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Energy Prices: Why Power Bills Are Going Up

By Siti Radziah Hamzah

KUALA LUMPUR, Aug 28 (Bernama) -- Since the onset of the Covid-19 pandemic, the energy industry around the world has been challenged by one disruption after another. 

The current crisis has a similar impact to what the world witnessed in the 1970s following an Arab oil embargo, which caused a massive shortage in the United States, Europe, Australia and Canada. 

Lockdown measures enforced in early 2020 to reduce the transmission risk of the novel coronavirus led to a drop in energy demand, driving a sharp fall in the prices of coal and oil.

Several major disruptions have emerged, including a massive energy shortage in China in September 2021 due to insufficient coal-fired generation to supply its 1.4 billion population.

This happened despite numerous efforts to stabilise operations, liquidity, supply chains and markets to put the industry on the path to recovery.

Malaysia was not spared from the ongoing energy crisis, which was further aggravated by the Russia-Ukraine war that sent coal prices to record highs amid demand-supply fluctuations.

Tenaga Nasional Bhd (TNB), like most power companies worldwide, experienced difficulty in keeping rates at the current level, especially under the weight of rising coal prices.

Prices for coal, which powers almost half of the nation’s power generation needs, have gone up fourfold since the war broke out.

Bank Islam Malaysia Bhd chief economist Firdaos Rosli pointed out that the current energy crisis is not going away anytime soon as climate change is an ongoing phenomenon.

“Overall, I think underinvestment in the energy sector is the primary reason for this crisis. While this ‘crisis’ is not exactly new, the economies’ inability to diversify their energy mix requires a closer inspection,” he told Bernama in an interview. 

He noted that the ongoing Russia-Ukraine military conflict and extreme weather conditions in China have exacerbated the issue to where it is today.

The fallout from the energy crisis has hit Southeast Asian countries amid population growth and climate change while Asean economic complexity increases over time, noted Firdaos.

According to him, Malaysia is in an interesting position as the country is a net energy exporter.

“However, the focus should be on Malaysia’s over-reliance on oil and gas consumption, underscoring the need for higher investments in renewables to diversify its energy mix,” he added.

 

Higher power generation costs 

 

In Peninsular Malaysia, more than 90 per cent of the electricity generated uses coal and gas, and the cost of coal has increased significantly since October 2021.

Coal prices are rising globally and beyond the government’s control. Electricity generation sectors not just in Malaysia but also globally are under pressure due to the increasing fuel costs.

There was a slight decrease in the average fuel price from US$224 per metric tonne in the second half of 2022 to US$73.50 per metric tonne in the January-June 2023 period. (US$1=RM4.64)

However, the average price of coal remains high, exceeding the projected fuel cost set in the third regulatory period (2022-2024), which is US$79 per metric tonne.

Due to this, the cost of fuel to generate electricity has been significantly high which led to increased generation costs, resulting in the Imbalance Cost Pass-Through (ICPT) surcharge rate for a tiny percentage of domestic users to rise for the period of July 1-Dec 31, 2023.

Despite the surge in fuel cost for power generation, the ICPT mechanism continued to be implemented for the second half (2H) of 2023 to allow TNB to continue to provide a reliable supply of electricity to Malaysians.

The ICPT is a mechanism under the Incentive-Based Regulation framework that allows for electricity tariff adjustments to be made to reflect changes in fuel and other generation-related costs.

This is because these costs are set based on benchmarked prices in the base tariff.

The implementation of the ICPT, which occurs every six months, would reflect the actual costs in tariff in the form of either rebates or surcharges.

Since 2015, the government has successfully implemented 18 cycles under the ICPT mechanism to help cushion the impact of high global fuel prices.

This includes the provision of protection throughout the ICPT cycles of up to RM25.3 billion, including the most recent RM5.2 billion in subsidies for the ICPT implementation for the period of July 1-Dec 31, 2023.

Putra Business School economic analyst, Associate Prof Dr Ahmed Razman Abdul Latiff, said that Malaysians may have to pay more for fuel and electricity in the coming years unless the government continues with the subsidy for all.

“However, since the cost of fuel (coal and gas) is going to further increase next year, the government probably has to provide higher allocations to maintain the subsidy,” Ahmed Razman told Bernama.

He noted that Malaysia will also be affected by the energy crisis as the nation is still heavily dependent on gas and coal.

As for 2H 2023, domestic users with a monthly electricity consumption of 1,500 per kilowatt-hour (kWh) or below will not experience an increase in electricity tariff, thus continuing to enjoy an electricity rebate of 2.0 sen rper kWh until the end of December, as the government has agreed to foot the larger subsidy bill for the period.

Meanwhile, domestic users who consume electricity above 1,500 kWh (who only comprise one per cent of the total domestic users) will be affected by the ICPT surcharge of 10 sen per kWh and will experience a minimum monthly increase of RM187 (25 per cent) in electricity bills.

The Natural Resources, Environment, and Climate Change Ministry (NRECC) said that although there is an increase in this category of domestic customers, the government is still granting a special subsidy of RM58 million for them since the ICPT surcharge is not fully passed through.

Customers can view the amount of subsidy provided by the government in their respective monthly electricity bills.

“The government hopes that the provision of this subsidy will help alleviate the cost of living for the rakyat, especially during the economic recovery period, while ensuring the continued economic development of the country,” NRECC said.

Higher fuel costs have also led other governments and regulators to review their electricity rates to reflect the increase.

It was reported that consumers in Singapore are paying more for electricity in the July-September 2023 quarter, with the tariff increasing by an average of 1.2 per cent from the previous quarter.

Europe, the epicentre of the energy crisis, is facing increases in power tariffs driven by skyrocketing gas prices on the back of the ongoing conflict in Ukraine as well as European sanctions on Russia, which have heightened concerns for the security of gas supplies. 

-- BERNAMA

 

 

 

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