Malaysia’s electricity sector is set for a significant overhaul with the implementation of a new tariff structure under Regulatory Period 4 (RP4), effective July 1, 2025, through December 31, 2027. This reform introduces an average base tariff of 45.4 sen/kWh and a new Automatic Fuel Adjustment (AFA) mechanism, promising greater transparency and more timely cost recovery for Tenaga Nasional Berhad (TNB).
The new average base tariff of 45.4 sen/kWh is a slight revision downwards from the initially proposed 45.62 sen/kWh, primarily due to updated forex assumptions. Critically, network and retail charges remain unchanged at 12.98 sen/kWh, signalling the government’s commitment to protecting TNB’s allowable return and advancing power market reforms.
A key change is the introduction of the AFA mechanism, which replaces the previous Imbalance Cost Pass-Through (ICPT) system. Unlike the biannual ICPT, AFA allows for monthly tariff revisions to reflect fluctuations in energy prices, ensuring more accurate price signals and timely adjustments. These monthly adjustments are capped at +/- 3 sen/kWh, with any larger changes requiring Cabinet approval. For July 2025, no AFA will be applied, maintaining the base average tariff at 45.4 sen/kWh.
The revised tariff framework aims to better align charges with the actual costs of the electricity system. This is achieved by increasing demand charges and reducing energy charges, ensuring all customers contribute fairly to fixed costs, especially TNB’s substantial infrastructure and network investments. Electricity bills will now be itemized into five components: energy charge, AFA, capacity charge, network charge, and retail charge, enhancing transparency for consumers.
Impact on End Users:
While the effective average tariff drops from 55.95 sen/kWh to 45.4 sen/kWh, the impact on end-users will vary:
- Most users, including low-voltage residential consumers, are expected to see lower electricity bills.
- Among medium-voltage users, approximately 71% (from a base of 3,300 customers) are projected to benefit from reduced bills.
- However, heavy industrial users with low load factors may face higher effective tariffs, estimated between 58-70 sen/kWh.
- Data centers, now categorized under a new ultra-high voltage category, will also see increased tariffs, rising to 58 sen/kWh. These higher tariffs may incentivize heavy consumers to explore renewable energy options.
Positive Outlook for Tenaga Nasional Berhad:
The new tariff structure is viewed positively for TNB. It is expected to support higher allowable returns for the utility giant under RP4 (2025-2027), aligning with its elevated capital expenditure plans. The AFA mechanism will further enhance cash flow stability and strengthen TNB’s balance sheet by enabling more timely and accurate cost recovery. Analysts anticipate potential earnings upside as TNB progresses with its RM16.3 billion contingent capital expenditure.
HLIB maintains its “BUY” recommendation on Tenaga Nasional Berhad with an unchanged DCF-derived target price of RM16.20, citing expected benefits from a higher Regulated Asset Base (RAB) starting from 2025 under the new RP4-5 (2025-2030), along with new tenders for gas power plants and renewable energy projects.
