When I first penned the blog post on hydrogen ecosystem, I had a couple of ill-fitting ideas that I thought could come together but I did not successfully pull them together beyond putting them in a single blog post. What I really meant to say is that the government will need to do more work understanding and studying the nuances of the ecosystem and industrial value chain that makes sense for green hydrogen and then perhaps take action to ease the struggles of the market in developing projects.
The thing about green hydrogen is that it is something that requires quite a fair amount of new infrastructure. And the situation is uncertain because governments are thinking that maybe electrification will be more dominant and want to avoid investing in white elephants. Or they think that it is all a zero-sum game due to budget and resource constraints and that investing into transmission and distribution which meant favouring electrification would naturally be inconsistent with investing into more gas infrastructure.
In reality however, green hydrogen is made from renewable energy and hence the alleviation of electricity grid issues that foster more wind and solar can also support the development of a green hydrogen sector. The key here again is that the government needs to have better knowledge of how different parts of the value chain works and the value they are contributing.
Only in appreciating that, the governments can make the right moves.
In 1819, when Sir Stamford Raffles came to strike a deal that made Singapore a British colony, the population of Singapore is approximately 150. 2 years later, in 1821, the population rose to 5000 mostly as a result of the establishment of the port, providing ready access to population from other centers.
By 1860, however, the resident population ballooned to around 80,800 comprising mainly of “temporary” immigrants coming from India, China as well as from the surrounding islands. In the 1870s, Singapore became the main hub for sorting and export of rubber, a major commodity for global economic development.
By the close of 19th Century, Singapore was a thriving hub in the region. The economy grew eightfold between 1873 and 1913. Before there was the Singapore we know today, the port city was already a major trading hub. This wasn’t purely luck nor a matter of domestic economic policy. So what happened through these years?
Reducing Piracy
Just 5 years after the establishment of Singapore as a free port under British rule, in 1824, the English and the Dutch brokered a deal to exchange Bencoolen (or Bengkulu in Sumatra) for Malacca. This was particularly important; the other port that was controlled by the British in the region was Penang, which the English established since 1790; the location was not that popular since ships from the east will still have to pass through the Straits of Malacca before reaching Penang.
With Penang and Singapore under the control of the British, the rivalry between the English and the Dutch in the region meant that Dutch control of the Straits of Malacca through possession of Malacca was a significant bottleneck. The Anglo-Dutch Treaty of 1824 resolved the rivalry (somewhat) by allocating spheres of influence, opening up the entire chain of territories — Penang, Malacca and Singapore to British control and thus greater incentive for the Royal Navy to maintain the safety of the trading ships passing through the Straits of Malacca.
The Dutch Navy was implicitly given the same responsibility on the side of the straits closer to Indonesia. In fact, the Dutch greatly expanded their presence in the straits. Before that, piracy was extremely rampant along that straits and the numerous islands around provided safe bays for pirate ships. The informal security coordination in these waters gave way to higher flow of trading ships thus facilitating the boom of the port of Singapore.
Injection of Human Capital
By 1825, the population of Singapore went past the 10,000 mark. And in 1826, the British East India Company officially took on Singapore as a colony of the British Empire after John Crawfurd signed a second treaty with the Sultan of Johor and the Temenggong, which extended British control of Singapore over to the entire island instead of just the port.
The formation of the Straits Settlement consisting of Penang, Malacca and Singapore happened in the same year with Penang designated as the capital. In 1830, the capital was shifted to Singapore, further entrenching the important institutions of British governance in Singapore.
The decisions made by British to build up and enhance the value of Singapore and the injection of top civil servants and managerial talents into Singapore due to its designation as capital of the Straits Settlements (and subsequent establishment of the Straits Settlements as a crown colony in 1867) played an extremely important role in shaping the economic, political and administrative environment which proved extremely favourable to Singapore.
Why is this important to us as an individual?
At an individual level, this holds 2 key lessons for us in terms of thinking about jobs and careers:
You want to be very selective in the environment that you subject yourself to if you have enough choice and control. Put yourself in a safe environment where you surround yourself with a friendly support network.
You want to build up your capabilities and be proactive in growing your knowledge and skills relevant to the network you have built up.
Where you find yourself in a hostile or personally unfavourable environment, have no qualms about withdrawing yourself from it. There is no point in spending time and efforts fending off criticisms and attacks with limited resources you have. Better to find a new environment and context where you can be nurtured and grow. Success often begets success as the initial value you develop attracts others to contribute to your development. Just make sure you don’t get so addicted to it that you begin to fear failure.
This is part of a series of republished articles from my Medium page because I am worried about the platform ceasing to be. A previous version of this article was published in here a while back focusing only on the economic history aspects.
Industries in an economy do not stand alone. This was an idea long appreciated by the Singapore government and that was how they continually managed one of the most successful continuous investment attraction programme. Of course it was dynamic and evolved with times and development of technology. The Economic Development Board of Singapore was relentless, and they did a great deal of work mapping industries and value chains, understanding how they connected with each other, working out how they work, and collecting feedback non-stop from their consistent interaction with the industry.
With the energy transition, a lot of government wants to attract and drive more renewable energy investments in their countries. Southeast Asian governments look with interest as Vietnam ran one of the more “intense” feed-in-tariff programme that propelled them into the top solar power generation market in the region. Taiwan had a successful programme as well, and led some of the North Asia Pacific economies in driving development of their offshore wind sector.
Yet we are probably hitting diminishing marginal returns with such policies thinking that the market can do wonders. For one, solar panels are almost pure capital goods, the cashflow profiles are very predictable and easy to model – especially when you have a long term power purchasing agreement. Capital investors can understand such projects more easily and willing to put funds into projects directly. Newer technologies and the next frontiers of the energy transition won’t be so simple.
Battery storage systems and green hydrogen production will require more policy tweaks and efforts from the governments. Battery energy storage systems do not have very established business models around them. Users can use them for energy arbitrage – that is, to buy electricity from the market when prices are low and sell them when it’s high; or to provide ancillary services to the market such as various reserves or supporting frequency and voltage regulation. Or the users benefit from reliability guarantees coming from the batteries. Green hydrogen on the other hand, has so many different applications and potential offtaker but is difficult to transport and store.
These means that the new technologies require a lot more new infrastructure investments or definition of regulations and policies to stabilise their markets and be de-risked enough for investors to come into the community and start their businesses.
Exploring transitions of market sizes is something I’m keen to examine a bit more. The richness of capitalist market economy comes not so much from the price competition but competition along other dimensions. That actually is not that amenable to economic analysis despite all the support that traditional economic analysis had given weight to the beauty of the market economy and its efficiencies.
The innovations of the market economy actually requires dynamism rather than static equilibrium. And over the course of the so-called dynamic equilibria, there is actually some degree of disequilibria. More of our experiences are with the changing patterns such as prices, proliferation of new products and shifts in market messaging than with having clear repetitive routines.
There is to some extent a predictability around the fact that people will be fed and services will be provided without central coordination but these are just scarffolding of a much richer and vibrant structure.
So small markets becomes larger by growing in the demand base or demand groups, or when they merge into other broader base markets. These shifts reflect that even the basic fundamentals around our traditional analysis of markets should be oriented not necessarily based on demographics, a need or particular behaviours. The boundaries between markets are more fluid than we think. It takes broader thinking to be able to conquer markets from the perspective of business and to analyse them through the changing times.
Singapore is a small market, everyone would say. Yet it imports and exports so much goods and services it would be considered an important market for different businesses. Take bunkering for example; it is the largest single point of sales for the refueling of vessels in the world.
So how do markets grow? What drives them? It depends on who are the customers, and what grows their numbers or their demand in the goods and services of the market. How do supply help to drive demand? Be it through advertising, increasing distribution and availability, etc.
On the other hand, we got to think about how markets shrink as well. How did the market for video or movie rental shrink in face of the growth of streaming? When would an original big market be considered small for the incumbent to start looking elsewhere?
Airlines are in the business of transporting people around. Or maybe it’s about curating and creating the best experience in air travel? Or about building a brand? Or is it about bringing people to places and catalysing activities, businesses for locations that would otherwise be overlooked by travellers? Seen that way, the fuel cost of an airline would always be considered a cost. Therefore, to keep cost low, or deliver the greatest profits, the airline will see their fuel as a commodity.
What if the choice of fuel they use starts impacting the customer segments they are targeting or they can serve? What if using sustainable aviation fuel allows them to attract more premium customers? What if they could sell their air tickets at a higher price when they are demonstrably emitting less carbon dioxide? And what if doing so also help them comply with some ICAO requirements?
The market for green premium turns various cost parameters in businesses into a tool for something else. There’s an opportunity to use these new parameters to disrupt the business. Years ago, the low-cost carrier disrupted some of the most traditional airline businesses. Would a low-carbon carrier do the same? What other elements of the whole airline business can be refashioned to fit the whole sustainable, low-carbon identity?
The energy transition and decentralisation of energy had quietly started shifting the capital markets since close to a decade ago. While the traditional energy players continue to compare the cost of green energy against the cost of their own fossil fuel based energy, they found no reason to diversify their business. Even in face of some subsidy, or some Feed-in-Tariffs, they were reluctant to invest.
There was no scale, and they thought they were going to face more competition and erosion of any green premiums they could secure. But then the capital holders started taking notice. The projects were simple enough to invest into. Solar farms had minimal requirements from an operational perspective, and represented to some degree a pure capital good where almost all the cost are paid upfront for a stream of revenue in long term.
From a risk perspective, it was safe. And so long-term funds which needed safe investments at moderate yields started piling in. The utility scale projects expanded, driving down the cost of equipment, and fostered more innovation there. Here is a case where, the technical simplicity of the operations enabled investors to bypass the typical operating businesses to get into the underlying projects themselves. All of a sudden, it is not about looking for the premium anymore. Because you’re alright with scale.
Sometimes, growing and developing a market is about finding customers who are willing to pay a higher price; but other times, it is about finding investors who are willing to accept a lower expected return for other attributes.
Economics assumes that people respond to incentives. And that requires some degree of rationality. Yet the interesting thing is that rationality is just perhaps one form of value function where we frame certain incentives as the metric that the agent is interested in and values. Revealed preference theory basically assumes rationality to pin down the preferences of people based on the choices they make.
Yet if we adopt the idea that there’s a value function, then rationality doesn’t even have to hold for the notion – that economic agents respond to incentive – to be true. Because if someone is “mad”, then it may just mean that he or she has a certain value function that lacks certain features or patterns which are consistent.
So it could be that their value function are not monotonic when mapped to specific features of a product or experience. This is to say that they may like their noodles to be extremely soggy or extremely hard, but not in-between. So to some extent, their value function is a U-shape when map on the extent of noodle sogginess. This type of ‘inconsistency’ can be seen as lacking rationality when it comes to certain money-based decisions. But mathematically, they can always be described and simply opens up more ways we can analyse these problems.
I spent some time during my masters studying institutions and the economic effects that institutions have. By institutions, I mean established ‘laws and practices’ as much as governing rules, systems in place that organises economic activities. These rules and practices have huge impacts on economic development.
Acemoglu et al (2001) was a famous study on the long-lasting effects of institutions and on the economy. I thought it was interesting to take a bit more of a meta view on these topics and discover the forces that sometimes lurks in the background in ways we don’t realise.
Our state of the markets and the economy needs to be thought through the lenses of the institutions we have evolved, the incentives around them rather than just short-term fire-fighting. The shortest route to the near-term outcomes we want does not ensure the outcomes persist. And because these days we tend to think that we can monitor and dynamically ‘guide’ things to a desired outcome, the more we create unnecessary build-up of tensions as we choose to ignore the impact of current institutional structures we have laid down. These we must not ignore.
So everyone in Singapore were talking about Shou, the CEO of Tiktok who went to face the interrogation by the congress. He is a Singaporean and we were all pretty proud of his performance.
That clearly wasn’t easy; he was being talked over, treated rudely; most of the people interrogating him had speeches of their own where they needed him to fill in the blanks rather than genuinely expecting answers. I thought Adrian Tan’s observation that Shou was often the calmest person in the room of people who were interrogating him was interesting.
While the hearing remains inconclusive, there was little mistake that the US is entering yet another cycle of active state intervention into business. It is strange that issues being put across the table confused data privacy issues, responsibilities of a tech company management, geopolitics and business ownership.
Our institutions today are highly complex and sophisticated. Even the concept of ownership in a business is made so complicated by unbundling of the various rights that are traditionally attributed to owners, then dishing them out to various parties.
