Third-party access a win for energy sector

PETALING JAYA: Affin Hwang Investment Bank Research (Affin Hwang) is optimistic about the upcoming implementation of the third-party access (TPA) in the country’s electricity supply industry.

However, it believes that success hinges on factors like wheeling charges and battery energy storage requirements.

The government aims to implement the TPA starting in September, allowing independent power producers (IPPs) to sell electricity directly to consumers, bypassing the need to purchase from Tenaga Nasional Bhd (TNB), the country’s primary electricity utility, but will need to rely on TNB’s transmission lines.

Affin Hwang highlighted that IPPs in Malaysia are set to gain a new avenue for growth following the implementation of the TPA.

“The TPA offers flexibility for the IPPs and solar companies to seek higher returns and increase their generation capacity,” it said.

Affin Hwang said the TPA will likely cover both renewable energy (RE) and non-RE, which should increase the vibrancy in the power generation industry and benefit the companies including the RE and non-RE IPPs and solar engineering companies/service providers.

“The implementation of the TPA should liberalise the electricity generation market, enabling the IPPs to negotiate directly with their customers, which offer higher flexibility for them to seek higher returns as opposed to the competitive bidding under the large-scale solar (LSS) or Energy Commission tenders,” it added.

The research house believes that the TPA should allow the market players to launch or raise their generation capacity based on the market’s needs, instead of being restrained by the government’s programme or quotas.

Moreover, Affin Hwang noted that TNB stands to benefit from increased grid utilisation and higher capital expenditure (capex) requirements as the single buyer model evolves.

“As the single buyer is designed as a non-profit entity and is in the process of being carved out from TNB, the TPA should not negatively affect TNB’s profitability,” it said.

On the contrary, the brokerage believes that TNB’s power generation business should benefit from the liberalisation, similar to the other IPPs.

“The implementation of the TPA, if well taken-up, should increase the country’s electricity generation and consumption, thereby increasing the traffic on TNB’s grid infrastructure, enabling TNB to collect wheeling charges.

“Importantly, the higher grid utilisation and increase in variable RE (VRE) should necessitate further upgrades in the grid infrastructure, thereby raising TNB’s long-term capex and profitability under the incentive-based regulation,” it added.

Affin Hwang highlighted that while the proposed implementation of the TPA is broadly positive, the government needs to strike a balance between ensuring the financial feasibility of new power generation projects, safeguarding the power infrastructure and making sure the burden of handling VRE is shared equitably.

“We are broadly positive on the proposed implementation of the TPA.

“However, the devil is in the details, ie, how much the wheeling charges are and is there a requirement for battery energy storage systems (and if so, at what percentage of the RE installed capacity),” it noted.

With strong electricity and RE demand from data centres, AffinHwang believes Malaysia is well-positioned to implement the TPA and benefit the power industry.

Overall, Affin Hwang has maintained its “overweight” call on both the RE and utilities sectors, as it believes these sectors are the key beneficiaries of Malaysia’s energy transition drive.

It has named TNB as its top pick within the utilities sector, while Solarvest Holdings Bhd is its top pick among the RE companies.