Business

Saturday October 31, 2009

Malaysia’s green energy gap

By CECILIA KOK


IT is without a doubt that the Government is serious about promoting green technology. This is evident in some of the measures that the Prime Minister has outlined for Budget 2010.

In fact, Energy, Green Technology and Water Minister Datuk Peter Chin in his recent blog posting has termed those measures as a “shot in the arm” for his ministry’s efforts to promote the niche area of growth for the country’s economy.

The main objective of green technology, which encompasses the development of renewable energy and the promotion of energy-efficiency, is to reduce greenhouse gas emissions for a sustainable development and to counter the rising threat of global warming. While the prospects are bright, industry observers say the journey towards green technology is going to be a long process, especially in terms of developing clean energy for the country.

For instance, it is going to take at least another 20 years before hydropower become a prominent energy source for Malaysia. The Government is targeting to increase the share of hydropower in the electricity generation fuel mix to 30% by 2030.

According to Tenaga Nasional Bhd (TNB)’s recent report, power generation from hydro stood at only 6.3% for its financial year (FY) ended Aug 31, 2009, while power generation from other renewable sources such as biomass and solar was almost negligible.

The national utility company still had to burn fossil fuel, including gas and coal, which constituted more than 90% of its total fuel mix, to generate electricity for the country.

In its last financial year, hydro contributed 17.47% to TNB’s power generation fuel mix, while gas and coal contributed 54.46% and 27.96%, respectively.

While the Government has set goals to reduce the burning of fossil fuel for energy and to increase the use of alternative sources, particularly those that are renewable, their investment costs and scarcity remain a major challenge. And that explains the reason for the gradual process towards these alternative sources.

Also, for some of these alternative sources, such as nuclear, their feasibility and suitability for the country remain a debatable issue.

Last month, TNB signed a memorandum of understanding with Argentina’s giant utility firm Impsa to conduct a viability study on developing wind energy sources in Malaysia. If the project is viable, which we will know in the next one year or so, Malaysia would be able to add wind to its list of renewable energy sources.

It is reported that the cost of generating wind power ranges between US$1.8mil (RM6.1mil) and US$2.5mil for a one megawatt (MW) to 2.5MW capacity.

Meanwhile, the Government has earmarked RM5bil under the Budget 2010 as the capital expenditure for TNB to implement electricity generation, transmission and distribution projects next year.

The allocation includes spending for TNB’s hydroelectric projects in Ulu Jelai and Hulu Terengganu. Both the plants come with an estimated combined capacity of 600MW and they cost more than RM1bil each.

Over the week, TNB president and chief executive officer Datuk Seri Che Khalib Mohamed Noh said the tender for Ulu Terengganu was closed, and more details would be unveiled in the first quarter of FY2010. It was reported last month that TNB planned to award key contracts to build the two hydroelectric plants by the middle of next year.

Both the plants are targeted for completion by 2014. And with the Bakun hydroelectricity dam in Sarawak coming on stream in 2011, and the ability of the plant to transfer electricity to the Peninsular Malaysia from 2015 onwards, these projects are major milestones towards increasing the share of green energy in the country’s fuel mix.

Analysts view the completion of the Bakun dam project as one of the key catalysts for TNB counter in the near term.

The Bakun dam, which comes with an electricity-generating capacity of 2,400MW to be supplied to Peninsular Malaysia, Sabah and Sarawak, Brunei and Kalimantan, is touted to be Southeast Asia’s largest power project.

Another key catalyst for TNB counter is the possible upward revision of electricity tariff in January. With the Government indicating its intent to cut subsidy as part of a move to narrow its budget deficit, the likelihood for the upward revision is high, even though the Ministry has refrained from making any hints this time round.

For FY2009, TNB’s net profit dropped 64.6% year-on-year (y-o-y) to RM917.9mil due mainly to substantial foreign exchange translation losses and higher operating expenses arising from higher coal costs.

Its revenue for FY2009, however, rose 16.3% y-o-y to RM28.78bil, thanks to the higher average electricity tariff that managed to offset the marginal decline in electricity demand in the country.

Of the 28 research houses polled by Bloomberg, 18 have a “buy” call on the counter, while eight call for a “hold” and two for a “sell”. The average target price for TNB is RM9.19 per share.

At the Bursa Malaysia closing on Friday, TNB was quoted at RM8.41 per share.

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