This is a statement by independent, not-for-profit research institute REFSA (Research for Social Advancement) released on Wednesday, 7 Dec2011 .
Malaysia’s heavy reliance on subsidised gas to generate electricity is being displayed in sharp relief. Our power generators are now burning very costly distillate fuel to generate electricity as gas supply has been curtailed by scheduled maintenance and unplanned outages at Petronas’s aging gas fields.
This is costing our national power utility Tenaga Nasional Berhad (TNB) an additional RM400 million per month. At this rate, the RM2 billion cash support offered by the government and Petronas will be burnt in just 5 months.
It is clear the natural gas subsidy cannot be sustained and a thorough review of the Malaysian electricity supply industry is necessary. REFSA has already written on the very expensive independent power producers (IPPs) in our system.
In this article, we focus on promoting energy efficiency as the underlying logic for splitting up our national power company TNB into a Generating company and a Transmission and Distribution focused utility (T&D utility).
TNB is presently involved in all aspects of electric power services, from generation to transmission and distribution. It has often been suggested that the operations of TNB be split up. Some of these proposals stem from profit-minded entrepreneurs seeking to cherry-pick the most lucrative aspects of TNB’s operations.
However, it has been found that managing the multiple, conflicting goals involved in the provision of utility services today is indeed difficult when Generation and T&D are managed by the same company.
- The public demands and deserves reliable and affordable electricity supply;
- Shareholders and investors require reasonable returns on investment; and
- There are social goals of preserving the environment and securing our energy future by promoting end-use energy efficiency and renewable energy. End-use energy efficiency is the process of making homes, vehicles, and businesses more energy efficient.
An electric utility company that makes money by generating and selling electricity would find promoting end-use energy efficiency a contradictory goal. The more successful it is at cutting electricity consumption, the smaller will be its sales and profits!
Many jurisdictions, such as California in the United States, have required electric utilities to divest their generating assets to focus on T&D. Generation is left to an array of small to large power generators which sell electricity to the utility at wholesale prices. The generation cost is then passed-through to end-users by the T&D utility.
For the T&D utility itself, appropriate metrics, which are not exclusively linked to electricity sales, are established to provide the T&D utility with a profit.
- One such metric is return on capital invested on T&D infrastructure;
- Another example is from California where T&D utilities actually make profits if they can demonstrate that they have helped customers save electricity by implementing energy efficiency projects.
The right formula would need to be worked out in the Malaysian context and integrated into the rate structure to ensure that the T&D utility is incentivised to emphasise enhancing grid reliability and promoting demand side management and energy efficiency.
Promoting end-use energy efficiency will unleash a sea of innovation and entrepreneurship. Implementing lighting, cooling, motor and building envelop energy efficiency projects in the residential, commercial and industrial markets is potentially a multi-billion ringgit industry.
This would benefit many small, medium, and large companies in Malaysia and create jobs. There are many energy efficiency technologies already available awaiting deployment in Malaysia once the right market incentives are set in place.
Even more importantly, end-use energy efficiency is perhaps the paramount method to ensure national energy security, secure our long-term economic competitiveness and protect our environment:
- Reducing the amount of energy we burn for each ringgit of GDP that we create will reduce our reliance on depleting fossil-fuel resources, reduce greenhouse gas emissions and also serve as a competitive edge for our economy.
- It will also reduce the need for investing in new generation capacity, which is expensive and environmentally damaging.
This de-coupling of energy consumption from GDP growth is crucial to keep our economy from taking a hit in the next energy price shock. As the natural gas subsidy for power generation is removed, energy efficiency can cushion the increased energy costs on the public.
We must do all we can to ensure that our energy consumption is as efficient as possible. Having our national utility TNB decouple profits from sales is one key step in the process.
Allan Sandoshan, PE, CEM Teh Chi-Chang, CFA
Certified Energy Manager Executive Director, REFSA
Association of Energy Engineers
Guest contributor Allan Sandosham, PE, CEM is a Certified Energy Manager under the international Association of Energy Engineers scheme and is the Managing Director of REED Engineering Sdn Bhd in Kuala Lumpur, Malaysia. He can be reached through firstname.lastname@example.org.
Chi-Chang can be reached through email@example.com.
 TNB’s cash reprieve offers little comfort. The Sun, 5 Dec 2011.
 Without subsidies, gas IPP power would be very expensive. REFSA Says, 11 Aug 2011. Available at www.refsa.org.
PDF document also available for download here.