Tenaga Nasional Bhd’s (TNB) announcement of a 14.5% increase in the base tariff rate from 39.95 sen per kilowatt-hour (kWh) to 45.62 sen/kWh for Peninsular Malaysia for the regulatory period 2025-2027 (RP4) received public objections.
The power utility says the new rate will not impact some 85% of households but this segment only accounts for 20% of electricity demand. Eighty per cent of electricity generated in the country is used by industry and the rise in electricity costs is bound to have a domino effect on the whole supply chain.
Mall operators, for instance, have stated their electricity bills have risen by some 50% since the ICPT (Imbalance Cost Pass-Through) tariff they pay surged from two sen/kWh to 16 sen/kWh in RP3. For a mall the size of half a million sq ft, this translates to an additional annual electricity cost of around RM5mil. Mall operators may recover that with higher rentals which in turn could be passed down to the end customer – the public. The case is similar for hotels and office towers, averaging 40% increase overall.
Electricity tariff change add fuel to inflationary pressures. Potentially costlier goods and services may reduce consumer purchasing power, particularly for discretionary spending. As for the business sector, energy-intensive sectors such as steel, cement and heavy manufacturing will bear a significant financial burden. The higher production costs could reduce competitiveness in global markets unless mitigated by efficiency improvements.
The final say on the new electricity tariff rates and tariff structure under RP4 is with the government, which is expected by mid-2025. For RP4, TNB's regulated business capex has been set at RM42.82 billion, while operating expenditure (opex) is set at RM20.78 billion.
Compared with RP3, capex was RM20.55 billion while opex was set at RM17.69 billion. The regulatory rate of return, meanwhile, has been maintained at 7.3%, unchanged from RP3, it added. TNB noted that generation costs remain the largest component of the electricity tariff, with gas and coal continuing to be the primary fuel sources for electricity generation during this period.
The ICPT mechanism was introduced to stabilise energy costs for TNB while encouraging efficient power generation. However, its impact has been deeply felt across the commercial sector. Earlier this year, S&P Global Ratings projected that TNB would recover RM6bil through the ICPT mechanism. Although this revenue is spread across various sectors, commercial properties bear a substantial portion of the cost. At the consumer level, this adjustment adds approximately RM176 per month to household expenses, contributing to rising prices for goods and services.
With fuel subsidy rationalisation also to be announced after mid-year, Putrajaya has much to consider.
TNB, which has a near-monopoly of the country’s electricity distribution, posted over a billion ringgit in profits in the second and third quarters of 2024. For nine months (2024), it was close to RM4 billion. Imagine RM5 billion a year at the expense of the public?
But in the wake of the country’s aggressive 70% renewable energy (RE) mix target by 2050, must we prepare for higher tariffs with the new base rate acting as a new floor?
The new 45.62 sen/kWh base rate under RP4, as TNB explained recently, is driven by expectations of a 24% rise in coal price and 34% rise in LNG price.
The two commodities accounted for about 90% of generation mix in the peninsula in the third quarter of 2024. And 70% of the base rate tariff is due to the fuel cost factor.
The high demand from data centres and electrification of mobility with the growth of electric vehicles has meant utility companies worldwide have continued to rely on coal fired generation to meet demand. That supported coal prices despite the criticism about its impact on the climate.
LNG is less carbon-intensive and growing in demand due to climate concerns and supply availability. TNB expects to replace its coal-based generation with it over time. Forecasts are for LNG price to remain supported underpinned by demand from growing markets like China and India with some price volatility due to geopolitical issues.
On its part, TNB has been investing aggressively in renewable energy (RE) assets, including acquiring companies overseas and aims to be completely coal-free by 2050.
There will be a surge in electricity demand, driven in part by the mushrooming of power-hungry data centres. TNB has seen demand in applications of up to 11 gigawatts or 11,000 megawatts. The power utility also has agreements to sell power to neighbours like Singapore and is allowing third-party access to the grid. The promotion of RE could come at higher tariff rates.
Around the region, Singapore is often cited as the model of how electricity reform should look like – from a vertically-integrated government-owned monopoly to one that is structured to facilitate wholesale and retail markets – and that can be implemented smoothly. Good legislation and a regulatory framework, as well as well-enforced market rules are key to success.
Although electricity sector is slowly being liberalised. RE producers and their prospective customers have voiced their grouses on the high grid access fees under third-party access for green energy.
It is time for a more liberalised market, like Singapore, and to stop the monopolistic tendencies of one giant hegemon. The real “loser” in all of this is the consumer.
References:
Shedding light on power tariff hike, Bhupinder Singh / Gurmeet Kaur, Star Biz7, The Star, 4 Jan 2025
The cost comfort, Andrew Teoh / YL Lum, Star Biz7, The Star, 8 Dec 2024
TNB announces higher base electricity tariff for 2025-2027, raises capex to ensure reliable supply, Anis Hazim / theedgemalaysia.com, 26 Dec 2024
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