Measures to reduce the electricity tariff without subsidies

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LETTER | The federal government retained the existing electricity tariffs with a rebate of 2 sen/kWh for residential customers and a surcharge of 3.7 sen/kWh for non-residential customers.

The government used the rising cost of imported coal to justify the high surcharge imposed on non-residential customers.

Malaysia uses the “Incentive Based Regulation” and “Imbalance Cost Transfer Transfer” (IBR-ICPT) methodology to determine the electricity tariff.

The basic cost to produce one unit of electricity is 39.45 sen/kWh. The surcharge and rebate are imposed based on the increase and decrease in fuel prices respectively.

The macro-level analysis of the IBR-ICPT methodology shows no potential for reducing electricity tariffs. However, the micro-level analysis of the IBR-ICPT reveals many opportunities and solutions to reduce the electricity tariff.

Monetize hot wastewater

According to a report by Suruhanjaya Tenaga, the average thermal efficiency of coal and fossil gas power plants ranges from 28.75% to 43.42%.

Thermal efficiency is the amount of dispatchable electricity generated by a thermal power plant per unit of fuel. The rest of the energy is lost in the form of hot waste water which is discharged into the sea.

Hot sewage is classified as high temperature but medium pressure. Hot wastewater does not have sufficient pressure to spin an electric turbine but has sufficient temperature for certain industrial processes. Some domestic industries require thermal energy for their manufacturing process.

The hot waste water from the power plant can be monetized by pipeline and sold to these industries. The cost of fuel can be shared proportionally between electricity and hot waste water. Subsequently, the fuel cost component in the electricity tariff can be reduced.

Stop excessive PPIs

Power plants receive two types of payment; payment for energy and payment for capacity. Energy payment made to the operational power plant for the production of electricity. During this time, the capacity payment is paid for the power plant to remain on standby.

For the year 2021, the expected capacity payment to be made by TNB to non-TNB Independent Power Producers (IPPs) will be approximately RM200 million.

According to a report by Suruhanjaya Tenaga, the reserve margin for Semenanjung in 2021 was around 50%.

Reserve margin is the measure of reserve power plants based on the all-time maximum electricity demand. The reserve powertrain is needed as a backup when the operational powertrain undergoes maintenance or repairs.

This reserve margin is calculated due to the historical maximum demand anomaly of 18,808 MW that occurred on March 10, 2020 at 4:30 p.m. During the rest of the year, the daily peak demand fluctuates between 15,000 MW and 17,000 MW.

Thus, the daily reserve margin varies between 50 and 75% throughout the year.

Semenanjung breaks through the 18,000 MW mark on less than 14 days per year scattered over March and October in the hot season as air conditioners work harder to cool work and home.

This peak demand anomaly will decrease with the increase in rooftop solar installations. Higher rooftop solar generation during the hot season will reduce electricity demand. By 2023, a rooftop solar installation can reduce daily peak demand by up to 1,300 MW.

Peninsular Malaysia is expected to limit the number of power plants to 20,000 MW to shut down 6,000 MW of excess fossil fuel power plants. This will result in a daily reserve margin of between 10 and 25% throughout the year, saving hundreds of millions of ringgits in future capacity payments.

LSS a costly mistake

Since January 1, 2019, Peninsular Malaysia has adopted “true net energy metering” for rooftop solar to replace the displaced cost.

This allowed excess electricity generated by solar PV to be exported back to the grid on an ‘individual’ compensation basis. This policy change has dramatically increased the adoption of rooftop solar power by industries and commercial sectors.

The TNB grid cannot accommodate solar penetration of more than 27% of its daily peak demand without a smart grid. The government has distributed 1,313.94 MW of Large Scale Solar (LSS) quota under LSS 3 and LSS 4.

Electricity produced by LSSs built on agricultural land in rural areas must be transmitted via the TNB grid to high-consumption regions.

Electricity transmission increases wear and tear on the TNB electricity grid, requiring higher operating costs (opex) and capital costs (capex). Between 2018 and 2021, TNB spent around RM21.5 billion in capital expenditure on the power grid for non-renewable energy based transitions such as capacity upgrades.

Meanwhile, electricity from rooftop solar is first consumed by the site itself before any excess is exported into the grid. Thus, solar on the roof reduces the amount of electricity transported by the grid. Rooftop solar will reduce TNB’s grid capital and operating expenses, which will lower electricity rates.

LSS 3 and 4 were unnecessary and expensive after the rooftop solar boom. Covid-19 had derailed the financial close and construction of LSS3 and LSS4. This gives the government a window to review and reallocate solar quotas from large-scale quotes to existing rooftop solar systems.

Off-peak discounts

The government should link the Time of Use (TOU) discount to the existing tiered tariffs for residential customers. TOU rebates can provide residences with 20% rebates for electricity consumption during off-peak periods, such as nights and weekends. The residential TOU tariff scheme was expected to be adopted Semenanjung-wide in the first quarter of 2020, but there is no news of its execution so far.

The production and transmission of electricity during peak periods are more expensive than during off-peak periods. The TOU discount prevents residential customers from paying the highest prorated cost. The TOU discount can shift intended usage, such as washing machines, dishwashers, cell phone charging, ironing, and vacuum cleaners, from peak to off-peak.

These changes in the pattern of electricity consumption are known as positive charge transfer.

Load shifting reduces load and bottlenecks on the power grid during peak periods.

Positive charge transfer leads to a longer life of the power grid, which results in operating and capital costs for TNB. Load shifting also reduces daily peak demand, further reducing the number of expensive standby power plants.

To advance

Elected politicians and policy makers should not admit that the only direction in which the prices of goods and services can move is upwards. Lower electricity tariffs lead to cheaper goods and services, which will increase purchasing power and international exports. The federal government can drive down electricity prices by monetizing hot wastewater from power plants, shutting down excessive power plants, reallocating large-scale solar power as rooftop solar, and introducing hourly usage rates for residential customers.


SHARAN RAJ is a human rights activist, environmentalist and infrastructure policy analyst.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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