PETALING JAYA: Tenaga Nasional Bhd (TNB) benefits the most from the recent announcements by the Energy Commission (EC) that pushes for energy reform in the country.
The utility giant won the bid to build and operate a RM3bil combined-cycle gas turbine (CCGT) Prai power plant. At the same time, EC has also given TNB Pasir Gudang a five-year extension of its independent power producer (IPP) contract.
The energy sector has been waiting for some three months for EC to announce the extension of IPPs' power purchase agreements (PPAs) as well as the Prai power plant. With this, first generation IPPs who got the “sweetheart deals” at the expense of TNB, which had to buy up the excess capacity from them is over. This will also provide huge savings for the utility company.
Despite the good news, TNB's share price saw little excitement. The counter was unchanged at RM7 with over 7.5 million shares traded.
According to analysts, the funding for TNB's new Prai power plant would likely be in US dollar and ringgit. A local bank-backed analyst said TNB had the ability to borrow money at lower cost and had a strong balance sheet to boot.
RHB Research Institute Sdn Bhd believes funding should not be a problem for TNB as it expects the Prai plant to be financed via a project financing similar to the Janamanjung expansion. “Assuming 80%, of the cost is financed by debt, TNB's equity portion is only RM600mil. TNB's balance sheet is healthy with a cash balance of RM9.1bil as at May 31,” it said.
RHB added that the savings for TNB could amounted to RM400mil per annum should the first generation IPPs agree to cuts in capacity payments in return for extensions to their power purchase agreements (PPAs). However, it said it remained unclear whether TNB would reap the savings in capacity payments. “Previously, we understand from the management that the Government intends to flow all the benefits of these savings to consumers.”
First generation IPPs that have been awarded with an extension of 10 years to their PPAs are Genting Sanyen Power Sdn Bhd and Segari Energy Ventures Sdn Bhd (a subsidiary of Malakoff). TNB Pasir Gudang has been awarded a five-year extension to its PPA. TNB Pasir Gudang, which is currently operating under an agreement, will operate as an IPP after 2017.
Three first generation IPPs YTL Power International Bhd, Powertek Bhd and Port Dickson Power of the Sime Darby group will be discontinued upon expiry of their PPAs.
Maybank Investment Bank Research said the key takeaway of the announcements by EC was that the renewed deals were done on a commercial basis at competitive rates. It estimates the projected internal rate of return (IRR) to be in mid-single digits, a vast improvement from the mid-teen IRRs enjoyed by the first-generation IPPs. Furthermore, PPAs of obsolete non-viable power plants are not renewed and will be allowed to lapse upon maturity.
The research house said the new Prai power plant would boost TNB's installed capacity by 9.3% while the new IPP tariff was reasonable and not a burden.
YTL Power, which lost its bid for extension was within Maybank's expectation as its plants are effectively at the end of their useful lives, and are no longer competitive. It said Port Dickson Power did not seek an extension.
“This is not a surprise given that this is a peaking plant which is close to the end of its life. The move is also in line with the group's strategy to exit the power sector and focus on other more lucrative businesses. The impact of the PPA expiry is immaterial as Port Dickson Power only contributed to 1.4% of Sime's group net profit for financial year 2012,” Maybank said.
Meanwhile, Hong Leong Investment Bank believes the higher gas price would be partly offset by capacity payment savings estimated to be RM200mil per annum. It said the announcement marked an important milestone in the power sector, benchmarking against the market price of energy, open bidding system and more transparency in the system.