KUALA LUMPUR (March 4): Tenaga Nasional Bhd (KL:TENAGA) is confident of securing 60%-70% of the contingency capital expenditure allowed for the next three years, analysts said.

For 2025, Tenaga has budgetted RM20 billion, comprising RM10 billion for regulated projects, RM8 billion for unregulated investments, and up to RM2 billion for the contingent spending under Regulatory Period 4 (RP4), according to several analysts who attended the company’s briefing.

“We expect Tenaga to benefit from the higher regulated asset base under RP4, providing step up in earnings in 2025,” Hong Leong Investment Bank said. There is also an urgent need to upgrade the grid for energy transition and to support data centres and renewable energy, the house noted.

Under the “incentive-based regulation”, the base tariff is reviewed every regulatory period lasting three years, to take into account changes in fuel costs and planned spending for operations and maintenance.

The current regulatory period, from 2025 to 2027, sets capital expenditure (capex) at RM42.82 billion, consisting a base of RM20.78 billion and contingency of RM16.3 billion. Details on the contingency spending were disclosed by Tenaga for the first time since its December announcement.

Contingent capex will be deployed only when specific conditions or “triggering points” are met, according to Apex Securities. “For instance, if demand for smart meters increases, Tenaga can install additional smart meters once conditions are met,” the house noted.

“The recovery mechanism for contingent capex is still under discussion with the Energy Commission, but one certainty is that the regulated rate of return will remain at 7.3%,” Apex Securities said in a note to clients.

Out of the RM16.3 billion total contingent capex for RP4, about 64% will be allocated to facilitate energy transition through upgrading infrastructure to support renewable energy, the national energy transition roadmap, and interconnection projects.

The company is setting aside 30% to meet potential demand growth, such as data centres and industries, with the remaining 6% earmarked for maintaining security of electricity supply.

Based on the breakdown provided by Tenaga’s management, CIMB Securities expects Tenaga to spend 60%-70% of the contingent capex within RP4.

Coupled with expansion of the company’s regulated asset base and better performance at its generation unit, Tenaga’s core earnings could grow 12% this year, followed by another 5% in 2026, according to the research house’s estimates. 

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