Malaysians have not felt the pinch of higher oil prices this year. It has more than doubled in the last 12 months. But the government’s decision to cap petroleum and diesel prices have made the difference.
Brent crude oil was trading at its three-year high of US$83/bbl recently. Prices of other fuel sources, too, have increased sharply amid a jump in global demand and supply shortages. Natural gas and coal are used to generate nearly 95% of Peninsular Malaysia’s electricity. The costs make up nearly 42% of base electricity tariff presently.
Regulators are due to firm up the next base electricity tariff adjustment for the 2022-2024 regulatory period (RP3), which will include a new base assumption of fuel costs for the three-year period that will start in just a few short months.
How will the rising prices influence Malaysia’s electricity costs? And how will this affect households and businesses?
Tenaga Nasional Bhd said the base tariff review and setting are under the purview of the Federal government. Variations in fuel prices are addressed under the Imbalance Cost Pass-Through Mechanism (ICPT), which has been in place since 2014. Swing in fuel costs after that adjustment will be incorporated as surcharge or rebate to the ICPT mechanism every six months. The next change is scheduled for the start of 2022. As a government-linked company, TNB has provided electricity bill discounts to end-users throughout much of the Covid-19 pandemic period.
According to TNB, RM2.67 billion worth of electricity bill discounts have been disbursed to its customers in the April-Dec 2020 period. The discounts will add up to RM3.31 billion by the end of 2021.
The average base tariff stood at 39.45 sen/kWh in 2018-2021, of which 16.5 sen was for fuel costs. In 2H2021, an ICPT surcharge of 0.87 sen/kWh that amounted to RM493 million was borne by the Electricity Industry Fund (KWIE).
In the gas market, industrial customers here are already experiencing higher gas prices — albeit still much lower than international benchmarks. Gas Malaysia Bhd raised the average natural gas selling price for 4Q2021 to RM36.42/MMBtu, up from RM30.03 per MMBtu for 3Q2021. Still, the local average natural gas price is substantially lower than the current spot price of liquefied natural gas (LNG) of US$35/MMBtu. Malaysia’s gas price refers to the Reference Market Price (RMP), which is benchmarked to crude oil, and lags by four months against market pricing. This means that gas RMP in 2Q2021 is reflective of prices in Dec 2020-Feb 2021.
TNB booked an RMP of RM18.92/MMBtu in 2Q2021. Comparatively, Asia’s benchmark LNG price has been on a steady increase, quadrupling from US$8/MMBtu in 1Q2021 to record high US$35.06/MMBtu on Oct 5. Traders are not anticipating the commodity to drop below US$10 until May 2023.
Newcastle spot coal price, meanwhile, touched a record high of US$280/MT on Oct 1, more than triple from around US$85/MT in 1Q2021. In the second quarter of 2021, TNB’s coal price averaged US$92/MT (RM379.80/MT), up 51.8% from US$60.60 (RM255.60) seen in 2020. The highest full-year average coal price recorded by TNB in recent years was in 2018, at US$95.90/MT (RM388.10/MT), during which it forked out RM11.71 billion for 30.8 million tonnes.
Earlier this month, Minister in the Prime Minister's Department (Economy) Datuk Seri Mustapa Mohamed assured the Dewan Rakyat that Malaysia is not facing an energy crisis, as experienced by other nations that are dependent on fossil fuel.
According to the Report on Peninsular Malaysia Generation Development Plan 2021-2039, the region’s power sector reserve margin is projected to be at 52% in 2021. This leaves room for the industry to manoeuvre between different power generation plants, depending on the pricing of different fuel types. The 2021-2039 report also states the retiring of eight power plants in 2021-2025 totalling 3.37 gigawatt, in exchange for more new installed capacity, the bulk of which are renewable energy (RE) plants that require no fuel costs.
In the immediate, renewables may be an answer but their problem is storage. Power storage is not feasible as yet with renewable energy. Meanwhile, the country has to re-look at coal plants which have carbon emission issues. With COPT 26, Malaysia needs to re-assess its energy mix and perhaps “resurrect” transmission of hydro power from Sarawak.
Source: https://www.theborneopost.com
(Bernama photo)
Reference:
Will rising fuel costs creep into local electricity tariffs? Adam Aziz, CEO Morning Brief, October 13, 2021
https://ceomorningbrief.theedgemalaysia.com/2021/0264/
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