KUALA LUMPUR (March 30): The rising energy costs due to the US-Iran war are expected to accelerate Malaysia's shift to renewable energy, especially solar, said TA Securities.
"Higher grid energy cost improves the economics for renewable energy (RE), which could drive stronger take-up in the residential and commercial and industrial (C&I) sector as consumers attempt to manage rising electricity cost," the research house said in a note on Monday.
TA Securities said this could improve demand for rooftop solar governed under the Solar Accelerated Transition Action Programme (Solar ATAP), as well as the self-consumption (SELCO) and Community Renewable Energy Aggregation Mechanism (CREAM) programmes.
At the same time, the impact on the domestic power sector is expected to be manageable due to robust regulatory cushions and cost pass-through mechanisms, the research house said.
While the war has destabilised global energy markets, Malaysia’s regulated gas price caps and the Automatic Fuel Adjustment (AFA) framework will help insulate domestic electricity tariffs from immediate, extreme spikes.
The sector's growth is supported by the National Energy Transition Roadmap (NETR), with gas-based generation and nuclear energy being actively explored to reduce long-term fuel concentration risks.
Despite the focus on gas, coal price volatility remains, as coal accounts for approximately 59% of Peninsular Malaysia’s generation mix, and unlike gas, it lacks a regulated price ceiling.
The house estimated that every 10% increase in coal prices raises the overall generation cost by approximately 4%, compared to just a 3% impact from a similar rise in gas prices.
The research house observed that during previous global energy shocks, such as the 2022 Russia-Ukraine war, the lag in fuel cost recovery temporarily strained the balance sheets of national utility players, though the current system remains resilient.
Within the industry, Tenaga Nasional Bhd (KL:TENAGA) and Malakoff Corp Bhd (KL:MALAKOF) are seen as primary beneficiaries of the current environment. As operators of coal plants, both groups could potentially benefit from ‘positive fuel margins’ if they manage coal stockpiles effectively during periods of rising prices.
Conversely, YTL Power International Bhd (KL:YTLPOWR) is expected to benefit from its Singapore operations. "YTL Power, which operates in Singapore's merchant electricity market, could benefit from rising spot rates and more favourable retail contracts," the research house added.
However, the surge in energy costs poses a challenge for heavy electricity users. Ranhill Utilities Bhd's (KL:RANHILL) water operations face margin compression due to higher electricity costs.
Key ‘buy’ recommendations within the sector include Tenaga, with a target price (TP) of RM15.50, YTL Power, with a TP of RM5.45, and Malakoff, with a TP of 95 sen.