As a quick background, Ranhill is the largest IPP in Sabah controlling a 30% market share. It operates two combined cycle gas turbine power plants under 60%-owned Ranhill Powertron (RP1)and 80%-owned Ranhill Powertron 2 (RP2), each with 190MW capacity, located at the Kota Kinabalu Industrial Park, Sabah.
Both operate under PPAs with SESB till 2029 and 2032, the former under a BOO (Build-Operate-Own) arrangement and the latter, BOT (Build-Operate-Transfer). To note the power division contributes circa 10% to the group’s annual earnings.
The Sabah power system suffers from frequent interruptions, partly contributing to under capacity in East Sabah. Load in East Sabah is partly supported by capacity from West Sabah but is currently limited to 216MW given grid limitations. Upgrade works of the West-to-East transmission link are currently being undertaken which will improve West to East dispatch capacity by +85% to 400MW in 2023. Load factor to improve upon grid upgrade completion.
Ranhill’s power plants are expected to benefit from higher power dispatch from West to East Sabah once the grid upgrade is completed. The group estimates a 4-5% improvement in capacity factor from the current average of 71%. According to management, every 10% improvement in capacity factor is expected to improve RP1’s PAT by RM1m/annum, while for RP2, a larger RM2.5m/annum.
RP2’s earnings are more sensitive to changes in capacity factor given its PPA structure which has lower weighting on capacity payment (which is a fixed payment provided the plant is made available to the grid, regardless of load factor) and higher weighting on variable operating rate (which is paid only on dispatch of power), compared to RP1. Assuming a 5% improvement in combined load factor post-grid upgrade, MIDF estimate circa RM1.3/annum incremental earnings or a 3.6% enhancement to the overall group’s FY22F earnings base.
