TNB to decarbonise Genco before its IPO

Utility to spend Rm20bil per year on green initiative

“This will enable Genco to be coal-free by the early 2040s versus its targeted 2050 timeline.”

TA Research

PETALING JAYA: Tenaga Nasional Bhd (TNB) is unlikely to list its domestic power generation business within the next two to three years.

While the utility giant did not rule out the possibility of floating TNB Power Generation Sdn Bhd (Genco), it told analysts that it would focus on decarbonising the subsidiary first.

Without reducing Genco’s carbon footprint, it would be a “challenge” to obtain a good valuation under the initial public offering (IPO), according to MIDF Research.

This is because about 48% of Genco’s current capacity involves coal, which could weigh down investors’ appetite in terms of environmental, social and governance (ESG) appeal.

“A positive, should this be in the form of a spin-off, is that it will remove substantial ESG drag from TNB as 99% of the group’s emissions is currently coming from generation,” stated MIDF Research in a note.

On Aug 12, Reuters reported that TNB aimed to begin the process next year for a potential Us$1bil (Rm4.44bil) listing of its power generation business.

The news agency also said that it would be the country’s largest IPO in a decade, as Genco could be valued at Us$4bil (Rm17.9bil).

Following a briefing with TNB, TA Research said the utility giant intends to increase Genco’s enterprise value and enhance its sustainability position, prior to the IPO.

“This is via decarbonisation and energy transition strategies.

“Genco seeks to retire and repower selected coal plants earlier than their original power purchase agreement expiration date.

“Thus, this will enable Genco to be coal-free by the early 2040s versus its targeted 2050 timeline.

“The identified plants include Kapar Energy Ventures, Janamanjung one to four, Manjung five and Jimah East Power,” said the research house.

TA Research also noted that Genco planned to tap into the regional gas and hydroelectric opportunities.

It said Genco would deploy a total capital expenditure (capex) of Rm5bil to capture 800 megawatt of capacity by 2050.

For gas, Genco will focus on Vietnam, Thailand and Indonesia, while for hydroelectric, it will focus on Laos and Indonesia.

Meanwhile, CGS-CIMB Research said TNB’S renewable energy business would also expand to new focus markets.

These are Spain, Italy, France, Australia, Taiwan and South Korea.

“We could see a potential spin-off of the New Energy Division or NED in 2028, where funds will be raised for future growth and to reduce debt.

“Currently, the unit is pursuing a deal flow pipeline of about 3.6 gigawatts across existing focus markets (United Kingdom, Europe and Asia-pacific).

“We expect investment in grid infrastructure to remain robust, as stability and flexibility of the grid system is essential to support energy transition,” the research house said.

Meanwhile, TNB said it would invest Rm20bil per year over the next 28 years as capex for initiatives to fast-track its energy transition plan, which aspires to reduce its emissions intensity to net zero by 2050.

President and chief executive officer Datuk Ir Baharin Din said the investment would pave the way for TNB’S journey towards its net zero aspiration and open opportunities in more than doubling its earnings before interest and taxes.

“This responsible energy transition journey will bring positive business growth to the group even as we accelerate our efforts to decarbonise,” he said in a filing with Bursa Malaysia.

As TNB continued to invest in the “Grid of the Future”, the utility giant would grow its regulated asset base to Rm100bil by 2050, Baharin added.

He pointed out that the group would pursue regional interconnection that allowed for a wider reallocation of renewable energy resources and helped decarbonise the Asean power system as well as strengthen the security of supply.

He said the grid would provide the company with potential earnings of Rm7bil by 2050.

TNB Genco is expected to capture an estimated Rm40bil in revenue from the domestic generation market by 2050, according to Baharin.