More competitive rates ahead for power sector with MESI Reform 2.0

The separation of the single buyer role of TNB could essentially eliminate fuel risk from the equation for TNB


The government’s move to minimise its role in fixing electricity tariff via the Malaysian Electricity Supply Industry reform initiative (MESI Reform 2.0) would lead to a gradual transition to an open wholesale system that would create higher competition in the generation sector.

In its research note, MIDF Research said the country’s power sector always has the possibility of opening up parts of its existing value chain to market-based competition in the areas of electricity wholesaling and retailing.

“The separation of the single buyer role of Tenaga Nasional Bhd (TNB) could essentially eliminate fuel risk (imbalance cost pass-through risk) from the equation for TNB.

“Under the incentive-based regulation (IBR), capacity payments and energy payments to independent power producers (IPPs) account for the bulk of Single Buyer Generation revenue requirement, which in turn accounts for 69% of the base tariff of 39.5 sen/ kWh,” it noted.

According to MIDF Research, TNB is the single wholesaler of electricity from the IPPs/generation sector.

Meanwhile, the research house stated that more than half of the bulk of current generation capacity (25GW) is tied to the long-term power purchase agreements (PPAs) which will expire between 2030 and 2040.

“That said, there could be partial liberalisation by allowing direct to market sales by new renewable energy (RE) generators or even IPPs that have reached PPA expiry,” it noted.

In the meantime, solar has already opened up to bidding under the Large Scale Solar scheme, but the rest of the RE are still being supported by the Feed-in-Tariff (FiT).

MIDF Research said solar accounts for 78% of the country’s RE capacity, while biogas/biomass account for the second-largest portion at 24%.

“The latter is still under the FiT programme and we see possibilities of this sector being opened up similar to solar.

“Biogas/biomass is a more reliable RE with a high availability factor (provided a firm feedstock supply is in place for the plant).

“The addition of storage capacity could improve reliability of solar but this means additional cost,” it said.

MIDF Research added that the push to expand RE is still ongoing with a lower target of 18% by 2030, compared to 20% by 2025.

“However, Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin had highlighted that affordability takes precedence over the RE targets that it has set.

“She also believes that RE will eventually reach grid parity driven by technology development,” it stated.

In her speech at the opening of Conference of the Electric Power Supply Industry 2018 (CEPSI 2018), Yeo said the ministry has plans to embark on a new reform programme under the MESI Reform 2.0.

The reform will commence through the reactivation of the Malaysia Programme Officer for Power Electricity Reform (MyPower) for at least three years in order to design and drive implementation of the programme.

An agency under the ministry, MyPower Corp, will be reintroduced to drive the reform agendas.

Yeo said under the MESI Reform 2.0, MyPower will focus on three objectives, namely to increase industry efficiency; future-proof the industry structure, regulations and key processes; and empower consumers.

“The government is not running the business but letting the business to run the business because this is an agency that will be closed after three years.

“The agency will have a 36-month mandate to drive and implement the programme,” she said, adding that MyPower will have 12 to 20 people including the administration.