Fuel cost stability, power sustainability

ENERGY is a growth enabler. Any fluctuation in input cost of energy has a multiplier impact on cost of goods and services. It also affects the slow growth of sustainability in the energy sector itself. Therefore, transparency in setting fuel costs will allow investors and businesses to predict future operational expenditure more accurately.

First and foremost, a weekly price setting mechanism was introduced and everyone forgot about the formula for setting petrol and diesel prices. Alpha and few parameters were released, but there was no indication how these parameters are set. Just like, Feed in Tariff (FiT) failed to show how the rates were set, causing high profit margin for solar PV in the early days. Revealing the formula would actually help the government explain fuel cost fluctuations and predictions, which will ease panic.

Secondly, why did the government set a ceiling price but set requirements for price reduction by oil companies? An unhealthy price war that may cause market distortion can be controlled by other existing laws. All oil and gas companies locally have an international footprint. The Association of Water and Energy Research Malaysia (Awer) opines that the Domestic Trade Ministry should allow oil companies to compete for the benefit of the rakyat and businesses.

Thirdly, Malaysia is losing time by delaying the establishment of Energy Price Stabilisation Fund (EPSF) that Awer has proposed since 2011. EPSF proposed by Awer is a self-generating fund with upper limit and lower limit for fluctuations that can be based on daily, weekly, monthly, quarterly (annual) or half- annum market price for energy resources that fuel our economy. The fund is generated by current generation for their use. Low energy price season is the golden opportunity to set up EPSF and govern it with evolving statistic limits.

On the other hand, natural gas price for piped gas used in electricity generation is expected to increase by another RM1.50 per mmBTU to reach RM22.70 per mmBTU by mid2017. To date, the Energy Commission and the Energy, Green Technology and Water Ministry (KeTTHA) failed to provide exact details of the so called market price for natural gas as prices for piped gas cannot be equated similarly to liquefied natural gas (LNG). The expected increase of piped gas price (RM22.70 per mmBTU) will take up RM1.4186 billion from fuel cost savings between January and June 2017 alone. Since 2014, when the piped gas price was increased every six months, the Energy Commission failed to publish data representing the impact of the increase on fuel costs in detail, with supporting data on fuel cost savings. The electricity rebate will no longer exist beginning July 2017 due to this situation coupled with coal prices that are highly impacted by currency exchange. However, KeTTHA and the Energy Commission may attempt to utilise the Power Purchase Agreement (PPA) savings to cover up the increase. Without transparency in the setting of piped gas price, why should we empty our PPA savings? By December 2017, a new tariff rate and benchmark fuel cost will be set and it is set to increase compared with Jan 1, 2014 to Dec 31, 2017 rates. We need answers from KeTTHA and the Energy Commission as electricity costs increase has multiplier impacts on the economy!

In recent weeks, we also have confirmation that the Energy Commission actually allowed sales of development rights where we saw a 100% foreign-owned company signing a PPA for a gas fired plant (Track 4B) in Melaka. Foreign equity cap cannot be waived as we need to protect our national strategic assets. The PPA does not protect Malaysians as it is purely a commercial agreement. The Jimah East case has proven that development rights for power plant construction cannot be sold where 1MDB has surrendered the development rights of Jimah East due to failure to meet financial close. Now, who will take the fall among the commissioners and senior management of the Energy Commission for this blunder? They should be held responsible for failing to uphold the Energy Commission Act and Electricity Supply Act.

Based on our modelling and analysis of potential competitive bidding, Track 4B can reach competitive pricing at 34 sen/kWh if fair and transparent competitive bidding is carried out. Surprisingly, the Energy Commission fails to publish levelised tariff for these direct negotiations (Track 4A and Track 4B power plant projects) to date. Track 4A got 38.02 sen/kWh compared with a benchmark levelised tariff of 34.7 sen/kWh. Now, will the Energy Commission use Track 4A’s levelised tariff (38.02 sen/kWh) to justify another very high levelised tariff for Track 4B (which may be close to 37 sen/kWh)?

While fuel costs remain a major cost that needs to be managed, the Energy Commission’s failure to carry out competitive bidding is adding more cost to the electricity tariff and it is bringing back the nightmare of Tun Dr Mahathir’s First Generation PPA legacy! In the past, the Energy Commission will point to the Economic Planning Unit for the First Generation PPA blunder. But now, what say you, Energy Commission?

This article was contributed by Piarapakaran S, president of the Association of Water and Energy Research Malaysia, a non-government organisation involved in research and development in the fields of water, energy and environment.