Affin Hwang Investment Research estimates that Peninsular Malaysia may need to add 14GW to 15GW of generation capacity over the next five years from this year to 2030.
PETALING JAYA: The recent power outage affecting the Klang Valley and Johor Baru may accelerate the development of new power generation capacity.
As it is, Peninsular Malaysia’s existing generation capacity is under pressure to keep pace with rising demand and to support the country’s decarbonisation targets.
Affin Hwang Investment Research estimates that Peninsular Malaysia may need to add 14GW to 15GW of generation capacity over the next five years from this year to 2030.
The power outage was due to a temporary supply disruption from the Erda Power plant in Melaka, which was struck by lightning.
Affin Hwang Investment Research has reiterated its “overweight” rating on the utilities sector.
It maintains its earnings forecasts, stock recommendations and target prices for the other utilities companies under its coverage.
Its top pick for the utilities sector is Tenaga Nasional Bhd
, a direct beneficiary of the country’s energy transition drive and a benefactor of the rising electricity demand driven by new data centres.
It also likes YTL Power International Bhd for its attractive valuation (backed by earnings from Singapore’s power business and the United Kingdom’s water and sewerage operation) and the positive long-term earnings outlook for its data centres business.
For exposure to the power generation segment, Malakoff Corp Bhd is its preferred pick, given its strong revenue and earnings exposure to the power generation business.
It upgraded Malakoff to a “buy” from “hold” with a higher target price of RM1.30 a share.
The key downside risks to its positive view on the utilities sector would be weaker than-expected electricity demand growth, negative regulatory changes and slowdown in the development of new data centres.
It also includes slowdown in the global governments’ net-zero push, stiff competition in the bidding of power generation projects, unplanned outages and sharp decline in energy prices that may affect the independent power producers’ (IPP) short-term profitability.
It said the power generation segment is likely to attract increased investor interest, as tight available generation capacity and robust demand growth necessitate greater investment in new projects and the extension of existing power purchase agreements.
This is particularly beneficial for IPPs, as many of their assets are already well depreciated and their loans are largely repaid.
The outage, a first in a long time, along with data centre operators’ strong emphasis on supply security, is likely to accelerate power purchase agreement awards and spur investor interest.
It added that the outage could also lend some support to the proposed Asean Power Grid initiative, which facilitates cross-border electricity trade and, in turn, enhances energy security among participating countries.
It has forecast that Peninsular Malaysia’s electricity demand could grow at a sustained rate of 4% to 4.5% annually between 2024 and 2030, driven primarily by strong demand from data centres.
On the supply side, only one hydroelectric project – the 300MW Nenggiri project – is currently under development, with no coal or gas-fired power plants under construction.
With numerous solar photovoltaic projects are in the pipeline, these solar farms are currently unable to meet peak demand at night due to the lack of battery energy storage systems.
