Power sector draws attention after IPP project cancellations
THIS is turning out to be an interesting time for the power sector in the country following the cancellation of four independent power producer (IPP) projects by the government.
The government’s next course of action will be closely watched by investors and the industry, especially projects that have yet to be finalised such as 1,000-1,200MW combined-cycle power plant by Tadmax Resources Bhd and another power plant in Kedah.
It is understood that Tadmax is in advanced stage of negotiation with the Single Buyer Department, a government entity that prepares power purchase agreements (PPA) on behalf of Tenaga Nasional Bhd (TNB) and Petronas Gas Bhd for the gas supply as well as transmission works agreement with TNB Transmission.
Tadmax was directly awarded a 1,000MW combined-cycle gas turbine plant on its Pulau Indah land in August 2016.
The company has also announced that it will jointly build a power plant in Pulau Indah, Selangor with Worldwide Holdings Bhd and Korea Electric Power Corp (KEPCO), South Korea’s largest state owned public utility company.
Tadmax will hold a 40% stake in the venture, Worldwide 35% and KEPCO the remaining 25%.
The transformation of the country’s power sector continues to deliver, as shown by the cancellation of the four proposed coal-fired power plant.
Just a couple of years ago, the country was planting up power plants to cope with the rising demand for electricity and the sharp reversal is a reflection of the changing economics of renewable energy (RE) such as the country move towards a greener direction.
Additionally, the current reserve margin gives the government time to cancel some IPP contracts.
The ministry has set a target of 20% of the country’s electricity to be generated from renewable sources by 2025, an increase from 2% of total energy generation mix currently.
For the record, the total installed capacity in Peninsular Malaysia stood at 24,124 MW as of July 2018. Demand continue to increase year by year with the latest all time high peak demand registered at 18,338 MW on Aug 15, 2018. This new peak demand broke the previous record high of 18,010 MW registered on June 6, 2018.
On Wednesday, Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin said the government will potentially save RM1.26bil in electricity tariffs following the cancellation of four IPP projects.
The four IPP projects are Malakoff Corp Bhd and Tenaga Nasional Bhd’s (TNB) 700 MW Gas Power Plant in Kapar, Selangor; Aman Majestic Sdn Bhd and TNB Gas Power Plant 1,400 MW Gas Power Plant in Paka, Terengganu; Sabah Development Energy Sdn Bhd and SM Hydro Energy Sdn Bhd 300 MW Gas Power Plant in Sandakan Sabah; and Edra Power Holdings Sdn Bhd 400 MW solar Power project.
“The cancellation of the projects are not expected to have negative financial or legal impact to the government as they had breached the terms and conditions in the offer letter,” she said.
Yeo noted that the projects were awarded through direct negotiations, a practice which has been done away with for future projects.
The country’s electricity reserve margin is still at an optimum level of 32%, she says.
AllianceDBS Research believes that all the four terminated power plants have yet to progress to the advanced stages.
“The relatively subdued power consumption growth, coupled with the relatively comfortable reserve margin of about 30%, has allowed the government to cancel the projects,” it says.
Most analysts say the news of the cancellations is neutral and has no financial impact on TNB and Malakoff as these were only at the planning stages with no agreements entered into as yet.
Hence, there is no impact to the existing portfolio and earnings of both TNB and Malakoff.
PublicInvest says the development of a new gas-fired power plant with a capacity of 700MW in Kapar, Selangor (by Malakoff and TNB) was a proposal which was supposed to be a potential re-powering of the existing Kapar Energy Ventures (KEV)’s Generating Facility (GF) 4 site upon the expiry of its power purchase agreement (PPA) in July 2019.
“No contracts have been officially awarded, with this still under the planning stages. To note, Malakoff has a 40%-stake in KEV, while TNB holds the remaining stake,” it says.
Meanwhile, MIDF Research says the two cancelled projects involving TNB were still in planning stages and were never part of TNB’s announced pipeline of generation projects, which currently comprise of three key projects Sepang Solar (50MW), Jimah East (2000MW) and Southern Power Generation (1440MW) - these announced projects are not affected.
“The two cancelled projects have yet to enter into any agreement/PPA and were not built into our projections and valuations for TNB,” MIDF says, adding that it has a “buy” call with a target price of RM16.90 on TNB.