PETALING JAYA: Tenaga Nasional Bhd
’s (TNB) expansion plans, which are in line with its commitment to achieve net-zero emissions by 2050, will be the group’s main growth catalyst in the quarters ahead, says Kenanga Research.
The research house said the utility giant had recently announced two new power plant projects, namely the repowering of its Sungai Perak hydro power plant and a greenfield 2,100 megawatt (MW) combined cycle gas-fired power plant in Kapar.
“These two assets are expected to replace two other existing assets, that is the existing power purchase agreement (PPA) of the Sungai Perak Hydroelectric Power Plants with a capacity of 649.10 MW, which has been extended for five years until August 2027.
“Meanwhile, the PPA for Kapar Energy Venture’s (KEV) Coal U3-U6 (1,474MW) will expire in 2029,” said Kenanga Research in a report yesterday.
TNB announced last week that its wholly-owned subsidiary, TNB Power Generation Sdn Bhd, had received approval from the Energy Commission to implement the New Clean Energy Programme: Hydro Life Extension Programme for Sungai Perak Hydroelectric Power Plants Scheme.
“This project, with total capital expenditure (capex) of RM5.8bil, is to uprate and upgrade the Sungai Perak Hydroelectric Scheme, which consists of five Stesen Janaelektrik with a total of 18 generating units with the latest technology,” said Kenanga Research.
With an installed capacity of 650.75MW, the said project is targeted to commence in the third quarter of financial year 2024 (3Q24), with the commercial operations date (COD) of the first unit in 3Q25 under a new 40-year PPA.
Moreover, TNB Power has received a letter of intent from the Energy and Natural Resources Ministry for the development of a 2,100MW combined cycle gas-filled power plant in Kapar.
“With an expected COD in 2031, this plant also has hydrogen-fired combustion capability.
“It is a greenfield project with a capex of RM9.5bil that will be constructed on TNB GenCo-owned land, located to the north of the existing 2,420MW KEV Power Plant. TNB owns a 60% equity stake in KEV,” said Kenanga Research.
The research unit also noted that the expansion plans were considered to be a good move, especially for TNB’s new Kapar plant, although there will not be an impact on the group’s earnings.
“KEV is a problematic plant as its triple fuel (coal, gas and oil) firing capability is rife with technical issues.
“This new asset will eliminate the unwanted coal fuel component and at the same time with potential of turning it into a green tech asset.
“This would help to improve TNB’s environmental, social and governance (ESG) rating further in the future,” said Kenanga Research.
While the research house has maintained its “outperform” call for TNB with a target price of RM10.17, it cautioned against the ballooning under-recovery of fuel costs that is dampening the group’s cashflow.
It also took into consideration a potential recession as well as non-compliance of ESG standards as risks to its call.
“We are positive with TNB’s renewable energy expansion plan and commitment to be coal-free by 2050 and address lingering ESG concerns, which have been clouding its share price for the past two to three years.
“We are also optimistic on its earnings resiliency as the ballooning under-recovery of fuel costs will eventually be recovered under the incentive-based regulation framework with a six-month lag,” said Kenanga Research.
Given that TNB’s Kapar plant did not really change the group’s power plant portfolio as an effective coal asset reduced by 884MW from 7,678MW currently, the research house has kept its two-star ESG rating unchanged for TNB.
