Continuous investments by TNB will spur the economy, benefit Malaysia
09 May 2021
Tenaga Nasional Bhd (TNB) must have the necessary financial strength to continue undertaking huge capital expenditure (capex) investments to expand the system for growth and development, while maintaining stability in the country’s electricity supply.
Besides ensuring energy security, TNB would be well placed to contribute a healthy RM31 billion to Malaysia’s gross domestic product over four years beginning 2021, arising from capex returns from a wide array of power development projects.
These include a capex of RM7.3 billion this year and the forecast RM24 billion from 2022 to 2024.
Such high investments would ensure widespread spillover benefits to the Malaysian economy which is currently facing a downturn, no thanks to the crippling effects of the Covid-19 pandemic.
The national power company’s large-scale investments would help create some 194,000 badly needed jobs annually for the country or about 584,000 jobs between 2022 and 2024.
However, its financial ability to undertake large capital investments lies in the new Incentive-Based Regulation (IBR) guidelines for a three-year regulatory period (RP3) from 2022 to 2024, which TNB is currently proposing to the Energy Commission (EC).
Among other things, the outcome of RP3 will determine how much TNB is expected to earn from its regulated business of electricity distribution and transmission where the bulk of TNB’s assets (regulated assets) lay.
The IBR is a mechanism for electricity tariff setting with incentives to improve TNB’s efficiency while providing greater transparency to customers.
Regulated assets refer to TNB’s transmission and distribution assets. The regulators prescribe a fixed internal rate of return for these assets and also ensure that TNB meets certain key performance indicators.
If the EC dictates that TNB should get equitable returns for its investments, then it would place TNB’s balance sheet in a better position to get cheaper financing.
This would translate into TNB being able to make the necessary investments to upgrade and enhance its power grid system and infrastructure for a better Malaysia.
Analysts opined that this decision is critical for TNB to be able to make the necessary investments in the future of the country’s power security and development, as neglecting investments in electricity does not bode well for the future growth of the country.
As experience has shown, such underinvestments even by advanced economies such as the United States, the United Kingdom, and South Australia have led to massive power outages due to collapsing systems and failure in the provision of utilities.
Malaysia, especially TNB, must take heed of the lessons from the failure resulting from underinvestments by advanced economies and take steps to prevent them from happening, thus ensuring a secure power supply, especially during these trying times.
It was encouraging to note that in December 2020, with the protracted pandemic, TNB received the EC’s approval to extend the RP2 to Dec 31, 2021 under fair terms, and negotiate for RP3 for the 2022-2024 period.
The extension indicated the resilience and effectiveness of the IBR mechanism to maintain stability in the power industry, thus benefitting the rakyat, both in the short and long term.
The Main Market-listed utility firm is expected to invest in the growth of the energy system, in key areas such as maintaining a safe and resilient network and system to ensure uninterrupted power supply to customers, supporting the development of industrial and economic zones, introducing smart meters, and supporting the transition to renewable energy.
The pandemic has elevated the need for accelerated digitisation and automation, and the introduction of smart meters helps support future pandemic responses.
These include ensuring the safety of meter readers during the Movement Control Order, minimising billing errors, and empowering customers to monitor and control their energy consumption through their fingertips via myTNB web and mobile application.
As far as renewable energy (RE) is concerned, significant grid investments are required to realise the 31% RE target, which means that the country’s power grid must be prepared in RP3 to meet the demand while maintaining the stability of the system.
TNB’s power grid is a key enabler towards achieving Malaysia’s energy transition.
To accommodate the injection of RE into the grid and its distribution network, TNB needs to develop the Grid of The Future, a more advanced and digitalised energy superhighway — one that has the flexibility as well as reliability to be able to support bidirectional, intermittent energy flows while preserving voltage stability.
TNB has rightly embarked on a Grid of the Future journey which will enable the system to accommodate innovative energy solutions while having inbuilt cybersecurity as well as resilience against the impact of climate change.
To this end, TNB has allocated RM9 billion per annum from 2021 to 2024 to upgrade its grid (upon the government’s approval) to enable the energy transition initiative while ensuring continuous system reliability.
Furthermore, in meeting the growing and changing needs of customers, it is vital to ensure the connection of new industrial and economic zones that can spur significant economic growth for the nation.
There is an estimated RM94 billion in economic multiplier effects from connected industries and 584,000 job multiplier effects from connected industries over the 2022-2024 period.
TNB’s future energy transition investments will also play a key role in creating an advanced economy as well as jobs in areas such as solar manufacturing, energy efficiency, and electric vehicle infrastructure.
A favourable RP3 outcome from the EC will give TNB greater financial ability to continue undertaking capex investments and projects for a wide range of economic sectors.
Essentially, TNB can play its role in assisting the government to stimulate the economy, thus benefitting the country and the rakyat in more ways than one.