THE federal government has retained the existing electricity tariffs with a 2 sen/kWh rebate for residential accounts and a surcharge of 3.7 sen/kWh for non-residential accounts. The government invoked the rising cost of coal imports to justify the high surcharge on non-residential customers.

Malaysia utilises the “incentive-based regulation” and “imbalance cost pass transfer” (IBR-ICPT) methodology to determine electricity tariffs. The base cost to produce one unit of electricity is 39.45 sen/kWh. Surcharges and rebates are imposed based on the increase and decrease of fuel prices.
A macro-level analysis the IBR-ICPT methodology exhibits no potential to reduce electricity tariffs. However, a micro-level analysis of IBR-ICPT reveals plenty of opportunities and solutions to reduce the tariffs.

Monetise hot wastewater

According to a report from Suruhanjaya Tenaga, the average thermal efficiency for coal and fossil-gas power plants ranges from 28.75-43.42%. Thermal efficiency is the amount of dispatchable electricity generated by thermal power plants from per unit fuel. The rest of energy is lost as hot wastewater which is dumped into the sea.

The hot wastewater is categorised as high temperature but mid pressure. The hot wastewater does not have sufficient pressure to spin an electricity turbine but have sufficient temperature for certain industrial processes. Some domestic industries require heat energy for their manufacturing process.

The hot wastewater from power plants can be monetised by piping and selling it to these industries. The cost of fuel can be proportionally shared between electricity and hot wastewater. Subsequently, the fuel cost component within the electricity tariff can be reduced.

Shut down excessive IPPs

Power plants receive two kinds of payment: energy payment and capacity payment. Energy payment is made to operational power plants for generating electricity. Meanwhile, capacity payment is made for power plants to remain on standby. For the year 2021, the forecasted capacity payment to be made by TNB to non-TNB independent power producers (IPPs) is around RM200 million.

According to the Suruhanjaya Tenaga report, the reserve margin for the semenanjung in 2021 was about 50%. Reserve margin is the measurement of reserve power plants based on the all-time maximum electricity demand. Reserve power plants are necessary as backup when operational power plants undergo maintenance or repairs.

This reserve margin is calculated based on an all-time maximum demand anomaly of 18,808MW that occurred on March 10, 2020 at 4.30pm. For the rest the year, daily peak demand hovered around 15,000-17,000MW. Thus, the daily reserve margin varies 50-75% throughout the year.

The semenanjung breached the 18,000MW mark in fewer than 14 days per annum scattered within the month of March and October during the hot season as air conditioners worked harder to cool workplaces and homes. This peak demand anomaly will go down with rising rates of rooftop solar installation. Higher rooftop solar output during the hot season will curtail electricity demand. By the year 2023, rooftop solar installations could chip off up to 1,300MW of daily peak demand.

The semenanjung should limit the number of power plants at 20,000MW to shut down 6,000MW of excess fossil fuel power. This will translate into a daily reserve margin of 10-25% throughout the year saving hundreds of millionsrof tinggit in future capacity payment.

Large-scale solar 3 and 4 a costly mistake

Effective January 1, 2019, the semenanjung adopted “true net energy metering” for rooftop solar to replace the displaced cost. This allowed excess electricity generated by solar PV to be exported back to the grid on a “one-on-one” offset basis. This policy change increased rooftop solar adoption tremendously among industrial and commercial sectors.

The TNB grid cannot accept solar penetration of more than 27% of its daily peak demand without a smart grid. The government gave out 1,313.94MW of large-scale solar (LSS) quota under LSS 3 and LSS 4. Electricity generated by LSS built on agriculture land in rural areas needs to be transmitted through TNB grid to high consumption regions.

The transmission of electricity increases the wear and tear of the TNB electricity grid, resulting in higher operational cost (opex) and capital cost (capex). Between 2018 and 2021, TNB spent about RM21.5 billion in capital expenditure on electricity grid for non-renewable energy-based transitions such as capacity upgrades.

Meanwhile, electricity from rooftop solar is consumed first by the premise itself before any surplus is export into the grid. Thus, rooftop solar reduces the amount of electricity carried by grid. Rooftop solar will bring down capex and opex for TNB’s grid creating room for electricity tariffs reduction.

LSS 3 and 4 were unnecessary and costly after the rooftop solar boom. Covid-19 had derailed the financial closure and construction of LSS3 and 4. Thus, there is window for government to review and reallocate solar quota from large-scale quota to existing rooftop solar.

Off-peak rebate for household tariffs

The government should couple a time-of-use (TOU) rebate with the existing progressive tariffs for residential customers. TOU rebates can offer residential accounts with a rebate of 20% for electricity usage during off-peak period, such at night and weekends. The TOU tariff scheme for residential was slated for semenanjung-wide adoption in Q1 of 2020 but there is no news of its execution to date.

Electricity generation and transmission during peak period is more expensive compared to off-peak period. The TOU rebate prevents residential customers from paying the more expensive pro-rated cost. The TOU rebate can shift planned usage such as washing machines, dishwashers, handphone charging, ironing and vacuum machines from peak period to off-peak period.

These change in electricity consumption pattern is known as positive load-shifting. Load shifting reduces the burden and bottleneck on the electricity grid during peak period. Positive load shifting leads to longer lifespan of the electricity grid bring operational and capital cost for TNB. Load shifting also reduces daily peak demand further reducing the number of expensive standby power plants.

Moving forward

Elected politicians and policymakers should not concede that the only way prices of goods and service can move is upwards. Lower electricity tariffs lead to cheaper goods and services which will increase purchasing power and exports. The federal government can bring electricity prices down by monetising hot wastewater from power plants, shutting down excessive power plants, reallocating large-scale solar as rooftop solar and introducing time-of-usage tariffs for residential customers. – January 30, 2022.

* Sharan Raj reads The Malaysian Insight.