RI 2022 H2 Y6 Timed Practice (Final)

9757/01/TP/Y6/22 © RI 2022 [Turn over RAFFLES INSTITUTION 2022 YEAR 6 TERM 2 TIMED PRACTICE Higher 2 ECONOMICS 9757/01 Paper 1 Case Study Questions March 2022 2 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name, index number and civics class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for diagrams, graphs or rough working. Do not use paper clips, highlighters, glue or correction fluid. Answer all questions. The number of marks is given in brackets [ ] at the end of each question or part question. Start each Case Study on a fresh sheet of paper. At the end of the examination, fasten your answers to Case Study 1 and Case Study 2 separately. Detach this cover page and secure it in front of answers to Case Study 1. Question Marks Name: __________________________ Civics Class: _____________________ _____________________ 1 /25 Economics Tutor: ________________ 2 /25 This document consists of 7 printed pages and 1 blank page.

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3 9757/01/TP/Y6/22 © RI 2022 [Turn over Question 1: Electricity Market Background The electricity market consists of the wholesale electricity market and the retail electricity market. Power generation companies bid to sell electricity in the wholesale electricity market while electricity retailers buy electricity in bulk from the wholesale electricity market and compete to sell electricity to consumers in the retail electricity market. Extract 1: Volatile global market conditions Climbing electricity prices in Singapore come amid an unfolding global energy crisis in recent weeks, with reports of the soaring costs of gas supply chain disruptions worldwide. Demand for natural gas is further fueled by the gradual resumption of activities in post-COVID- 19 economies, which have reached their vaccination targets. Furthermore, global gas reserves have been shrinking due to the increase used of heating by residential and commercial consumers brought about by unexpected harsh winter conditions. Given that natural gas accounts for more than 95 per cent of electricity generation in Singapore, the developments in the natural gas market would have a huge impact on electricity prices in Singapore. Adapted from: The Straits Times, 2021 Table 1: Market share of Electricity Retailers in Singapore between 2011 and 2019 Source: Energy Market Authority Singapore, 2019

4 9757/01/TP/Y6/22 © RI 2022 [Turn over Extract 2: Liberalising the Electricity Retail Market in Singapore Previously, households and businesses had to purchase their electricity at a regulated electricity tariff price. The electricity retail market is liberalised to form the Open Electricity Market in 2018 to spur competition between power companies and to ultimately reduce energy prices and offer more choices and flexibility when buying electricity for consumers. Through the issue of more licenses, potential electricity retailers can enter and compete with incumbent retailers. Yet, despite greater choice of customised pr oduct offerings and overall lower prices, more than half of consumers are still reluctant to switch to other providers. While liberalisation ensures that incumbent firms and future entrants to the electricity retail market will have a strong incentive to keep electricity prices competitive, retailers must still be able create a margin between purchasing energy and re-selling electricity to remain profitable. Adapted from: Various sources, 2019 and 2020 Extract 3: Consolidation of market despite attempt at liberalisation The prospect of surging energy prices for the next few years and a severely diminished ability to effectively safeguard against volatile conditions are what spurred the departure of two retailers, iSwitch and Ohm Energy, from Singapore's Open Electricity Market. Such retailers offered fixed price plans that promise to sell electricity at a cheap price without sufficiently ensuring that they would be able to purchase this electricity at low prices fro m the wholesale electricity market. Independent retailers also had to compete in a saturated Singapore market - with 12 retailers for 1.4 million residential households - and for some of them, at the disadvantage of not having their own power generation assets or backed by their own power generation company that generates and sells electricity in the wholesale electricity market. In some other countries, electricity retailers are known to go beyond electricity to provide anything from energy management solutions to broadband and heating. These additional offerings improve the stickiness of their customer base and increase revenue per customer. Therefore, to stay relevant, competitive and profitable in the long run, retailers will need to reinvent their business model and offer more value-added and diverse services to consumers. Adapted from: The Straits Times, 2021 Extract 4: The push for renewable energy The growth of the world’s capacity to generate electricity from solar panels, wind turbines and other renewable technologies is on course to accelerate over the coming years, with 2021 expected to set a fresh all -time record for new installations, the International Energy Agency says in a new report. By 2026, global renewable electricity capacity is forecast to rise more than 60% from 2020 levels to over 4,800 gigawatts – equivalent to the current total global power capacity of fossil fuels and nuclear combined. Renewables are set to account for almost 95% of the increase in global power capacity throu gh 2026, with solar energy alone providing more than half. The amount of renewable capacity added over the period of 2021 to 2026 is expected to be 50% higher than from 2015 to 2020. This is driven by stronger support from government policies

5 9757/01/TP/Y6/22 © RI 2022 [Turn over and more ambi tious clean energy goals announced before and during the COP26 Climate Change Conference. Solar energy remains the powerhouse of growth in renewable electricity, with its capacity additions forecast to increase by 17% in 2021 to a new record of almost 160 gigawatts. In the same time frame, onshore wind additions are set to be almost one-quarter higher on average than during the 2015-20 period. In the case of Singapore, solar energy is the most promising renewable energy source for electricity generation. S olar energy is clean, generates no emissions, and contributes to Singapore’s energy security. The Energy Market Authority has been taking proactive steps to facilitate its deployment, while ensuring that power grid stability is maintained. There are, howe ver, some challenges to deploying solar on a large scale in Singapore, including land constraints, local weather conditions and employing people with relevant job experiences. To prepare for a future when solar energy could form a more significant portion of our energy mix, Energy Market Authority has started investing in R&D areas such as solar forecasting and in particular energy storage Adapted from: Various, 2021 Questions: (a) Using an appropriate diagram, explain how the developments in the natural gas market have led to a sharp surge in electricity prices. [5] (b) (i) Compare the market share of SP Services and SembCorp Power between 2013 and 2019. [2] (ii) With reference to Table 1, explain how the electricity retail market might fail to allocate resources efficiently in the absence of government intervention. [4] (c) Assess whether liberalisation of the electricity retail market is better than marginal cost pricing policy in improving allocative inefficiency. [10] (d) Explain 2 factors affecting a government’s decision in accelerat