Aggressive RE targets set by the current Government and constructive policies to drive RE create two-pronged benefits for Tenaga said MIDF, adding that it creates room for the utility giant to benefit from incremental returns from RE capacity expansion and at the same time, accelerates its effort to decarbonise the grid.
Some 9GW of RE capacity is required by 2035 under the MyRER while the NETR’s 70% RE mix target suggests a massive 30GW of new RE capacity is required up till 2050. A more aggressive than expected RE rollout under the upcoming NETR would be an incremental positive. Tenaga’s huge balance sheet means it is one of the prime beneficiaries of this opportunity, said MIDF. Tenaga has an RE capacity target of 8.3GW by 2025, aims to reduce coal capacity by 50% and reduce emissions intensity by 35% by 2035. It also aims to be coal free and aspires to achieve net-zero by 2050.
The power company is also well positioned to take advantage of the NETR’s emphasis on rooftop solar and distributed generation via wholly owned GSPARX, which is an established player in the solar rooftop sector. GSPARX has a total 272MWp capacity under its belt and is aiming to secure an additional ~145MWp in FY23. Benefits as the grid monopoly. TNB is at the centre of RE exports given its monopoly of the grid. MIDF said it expects Tenaga to benefit from higher wheeling charges for RE export transmission. Additionally, it is also expected to benefit from higher grid investments to support higher variable RE (VRE) penetration and growth in peak loads. Grid-related regulated asset base (RAB) is expected to rise by 61% to RM45b by 2050 from RM28b in 2022 with circa 11% of 2050 RAB comprising energy transition and decarbonisation assets. Meanwhile, the distribution network’s RAB is expected to increase by 50% from RM36b in 2022 to RM54b in 2050 with 20% comprising energy transition elements.
The house upgrades Tenaga to BUY from NEUTRAL and raise TP to RM10.50 (from RM10.00 previously) to reflect a lower risk premium in valuations.
