PETALING JAYA: Demand for electricity is expected to ease in the second quarter of the year with the implementation of the movement control order (MCO) and the sluggish economic activities foreseen thereafter due to the Covid-19 outbreak.
However, analysts said the impact on power companies is “expected to be less severe, given their resilient earnings profile.”
“Yes, there will be a near-term drag in demand for electricity because of the temporary closure of the industrial and commercial establishments that are not deemed essential. If the MCO is extended beyond April 14, it will compound the negative impact further. But the impact is likely to be mild on the sector, ” an analyst said when contacted.
This is because the sector is not restricted under the MCO for its “essential services” status. Additionally, the uptick in the usage of electricity by households will neutralise some of the expected decline in industrial usage, he said.
Analysts said the risk for Tenaga Nasional Bhd (TNB) is covered under the imbalance cost pass-through mechanism, while for independent power producers (IPPs), their returns are governed by long-term power purchase agreements (PPAs) regardless of short-term demand fluctuations.
MIDF Research noted that the bulk of TNB’s regulated earnings were on a revenue-cap basis. In other words, it is “technically compensated for any shortfall in demand - relative to the regulatory period 2018-2020’s (RP2) projected demand growth of 1.8%-2% per year.”Vice versa, any excess demand relative to the RP2 projections is returned to consumers.
“For the most part of the RP2 so far, demand has exceeded the projected growth and TNB has been returning the excess revenue to consumers, ” the research firm said in a report.
Notably, the reserve margin, which is a measure of available capacity over and above the capacity needed to meet normal peak demand levels, is estimated to rise to 38% in 2020 from the estimated 35% at end-2019. In 2019, the 2,000MW Jimah East Power coal plant was commissioned, while the increase this year is expected to be driven by the commissioning of Southern Power Generation’s 1,440MW combined-cycle power plant in July.
“Beyond the already announced plant-up plans, we foresee a dearth of major new plants coming on-stream, given the already high reserve margin in the system. The next round of plant-ups is expected to occur around 2025-2026 onwards, when the reserve margin is expected to dip closer to the 20% minimum reserve margin benchmark, ” the research firm said, noting that sector opportunities could tilt heavily towards renewable energy project awards.
In the fourth quarter of financial year 2019 (4Q19), TNB reported a core net profit of RM477mil, bringing its FY19 core earnings to RM4.7bil. Revenue for 4Q19 came in 3% lower year-on-year (y-o-y) to RM12.17bil, owing to lower sales of electricity (-4%) and other regulatory adjustments of RM271.6mil. Total units sold for the peninsula in 4Q19 grew 1% y-o-y, with the commercial and domestic sector growing at 2.4% and 4.4%, respectively. This, however, was partially offset by lower demand from the industrial sector (-2.1%), mainly from the iron and steel, electric and electronic, and cement product industries.
For IPPs going forward, Kenanga Research said main concerns were “old issues such as unplanned outages” such as Kapar Energy Ventures Sdn Bhd losses for Malakoff Corp Bhd.
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