Since the start of the COVID-19 pandemic, the energy industry around the world has faced one challenge after another, disruptions and even crises.
The current crisis has the same effect that the world witnessed in the 1970s following the Arab oil embargo, which caused massive shortages in the United States, Europe, Australia and Canada.
Movement restriction measures enforced in early 2020 to curb the risk of contagion of COVID-19 have led to a drop in energy demand which in turn has caused a sharp drop in coal and oil prices.
Several major disruptions emerged and continue to affect the market, including a massive power shortage in China in September 2021 due to insufficient coal generation to supply its 1.4 billion people.
This situation persists despite many efforts to stabilise operations, liquidity, supply chains and markets to put the industry on the road to recovery.
Malaysia has also been hit hard by the ongoing energy crisis, exacerbated by the Ukraine-Russia conflict, which has pushed coal prices to record highs amid uncertain demand-supply conditions.
Tenaga Nasional Bhd (TNB), like most power utility companies around the world, is facing difficulties in maintaining rates at current levels, especially with the burden of rising coal prices.
The price of coal, which accounts for nearly half of the country’s power generation needs, has quadrupled since the Ukraine-Russia war broke out.
Bank Islam Malaysia Bhd Chief Economist Firdaos Rosli said the current energy crisis will not end in the near future because climate change is an ongoing phenomenon.
“Overall, I believe the lack of investment in the energy sector is the main cause of this crisis. Although this ‘crisis’ is not something new, the economic inability to diversify their energy mix needs to be looked at more carefully,” he told Bernama in a recent interview.
Firdaos said the ongoing Russia-Ukraine military conflict and extreme weather conditions in China have exacerbated the issue to date.
The impact of the energy crisis has hit Southeast Asian countries amid population growth and climate change while Asean’s economic complexity is increasing over time, he said.
According to him, Malaysia is in an interesting position because the country is a clean energy exporter.
“However, the focus should be on the situation of Malaysia’s heavy dependence on oil and gas consumption, emphasising the need for higher investment in renewable energy to diversify its energy mix,” he said.
High cost of power generation
In Peninsular Malaysia, more than 90 percent of the electricity generated uses coal and gas where the cost of coal has increased significantly since October 2021.
Coal prices are rising worldwide and are out of government control. The generation sector is under pressure due to rising fuel costs not only in Malaysia but also globally
There was a slight decrease in the average fuel price from US$224 (US$1=RM4.64) per metric ton in the second half of 2022 to US$73.50 per metric ton in the January-June 2023 period.
However, average coal prices remain high, exceeding the projected fuel cost set in the third regulatory period (2022-2024), which is US$79 per metric ton.
Due to this, the cost of fuel to generate electricity has skyrocketed, causing the cost of generation to increase, resulting in the surcharge rate of the Imbalance Cost Relief Mechanism (ICPT) for a small percentage of domestic consumers increasing for the period 1 July-31 Dec 2023.
Despite the surge in fuel costs for power generation, the ICPT mechanism continues to be implemented in the Second Half of 2023 to enable TNB to continue to provide guaranteed electricity supply to Malaysians.
The ICPT is a mechanism under the Incentive-Based Regulation framework that allows electricity tariff adjustments to be made to reflect changes in fuel and other generation-related costs.
This is because these costs are set based on benchmarked prices in the basic tariff.
The implementation of the ICPT, which takes place every six months, will reflect the actual cost in the tariff in the form of either rebates or surcharges.
Since 2015, the government has successfully implemented 18 cycles under the ICPT mechanism to help mitigate the impact of high global fuel prices.
This includes the provision of protection throughout the ICPT cycle up to RM25.3 billion, including the latest subsidy of RM5.2 billion for the implementation of the ICPT for the period 1 July-31 Dec 2023.
Putra Business School economic analyst Associate Prof Dr Ahmad Razman Abdul Latiff said Malaysians may have to pay more for fuel and electricity in the coming years unless the government continues subsidies for all.
“However, since the cost of fuel (coal and gas) is expected to continue to rise next year, the government may be forced to provide higher allocations to maintain subsidies,” Ahmed Razman told Bernama.
He said Malaysia will also be affected by the energy crisis as the country is still heavily dependent on gas and coal.
For the Second Half of 2023, domestic consumers with a monthly electricity consumption of 1,500 per kilowatt-hour (kWh) or below will not experience an increase in electricity tariffs, thus will continue to enjoy an electricity rebate of 2.0 cents per kWh until the end of December, as the government has agreed to paying a larger subsidy bill for the period.
Meanwhile, domestic consumers who use electricity above 1,500 kWh (which is only one percent of total domestic consumers) will be charged an ICPT surcharge of 10 sen per kWh and will experience a minimum monthly increase of RM187 (25 percent) in their electricity bill.
According to the Ministry of Natural Resources, Environment and Climate Change, although there is an increase in this category of domestic customers, the government still provides a special subsidy of RM58 million for them since the ICPT surcharge is not fully approved.
Customers can see the amount of subsidy given by the government in their respective monthly electricity bills.
“The government hopes that this subsidy will help ease the cost of living for the people, especially during the period of economic recovery, while ensuring the continued economic development of the country,” said the ministry.
Higher fuel costs have also led other governments and regulators to revise their electricity rates to accommodate the increase.
It was reported that consumers in Singapore paid more for electricity in the July-September 2023 quarter, with tariffs increasing by an average of 1.2 percent from the previous quarter.
Europe, at the center of the energy crisis, is facing rising power tariffs due to soaring gas prices following the ongoing conflict in Ukraine and European sanctions on Russia, which have raised concerns over the security of gas supplies.
