(Aug 7): The government may announce short-term extensions of power purchase agreements (PPAs) worth two gigawatts for expired gas-fired power plants next week, UOB Kay Hian said.
The purported extension will likely be for a period of two years (2025-2027) to help peninsular Malaysia tide over any short-term power crunch given the onset of aggressive buildup of power-hungry data centres, the research house flagged on Wednesday.
The key beneficiaries would be Tenaga Nasional Bhd’s (KL:TENAGA) generation unit, independent power producer Malakoff Corporation Bhd (KL:MALAKOF) and in the longer run, renewable energy companies, UOB Kay Hian said.
Combing through the list of expired plants, UOB Kay Hian thinks the extension may be offered to Malakoff’s 350-megawatt power plant in Prai and Edra Energy’s Panglima 720 megawatt plant, Tenaga’s Gelugor 310-megawatt plant, and Teknologi Tenaga Perlis Consortium Sdn Bhd’s 650-megawatt plant.
Malaysia’s grid may require an estimated 15 gigawatt of new capacity by 2035 to meet demand growth, as well as to maintain optimum reserve margin for system reliability. The plants will mostly be powered by thermal and renewable energy.
The country relies on fossil fuels including coal and natural gas for 81% of its electricity. Hydropower provides most of the renewable energy while solar and wind accounts for less than 5% of the share.
In the next 12 months, Malakoff is expected to be awarded a 2,800 megawatt gas-fired plant which will boost its generation capacity by 40%, UOB Kay Hian noted. The house has a ‘buy’ call on Malakoff.
A two-year extension of Malakoff’s Prai power plant will provide RM100 million in annual cash flow in earnings before interest, taxes, depreciation and amortization (Ebitda) to the company, according to the house’s estimates.
Prai power plant accounts for 5% of Malakoff’s Ebitda, which will help the company pay out dividends, it noted. For Tenaga however, the impact would be relatively small as the generation unit only accounts for 10% of its pretax profit, UOB Kay Hian added.
Overall, the house maintained the sector on ‘market weight’.