KUALA LUMPUR: The National Energy Transition Roadmap (NETR) has shown decent progress one year after its launch.
There is solid progress for the key initiatives under the NETR and this includes the introduction of the Corporate Renewable Energy Supply Scheme (CRESS) and the Energy Exchange Malaysia (Enegem), according to RHB Research analysts Sean Lim and MIza Izaimi.
CRESS is crucial for pushing the third-party access (TPA) mechanism through, in order for it take effect, while Enegem is important to facilitate energy exports to Singapore.
Additionally, multiple solar power programmes continue to be rolled out and executed while feasibility studies on biomass clustering, co-firing of ammonia and hydrogen are ongoing, Lim and Miza said in a report last week.
The NETR is divided into two parts. The first and second phases of the NETR were launched in July and August last year.
The first part outlines the 10 flagship catalyst projects and impact initiatives based on six energy transition levers.
They are energy efficiency, RE, hydrogen, bioenergy, green mobility and carbon capture, usage and storage (CCUS).
The details of the second part pointed to the full roadmap, outlining 50 initiatives under the six energy transition levers and five enablers.
The first phase is expected to attract investments amounting to RM25 billion, create about 23,000 high-quality jobs, and achieve greenhouse gas (GHG) reductions of more than 10,000 gigagrams (Gg) of CO2e pa.
Overall, Lim and Miza maintained a positive outlook on the utilities sector. This is premised on the mushrooming number of data centre (DC) developments, which will ramp up the growth in electricity consumption.
It is also supported by the continuous power grid upgrades, which will increase regulated net returns; experienced independent power producers (IPPs) bridging the supply gap; as well as domestic renewable energy (RE) capacity additions anchoring contractors' job flow.
Affin Hwang Capital said CRESS' wheeling charges announced by the Energy Commission last week were at prohibitive level and the adoption of RE through this programme might not be as encouraging.
The system access charges (SAC) were announced at 25 sen per kilowatt-hour (kWh) for firm output (with battery energy storage system or BESS) and 45 sen per kWh for non-firm output (without BESS).
The programme also would include a market support measure of eight sen per kWh floor tariff rate selling to the grid for a certain period should the RE producers lose their customer.
"Assuming solar photovoltaic (PV) contract rate of RM0.18 per kWh, corporate consumer would need to pay RM0.63 per kWh rate for non-firm output, higher than an estimated RM0.60 per kWh electricity tariff rate with green attribute from the existing green electricity tariff programme.
"Nonetheless, the Ministry of EnergyTransition and Water Transformation has clarified that the CRESS framework could befurther fine-tuned to take into account input from the industry players," it said in a note.
Being the regulator of the CRESS programme, the EC's role would include providing approval and conditions for RE producers to participate.
The registration and quota application would be facilitated by single buyer.
Affin Hwang said the large gap between the firm and non-firm output rates implies that the government would like to encourage the adoption of BESS.
The firm deem this a crucial move in achieving the NETR target installed capacity by 2040/2050 as it helps to enhance grid stability, given that the country's RE are expected to be predominantly come from intermittent solar resources.
"During the initial stage of implementation, the demand could come from a very niche market. This includes multinational corporations and data centers, that are willing to pay premium rates and prioritise no-fuel requirement to enjoy fixed tariff as part of their decarbonisation efforts."
Affin Hwang maintained its "Overweight" rating for RE and utilities sectors, expecting government support for the energy transition goals.Its top pick for the utilities sector is Tenaga Nasional Bhd (TNB), while its top pick among the RE companies is Solarvest Holdings Bhd.
Meanwhile, RHB Research said electricity consumption growth in Peninsular Malaysia over the next decade is expected to surpass the 10-year average of 2.4 per cent, led largely by the continuous expansion of DCs.
"We see DCs' energy consumption alone having a compound annual growth rate (CAGR) of 1.6 per cent to 2.6 per cent between 2023 to 2035, if 3-gigawatt (GW) to 5GW of DCs are to be fully operational by 2035.
"The government has projected the reserve margin at 28 per cent to 36 per cent for 2024 to 2030. To accommodate such strong demand, we understand that there are on-going 1+1-year short-term power purchase agreement (PPA) bids for the near term."
RHH Research does not discount the possibility of PPAs being extended for gas-fired plants.
It believes that IPPs experienced in running gas-fired power plants such as TNB and Malakoff Corporation Bhd, should benefit from additional gas capacity expansions in the long run to replace coal.
RHB Research expects some restructuring in tariffs to account for new initiatives such as energy exports, as well as wheeling charges collection under the TPA mechanism.
This is pending regulatory period 4 (RP4) outcome, which is expected to be known by the year-end.
The firm estimates average regulated capital expenditure (capex) to increase by 25 per cent to 40 per cent versus RP2 levels, to RM8.6 billion to RM9.6 billion per annum.
This is with a higher annual demand growth of three to four per cent and an unchanged weighted average cost of capital (WACC) of 7.3 per cent.
On solar power segment, RHB Research said ongoing government policies and initiatives, coupled with declining panel prices, should sustain growth in the sector.
This is evidenced by the rapid progress of large-scale solar (LSS) projects after a stagnant four quarters.
"With the Corporate Green Power Programme engineering, procurement, construction, and commissioning (EPCC) awards approaching, and the shortlisting of bidders for LSS 5 on the horizon, there is significant potential for solar EPCC players' earnings to continue growing.
The firm kept an "Overweight" call on the power sector, with its top picks being TNB, YTL Power International Bhd and Samaiden Group Bhd.