As fuel costs decline, TENAGA during its recent analysts briefing guided for a lower imbalance cost pass-through (ICPT) of RM12 billion for the second half of financial year 2023 from RM16.2 billion in the first half of financial year 2023, said Kenanga Research (Kenanga) in the latest Company Update Report.
ICPT is a mechanism which allows for TNB, as the utility, to reflect changes in fuel and other generation-related costs in the electricity tariff. This is because, these costs are set based on benchmarked prices in the base tariff. The implementation of ICPT, which occurs every 6 months, would reflect the actual costs in tariff in from of rebate or surcharge.
As a result, ICPT receivables are likely to decline to RM12 billion by quarter two financial year 2023 from RM16.9 billion in quarter four financial year 2022.
These receivables will be fully recovered by TENAGA through the ICPT surcharge or direct payments by the government. For instance, the RM16.2 billion ICPT in the first half of financial year 2023 will be recovered via a 20 sen per kilowatt hour ICPT surcharge from non-domestic customers, and a RM10.4 billion payment from the government.
As ICPT receivables decline, TENAGA’s borrowings are likely to decrease accordingly in the coming quarters. TENAGA’s borrowings rose to RM63.88 billion in financial year 2022 from RM51.73 billion in financial year 2021 as ICPT receivables surged to RM16.90 billion from RM4.78 billion over the same period.
As a result, financial year 2022 interest expense jumped 15% to RM4.34 billion from RM3.79 billion, previously. Assuming ICPT receivables will be RM4 billion lower for the entire year, this will result in interest cost savings of RM180 million-RM200 million to TENAGA in financial year 2023.
“We believe fuel costs for both coal and gas have already peaked in quarter four calendar year 2022. For example, the Indonesian benchmark coal price has retraced by 20% from the peak of USD330.97 per metric tonne in October last year to USD265.26 per metric tonne currently,” said Kenanga.
Meanwhile, the latest Department of Statics Malaysia (DOSM) data showed that the price of LNG fell 25% in March to RM46.35 per one million British thermal units from its peak of RM61.83 per one million British thermal units in September 2022.
“Maintained, as we have reflected the downtrend in fuel costs in our forecasts. Having said this, over a longer period of time, the volatility in fuel costs has a neutral impact on TENAGA as the over or under-recovery of fuel costs will eventually be passed through to the end-user or the government within a 6-month time lag via the Incentive-Based Regulation (IBR) framework,” said Kenanga.
Kenanga continues to favour TENAGA for its dominant position in power generation, transmission and distribution in Malaysia, its earnings defensiveness backed by a resilient domestic economy and its assets that are largely regulated, and its heavyweight index-linked stock status.
To address the concerns over its coal-fired power capacity, it will completely phase out coal-fired plants by 2045 from 48% gen-mix currently.
It will repower certain retired coal plants using highly efficient combined cycle gas turbines with cleaner fuel, for example, gas, and hydrogen-ready technology.
At the same time, the group also has an aggressive expansion plan for its renewable energy business with an installed capacity target of 14 gigawatt by 2050 from 0.4 gigawatt currently.
