Major changes seen in power supply sector RSS Feed

Major changes seen in power supply sector

THE POWER sector looks poised for a reset with a push towards renewable energy (RE) and the return of competitive bidding in awarding contracts.

On Thursday, the Energy, Green Technology, Science and Climate Change Ministry said it has cancelled four independent power producer (IPP) contracts that were awarded under the previous administration,

Its newly minted minister Yeo Bee Yin said none of the four are existing IPP contracts and one involves a listed company,

She said the Government is still in the midst of reviewing other contracts and intends to cancel as many as eight IPP contracts, including the four that have been cancelled.

In her inaugural town hall session with energy stakeholders, Yeo said the previous government had approved many IPP contracts through direct negotiation and direct award and the Government will be reviewing these contracts, especially those that bring no cost implication to it.

Separately, she said that the government wants to move forward with RE.

CIMB Research reckons that the IPP contracts review is just the beginning and there could be more changes in regulations and policies with a new minister in place.

“We see risk for power generators, particularly those with expiring power purchase agreements (PPAs) or upcoming plants.

“Power plants with PPAs expiring in the near term might not get an extension due to the excess power reserve, in our view,” it said in a note yesterday.

Notwithstanding this, industry players agree that open tender for future projects is the way to go.

Recall that in 2011, the country’s Energy Commission (EC) was given the mandate to handle the awarding of power plants based on a competitive process.

Before that, awards to build power plants were given on a direct negotiation basis, which sparked rent-seeking and ultimately contributed to a higher cost of electricity.

But in the last few years, there has been a regression, made worse by a slew of IPP licences dished out on a direct negotiation basis, prompting many unsolicited bids. Many of these were RE contracts to build up capabilities in the sector.

Where listed companies are concerned, the incumbent players are YTL Power International Bhd

and Malakoff Corp Bhd.

They are mostly involved in conventional power projects and sell their supply to utility giant Tenaga Nasional Bhd

(TNB) through PPAs.

Besides being the single buyer from power generators, TNB has also emerged as a player in the RE sector in recent years.

New players in the power sector are Tadmax Resources Bhd

, which was directly awarded a 1,000MW combined-cycle gas turbine plant on its Pulau Indah land in August 2016. The award had raised questions, as Tadmax lacked a track record in developing power plants, given that it was primarily a property company.

The company subsequently tied up with South Korea’s state-owned company, Korea Electric Power Corp.

Late last year, the company shortlisted eight companies for the 2bil power plant project, which is slated to start operations in 2023. Early this year, Ranhill Holdings Bhd

announced that it had received a conditional letter of offer from the EC to develop a power plant in Sandakan, Sabah, for the development of a 300MW combined-cycle gas turbine plant.

However, there has yet to be any development announced on this project so far.

According to MIDF Research, other IPPs under review might involve large-scale solar (LSS) projects.

Under the LSS initiative, Quantum Solar Park was one of the first companies to be awarded a project on a direct award basis in late 2016. The company has three PPAs signed with TNB for projects in Melaka, Kedah and Terengganu.

According to Hong Leong Investment Bank (HLIB) Research, some of the more recent IPPs inked were Tenaga’s 70%-owned Jimah East and 51%-owned SIPP Energy Sdn Bhd, which is the Johor Sultan’s private vehicle. But it says these are unlikely to be materially affected, given the company’s prudent feasibility measures in buying these stakes back in 2015-2017. Furthermore, the projects were 90% and 30% completed as at end-March. As for YTL Power, it has one domestic Paka IPP under contract extension, but this is not considered a new IPP, say analysts.

The push for RE is in line with Pakatan Harapan’s manifesto, which has pledged to increase its contribution from the current 2% to 20% by 2025.

It has also pledged to reduce the dependence on coal-fired power plants – one of the power-generation methods that has a serious impact on carbon dioxide emissions.

But for a meaningful development of the RE sector, three things are key: price, technology and efficiency, says analyst Hafriz Hezry of MIDF Research.

“Solar accounts for the bulk of Malaysia’s RE. However, there is the issue of getting RE sources to reach grid parity for it to be cost competitive and gain a larger share of generation mix without burdening end-consumers,” he notes in his report.

Read full article at The Star