point out that in a modern office, airconditioning is very important to keep the computers cool, not the human beings as such. If the computers are down, the companies may lose very valuable electronic data. The damage may be very severe, or even irreparable.

Sir, the proposed idea is to do a pilot test of the concept in the new phase one of Marina South area. I am concerned that the compulsory district cooling system there may affect the tender prices, as it is perceived as an additional cost, rigidity of the system or concerns about how the system would be perceived by prospective buyers or tenants of the premises.

Sir, prospective tenants may be deterred to move into an office area if they have to incur higher fitting cost. Compared to the current situation, the tenants and owners of the premises have a varied number of choices, in terms of whether to use central airconditioning, split unit, room unit or even window unit. In district cooling, the occupiers have only one choice. It is like in transportation. You can choose to go by MRT, to take a bus, taxi, car or even bicycle. But in the case of central district cooling, we cannot do anything else but take the MRT, and MRT in itself, as a single system, although it is faster, is actually more rigid and restricted in its coverage.

Sir, I am not sure how the central district cooling system would be constructed, but I would imagine that the system requires an extensive infrastructure of piping, feeding out from a central cooling plant. If an end user is located far away, there will be loss of cooling efficiency, loss of energy efficiency and maybe even higher pumping cost. Hence, I am not yet persuaded that the district cooling system can be more efficient and will be able to enjoy lower energy and other operating costs.

Sir, a central facility needs more physical space, and maybe more costs for the extensive piping and infrastructure. Visually, I think it can also create aesthetic and noise problems. Ultimately, it may not lead to lower prices for the consumers.

Sir, my last point is to ask the Acting Minister why the need to enact a law to specially deal with this concept. Why not just simply deal with it as a section within the new Energy Market Authority law?

Finally, Sir, may I end by saying that I support this Bill in its intent, since it will bring the novel concept of district cooling for the benefit of the occupiers in the building. But may the Acting Minister address my concerns, Sir?

Mr Peter Chen: Sir, let me thank Mr Leong Horn Kee for supporting the Bill in the first place. Let me try to address some of his concerns.

Perhaps if we look at the successful application of the district cooling system in some other countries, we might get some assurance. District cooling system has been successfully implemented in several countries like the USA, France and Japan. Some of the notable areas are Reedy Creek, Florida, Paris, France, etc. As regards alternative and fail safe systems, the EMA can specify various standards as part of the licensing conditions.

Mr Leong has also raised some concerns on whether or not a mandatory imposition of district cooling system would discourage potential investors in tendering for the land sale in Marina South. This is quite unlikely. In fact, the tender for the first land sale in Marina South was closed only three days ago. This site will eventually house the district cooling system plant, which the successful tenderer has to provide space for.

URA received two offers for the land parcel. And as the district cooling system is a new concept in Singapore, it will be quite natural in the beginning for potential tenderers to ask a lot of questions and inquire about the details. But the feedback is that most of the developers were receptive to the idea of district cooling services. And, in fact, some of the building owners in the existing CBD area, who plan to overhaul their stand-alone airconditioning systems, have also inquired whether they could tap from the pilot district cooling system plant.

On the problem of noise and aesthetics, there are solutions to overcome them.

Mr Leong also asked why do we need an Act to effect all these, and why can this not be controlled under the EMA. The Energy Market Authority of Singapore Bill serves as an umbrella Act that empowers the EMA to administrate industry specific legislation, one of which is the District Cooling Bill. The Bill is structured in this way because different industries have different requirements, and therefore require different legislation.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Peter Chen].

Bill considered in Committee; reported without amendment; read a Third time and passed.