Death knell to Malaysia's power sector reforms

...its (TNB's) stance now means there is no cheer leader for reforms in the power sector to bring down the cost of electricity..

THE fact that even Tenaga Nasional Bhd (TNB) is proposing the planting up of a 1,000MW gas-fired power plant from the Energy Commission (EC) is another case in point supporting the view that energy reforms initiated in October 2012 are no longer in force.

Considering that the utility giant was the main proponent for reforms in the power sector that hinged on the EC conducting open tenders for awards to build new power plants, its stance now means there is no cheer leader for reforms in the power sector to bring down the cost of electricity.

Who then can the general public count on in fighting for reforms in the power sector if the main proponent itself succumbs to the game?

Sector reforms in power picked up pace in 2011 driven by special-purpose agency MyPOWER Corp Bhd whose previous head honcho, Datuk Abdul Razak Abdul Majid, is now the EC chairman.

The energy regulator has rightly instituted open tenders to make the industry more transparent, competitive and efficient, until recently.

This year, nearly 4,000MW of power plants have been awarded via direct negotiation basis.

Over the weekend, TNB vice-president of regulatory economics and planning division Datin Roslina Zainal was reported to have said that the company’s proposal to build a 1,000MW power plant on a fast-track basis was a contingency plan following the possible delay of the Tanjong Bin and 1Malaysia Development Bhd (1MDB) power plants. The two coal fired power plants have a capacity of 3,000MW.

She says the delays could result in a capacity crunch around 2016.

The question is why must there be a fast-track construction of another power plant as the planting up for future energy demand has already been planned, involving several parties from TNB, the ministry and the EC, and taking into account delays.

A delay of six months or even a year is not going to change the power demand equation very much. Is TNB expecting a surge in 2016 due to over-whelming demand?

Going forward, technology is improving resulting in greater energy efficiency, which in turn means that costs should come down and will continue to fall.

Due to the over-whelming evidence of much more efficient turbines coming up, the preferred mode to award contracts for new power plants is that it be done on a gradual basis.

This will ensure there is not too high a reserve margin, especially if demand turns out to be weaker than expected in the next few years.

Even if demand picks up faster than anticipated, TNB always has the option to postpone the de-commissioning of some of the older plants or renewing the power purchase agreements (PPA) of the existing independent power producers (IPPs).

The argument is that the old plants are over 20 years old and so less efficient than the new ones. But these plants can be refurbished and spruced up with newer technologies.

After all, they have a technical operating life span estimated at between 35 and 40 years if the Tanjong power plants under 1MDB are any yardstick to compare with.

Although the PPAs governing the Tanjong power plants have a term of 21 years, there is a clause for an extension up to 15 years upon mutual consent.

The EC has stated that the tariff for new contracts should be comparable to the 34.7 sen per kilowatt-hour tariff that TNB had offered for the 1,071MW Prai CCGT power tender which the latter had won in 2012. But with improved technology and refurbishment, the levelised tariff should actually be brought down lower than this benchmark if the PPAs of the first generation IPPs are renewed.

One concern of the recent trend of power plant contracts being awarded via direct negotiation is that the public may end up paying more for power tariffs. Worse, we seem to be backtracking to the old ways of doing business. Then, TNB should not rue that it is being burdened with the cost of carrying a high reserve margin and that it was affecting its profitability.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Subscribe now to our Premium Plan for an ad-free and unlimited reading experience!

Business , Corporate News , Power , TNB , 1MDB , EC , Malakoff


Next In Business News

US and UK should be welcoming talent, not driving it away
Short Position: Ringgit rebound, PETRONAS earnings
KWAP seeks stronger income growth
What’s in fashion
Brexiteers, no one wants your regulatory bonfire
EcoWorld redefines concept behind industrial parks
S’pore chips away at HK’s hedge fund dominance
Ringgit seen strengthening further
Hibiscus gets debt boost
Navigating a ‘perfect positive storm’

Others Also Read