KUALA LUMPUR, Dec 7 — The domino effect of skyrocketing fuel prices due to geopolitical tension between Ukraine and Russia, coupled with the volatility in supply and demand, has influenced coal prices and exerted extreme pressure on the power generation industry in Malaysia and globally.

Throughout the year, the benchmark Newcastle Coal futures prices breached US$440 per tonne (US$1=RM4.40) on March 2, 2022, following Russia’s invasion of Ukraine on Feb 24, 2022.

The mineral then fluctuated and touched a record high of US$457.80 per tonne on Sept 5, 2022, due to the fact that demand for coal spiked but output from Europe and China shrunk.

Coal prices were higher at US$209.70 per tonne on average in the first nine months of 2022, versus the benchmark coal price of US$79 per tonne under the Regulatory Period 3 (RP3), which is approved for the period from Feb 1, 2022 to Dec 31, 2024.

The elevated coal price led to an increase in the electricity generation costs, which has a direct impact on electricity tariff, as coal constitutes almost 60 per cent of the generation sources.

In Malaysia, however, consumers and entrepreneurs escaped from price pressures due to subsidies.

The current tariff, implemented on Jan 1, 2014 under the Incentive-Based Regulation (IBR) mechanism, remained at 39.45 sen per kilowatt hour (kWh).

Meanwhile, non-domestic users from the commercial and industrial sectors have been imposed a surcharge of 3.70 sen per kWh.

The government is utilising funds from Kumpulan Wang Industri Elektrik (KWIE) to maintain the current rebate of two sen per kilowatt hour (kWh) for domestic and targeted users.

The government paid Tenaga Nasional Bhd (TNB) RM4.8 billion for the second half of 2022 under the electricity generation cost recovery scheme based on the imbalance cost pass-through (ICPT) mechanism.

The majority of research firms foresee a higher ICPT surcharge for commercial and industrial sectors for the next implementation period which is from Jan 1 to June 30, 2023.

Electricity demand

According to CEIC Data, electricity production in Malaysia reached 14,782 GigaWatt per hour (GWh) in August 2022 and touched an all-time high of 14,800 GWh in May 2022.

Rising electricity demand in Malaysia is in tandem with the recovery of the country’s economy and will continue to bode well for TNB.

It is also expected to benefit as the country transitions towards a low-carbon future, with a focus on renewable energy (RE).

In the nine months ended Sept 30, 2022, TNB’s revenue jumped 46 per cent to RM53.87 billion from RM36.89 billion previously, attributed to the increase in TNB sales of electricity in all sectors.

Without cost recovery from the ICPT, revenue would have been RM37.95 billion, up 6.6 per cent. Net profit fell 4.7 per cent to RM2.65 billion versus RM2.78 billion before.

For 2022, electricity demand is expected to grow 1.7 per cent year-on-year, compared with 1.2 per cent in 2021, in line with the gross domestic product (GDP) growth projection of 6.5 per cent to 7.0 per cent.

It was reported that the government guarantees TNB’s financing of up to RM6 billion to fund additional working capital costs, which were also recoverable through the ICPT.

TNB is also poised to benefit from Malaysia’s energy transition, which is additional grid investments and RE opportunities This is expected to boost its earnings and improve the public’s environmental, social and governance (ESG) perception of the utility giant.

TNB is accelerating its efforts by retiring selected coal plants earlier than planned and repowering fossil-fired power plants with new green technology.

Other sources that are being explored are solar, hydro and biofuel over the long run to sustain cash flow amid the sharp rise in fuel and other electricity generation costs.

Malaysia University of Science and Technology (MUST) provost for research and innovation Professor Geoffrey Williams said TNB has a clear renewable strategy but it is slow due to lack of technology availability and costs.

He said apart from investment in alternatives to gas and coal supply, TNB could focus on the demand side to use smart metering and data analytics to understand demand more accurately and improve the supply and cost profile to help maximise profit and reduce waste.

"This can be done both with business and household demand. It is really a question of improving productivity and efficiency to help maximise profits,” he told Bernama.

Light up the future with sustainability; National Energy Policy

As evidence of climate change continues to escalate, global efforts, including Malaysia to decarbonise, have taken on a new urgency following the launch of the National Energy Policy (NEP) 2022-2040 on Sept 19, 2022.

The NEP underlines the government’s commitment towards an energy transition that is currently taking place across the globe.

It seeks not only to future-proof Malaysia’s energy sector but also to leverage it as a catalyst for investments into and within the country for the well-being of the people.

More importantly, the NEP sets the tone for the development of the energy sector in the next two decades and is anticipated to have a significant impact on the entire energy value chain, from production and generation up to distribution and usage by the end users.

The relevant government agencies and regulators are also expected to issue a deluge of guidelines, policies and regulations in the near future, which will undoubtedly have an outsized effect on the evolution of the energy ecosystem.

Industry players and stakeholders are encouraged to keep an eye out for any such developments and to align their strategies and approaches in order to fully benefit from what would likely be a seismic shift in the energy landscape.

To that end, TNB has announced that it is investing RM21 billion in its Grid of the Future programme from 2022 to 2024 to enhance its transmission and distribution network readiness and reliability.

Incentives

On Oct 31, 2022, the government introduced the Corporate Green Power Programme (CGPP) to encourage more companies in the country to use green electricity by installing solar photovoltaic (PV) systems.

The CGPP would enable companies operating in Malaysia to achieve their ESG commitments through the Virtual Power Purchase Agreement (VPPA) mechanism with a total quota of 600MW.

Previously, companies in Malaysia could fulfil their commitment to using green electricity through the Net Energy Metering and Self Consumption programmes.

Besides that, companies could also buy Renewable Energy Certificates or subscribe to the Green Electricity Tariff.

Under the CGPP programme, eligible companies could enter into a Corporate Green Energy Agreement (PTHK) with solar energy generators for the sale and purchase of Renewable Energy (RBE) virtually through mutually agreed terms and conditions.

Outlook

According to the International Energy Agency (IEA), global electricity demand is seen rising 2.4 per cent in 2022 and is expected to maintain a similar growth rate in 2023.

Meanwhile, demand growth in Asia-Pacific is seen at 3.4 per cent in 2022 and is expected to rise four per cent in 2023.

Fossil fuel prices, economic growth and ongoing sanitary measures related to Covid-19 are the main uncertainties affecting the 2023 forecast for global electricity demand and generation mix, the IEA said.

In Malaysia, renewable power generation is set to be the fastest-growing source of electricity supply in 2023 and beyond.

It is also estimated that renewable growth could go up 8 per cent globally next year.

Malaysia has pleaded its commitment to its target of becoming a carbon-neutral nation by as early as 2050 to reduce the greenhouse gas emissions intensity of gross domestic product (GDP) by 45 per cent in 2030, based on the intensity of emissions in 2005, in line with the aspiration to become a low-carbon country.

Participation from big companies such as TNB, Jentayu Sustainables Bhd, Sunview Group Bhd, Taliworks Corporation Bhd, SP Setia Bhd and Siemens would also support the RE industry. — Bernama