DEMAND for electricity may have improved but the impact of the full movement control order (MCO) period and the challenges in collection will hit Tenaga Nasional Bhd’s (TNB) earnings for the first half of the year.
Recovery in earnings in the second half will depend on the control over Covid-19 and the speed of the revival of the economy.
While the pandemic has affected the group’s efforts to reduce its exposure in Turkey and India, its assets in Britain are insulated by a long-term subsidy scheme.
With TNB leveraging on its existing assets in Britain, and its market experience, it aims to build up a sizeable renewable energy portfolio by 2021 through acquisitions of operating assets and development of greenfield projects.
With its aim to help develop a global solar manufacturing hub, TNB will speed up the execution of its investment in 1,400MW of large-scale solar farms and 75MW of distributed solar generation.
To support economic recovery in the medium term, TNB has identified six areas that can potentially contribute RM120bil to growth, and create almost a million jobs.
Since the MCO, demand for electricity has dropped by 25%, caused mainly by a slowdown in the industrial and commercial sectors.For the rest of this year, this demand is expected to drop by between 7% and 15%.
“TNB remains prepared for demand volatility although peak demand had recovered to 17,484MW on June 11, the highest since the start of the MCO on March 18, ’’ said TNB chief strategy and regulatory officer Datuk Fazlur Rahman Zainuddin.
The pandemic is impacting the group’s restructuring and turnaround exercise as well as sale of investment especially in its 30%-owned companies in GAMA (Turkey) and GMR (India).
But in Britain, TNB’s wind farm assets through GVO Wind and Boomerang Capital, have performed well; these two companies have the largest Feed-in Tariff (FiT) wind portfolio in Britain, with 53 operational onshore medium wind turbines with a total combined capacity of 26.1MW.
FiT is a payment made for the generation of electricity using renewable energy sources.Last year, these two companies under Tenaga Wind Ventures UK (TWV), contributed RM76mil in earnings before interest, taxes, depreciation and amortisation.
TWV sees its revenue remaining insulated from low wholesale prices due to the FiT subsidy scheme and early locked in power purchasing agreement prices.
TNB has a 50% stake in Vortex Solar Investments S.a.r.l. which owns and operates solar photovoltaic projects in Britain with a combined net installed capacity of 365MW.
In the current economic situation, the decline in wholesale prices for these solar projects due to low demand, is partially cushioned by the renewables obligation certificate scheme, used to encourage the deployment of large-scale renewable energy in Britain.
As the economic lockdown is gradually lifted, these wholesale prices are expected to rebound in tandem with the improvement in demand.
In evaluating potential projects, TNB wants to move beyond being just a financial investor.
“That opportunity must also help us shore up our capabilities in establishing and operating renewable energy assets.
“This will allow us to bring capability back to Malaysia and expand the renewable energy landscape here, ’’ said Fazlur.
On its solar projects locally, TNB will work with local manufacturers, suppliers and contractors, and accelerate reskilling through a structured vendor development programme.
The investment in large solar farms will be executed on TNB land, with the time reduced from 30 to 16 months for the commissioning of the next large solar farm project.Projects that were resumed during the Conditional MCO included the 30MW large scale solar project in Bukit Selambau, Kedah; the commercial operation date has not been delayed and is on track for the third quarter.
During the MCO, the expansion of the National Fiberisation and Connectivity Plan (NFCP) was temporarily halted.
TNB is currently expanding its NFCP implementation in Peninsular Malaysia, for example, to 15,000 premises in Jasin, Alor Gajah, Malim Jaya and Ayer Keroh in Melaka, compared with the pilot project involving 1,100 households.
The expansion in Melaka is expected to be completed by this year.
Despite disruptions from the pandemic, TNB is on track with its plan to carve out its power generation and retail businesses into fully owned subsidiaries, which is expected by the third quarter.
TNB also sees areas where it can significantly contribute to the economy of Malaysia.
It will ramp up its efforts to deliver RM27bil in investments to modernise the national power grid, through local vendors who will then have capabilities that can be exported.
The government too can accelerate large-scale solar and distributed generation programmes which will stimulate demand for Malaysia’s solar sector.
With incentives to drive energy efficiency, Malaysia can reduce energy usage by 10% to 25% and foster a local ecosystem of energy efficient manufacturers, technology and solution providers.
During the 2008 financial crisis, countries such as the United States and Germany had energy efficiency as part of their stimulus programmes, as it can quickly help to generate economic activities and jobs.
In terms of electrifying mobility, there can be collaboration between users like Grab, manufacturers like Perusahaan Otomobil Nasional and Perusahaan Otomobil Kedua, and charging providers like TNB to stimulate demand for electric cars.
Grab in Indonesia has already pledged a US$2bil collaboration to deploy electric vehicles on scale.
This can be done more quickly in Malaysia, with its deep manufacturing capabilities and TNB’s ability to roll out charging infrastructure at speed and scale.
To help rural producers and small and medium scale enterprises get onto the digital economy, the government can accelerate deployment around the NFCP and 5G.
TNB can support the fast roll-out of these infrastructures in a cost effective manner, given its reach in densely built-up areas.
This can be done, for example, through its sub-stations and street lamps.
TNB will also play a leading role in co-ordinating a reskilling initiative across government-linked companies, so that workers can be ready for jobs involving higher skills and wages.
With the realities imposed by the pandemic, leading corporations, with the backing from the government, have a big role to play in catalysing the growth of the economy.Yap Leng Kuen is former StarBiz editor. The views expressed here are the writer’s own.