By G. Sharmila
Singapore announced in late October that its electricity market will be fully liberalised by 2018, with all consumers being able to choose their own electricity retailers, which will likely result in customised electricity plans and lower electricity prices. This has left Tiger wondering what can be done to make electricity cheaper in Malaysia.
Tiger was lounging comfortably in her cave last week, reading the news on her laptop, when a Google news alert turned up an article on Singapore’s electricity sector. According to the article by The Straits Times Singapore, the electricity market in the island nation will be fully liberalised by the second half of 2018.
The idea behind this move is to increase competition and thus lower the prices for electricity users in Singapore. According to the Straits Times article, consumers will have the choice to buy electricity from electricity retailers under customised price plans, similar to the way customers choose mobile-phone plans from telcos.
Clearly, a full liberalisation may not work here as the electricity market in Peninsular Malaysia is dominated by government-linked Tenaga Nasional Bhd (TNB) and a handful of independent power producers (IPPs). These IPPs have long-term power purchase agreements (PPAs) with TNB, the terms of which are unknown because they are bound by the Official Secrets Act.
That said, Tiger believes that power generation costs can be driven down with a little creativity and deeper commitment to consumers. An analyst Tiger spoke to recently suggested that some of the older PPAs be unwound so TNB doesn’t have to pay them such high rates for an extended period of time. Tiger thinks if this is done progressively as the analyst suggested, it could help lower power generation costs.
This is especially true of IPPs with older power plants whose concessions are expiring. Why should TNB continue paying them high rates for older plants that have been fully depreciated? If the old agreements are unwound and restructured, the costs of power generation will be lower, and subsequently result in lower prices for the consumer.
Another analyst suggested that to make power generation more cost efficient, newer power plants can cease or slow down operations during off-peak hours (ie at night), and during this period, older power plants can take over power generation. As older power plants are likely fully depreciated, their costs of generating electricity will be much lower than that of newer power plants, hence the overall power generation costs will drop. And as power generation costs drop, so will electricity charges to consumers.
The ideal model, of course, will be that of Singapore’s, which allows multiple players in the market with different packages to suit the different usage needs of consumers. Imagine what it would be like to have a multitude of choices when it comes to purchasing electricity, just like we choose phone packages from the telcos.
Liberalisation has also been successful to a great extent in the UK, which has seen lower prices for the consumers due to deregulation. Deregulation has also been carried out successfully in all the Nordic countries (Denmark, Finland, Norway, Iceland and Sweden), which was done progressively since the 1990s and now they all have a common wholesale electricity market.
It’s an “ideal world” scenario for sure to have a fully deregulated market, but Tiger thinks that it could be done here if PPAs were revised and structured differently. She hopes that the Energy Commission (EC) will do that progressively under the New Enhanced Dispatch Arrangement (Neda) it launched in late September. The Neda is due to be implemented in the first quarter of next year.
The main objectives of Neda are to enhance cost efficiency in power generation, to promote the use of efficient technology and to provide opportunities to non-IPPs to sell energy to the grid.
In fact, Tiger thinks that PPAs should be done away with entirely under the Neda and that only a fair and transparent bidding process should be used to ensure the most cost-efficient power generators are allowed to generate electricity. The process should be transparent, and with no direct negotiations permitted to ensure that patronage is eliminated from the process.
It is up to the EC to sort this out for the betterment of the domestic electricity market players, as well as consumers. The EC has already taken the first step towards reforming the electricity market in Malaysia by introducing the Neda, but it needs to really walk its talk for the Neda to achieve its primary objective, which is to increase cost efficiency of power generation.
GRRRRR!!!
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