Moody’s Expects Lower Fuel Costs To Keep Malaysia’s Electricity Tariff Depressed

Moody’s Expects Lower Fuel Costs To Keep Malaysia’s Electricity Tariff Depressed

KUALA LUMPUR, June 9 (Bernama) — Moody’s Investors Service expects lower fuel costs to keep Malaysia’s electricity tariff depressed over the next 12 to 18 months, given the weaker outlook for thermal coal and crude oil prices.

In a statement Tuesday, Moody’s said the increased use of coal-based capacities and cheaper coal imports, which had replaced the expensive liquefied natural gas (LNG), had reduced generation costs.

“In response, the Malaysian regulator has announced an adjustment to lower electricity tariffs in February 2015, through the application of its imbalance cost pass-through (ICPT) mechanism, it said.

Moody’s associate analyst, George Teng, said coal will become the main source of fuel in Peninsular Malaysia by 2017.

“While gas remained the dominant fuel source in 2014, at almost 50 per cent of energy generated, the proportion of coal usage will increase due to the additional 3,010 megawatts in coal-based capacity expected to come onstream by 2017.

“The change in fuel mix will further reduce costs for utilities and support the lower electricity tariff in the longer term,” he said.

Teng said the ICPT was designed to insulate utility companies, like Tenaga Nasional Bhd, against fluctuations in uncontrollable costs, such as fuel and power purchase costs, by making corresponding adjustments to the electricity tariff every six months.

“However, delays in adjusting tariffs — depending on whether they are following cost falls or rises — can lead to temporary benefits or additional pressures for Tenaga,” Teng said.

He said falling fuel prices, for example, will temporarily increase Tenaga’s profit margin until the next tariff adjustment period, after which the ICPT adjustment will compensate for any over-recoveries, eliminating earlier gains.

“Conversely, an unexpected upward movement in fuel prices will pressure Tenaga’s financials until the next ICPT adjustment period,” he said.