Research houses maintain neutral outlook on power


“But we believe TNB will still dominate the T&D market in medium term given the group still owns about RM50bil T&D assets and there is limited expansion opportunity given the electricity penetration rate in Malaysia is around 100% as of 2017, ” CGS-CIMB said.

PETALING JAYA: While consumers are expected to benefit, the power sector will face further uncertainties, arising from potential regulatory changes, and this could weigh on the industry’s financial performance.

According to analysts, upcoming reforms to the sector are expected to result in greater competition among utility companies. With lowering electricity cost being one of the main objectives of the government, consumers are expected to benefit as they could enjoy lower tariffs.

Pending details on the impending 10-year Masterplan for power industry reform, or the Malaysia Electricity Supply Industry 2.0 (MESI 2.0), Public Investment Bank and CGS-CIMB Research maintained their “neutral” outlook on the sector, while MIDF Research had downgraded its stance to “neutral” from positive previously.

In its report, Public Invest expected earnings impact from the implementation of MESI 2.0 to Tenaga Nasional Bhd (TNB) to be limited in the near term.

The proposed opening up of fuel sourcing to independent power producers (IPPs), on the other hand, is expected to increase their operating risk, compared with current practice, which is cost pass-through to consumers, the brokerage added.

“However, this should lead to greater competition and hence, help to reduce electricity cost in the future, ” it said.

Similarly, CGS-CIMB Research also projected limited earnings impact on TNB post MESI 2.0, given the company’s dominant market presence, solid balance sheet, and expertise in managing the grid systems.

Nevertheless, the brokerage said the uncertainties from the potential power sector regulation changes could cause volatility in the sector’s performance.

While MIDF Research concurred that there would unlikely be major near-term impact on TNB, the company is expected to experience increased competition in the generation space in the longer-run due to MESI 2.0.

The Cabinet had reportedly approved a 10-year masterplan for power industry reform aimed at liberalising the sector across value chain, lower electricity costs and encourage the supply of green energy.

Among the reform initiatives were allowing IPPs source their own fuel (such as gas and coal); moving towards capacity and energy market from the current power purchase agreements (PPAs) regime; enabling third party access (TPA) for transmission and distribution (T&D); liberalising the retail segment; and increasing transparency between Single Buyer (SB) and Grid System Operator (GSO).

CGS-CIMB Research said the reform appeared to indicate that the government would stop approving new independent power production projects under the PPA regime, which was not a surprise, considering the cancellation of the four IPP contracts in the fourth quarter of last year.

“The government expects to introduce TPA framework for the grid system (T&D) by end-2022 to drive efficiencies and to resolve the conflict of interest issue as the ring-fenced SB and GSO entities are both under TNB, ” it said.

“But we believe TNB will still dominate the T&D market in medium term given the group still owns about RM50bil T&D assets and there is limited expansion opportunity given the electricity penetration rate in Malaysia is around 100% as of 2017, ” it added.

Meanwhile, Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin reportedly said the pilot to open up the retail segment was expected to start in the second quarter of 2021 to promote cost efficiency with the rollout of smart meters and Internet of Things.

“We believe the increased competition within the retail space will likely have negligible earnings impact on TNB, given that the average tariff for customer service entity is only 0.96 sen per kilowatt-hour (kWh) or 2.5% of total average tariffs of 39.45 sen/kWh, ” CGS-CIMB Research said.

The brokerage noted the reforms on the wholesale market structure could create a more level-playing field for power players, benefitting IPPs with expiring PPAs to repower their plant at a lower tariff, and savings could be passed through to end-consumers via lower electricity tariff.


   

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