KUALA LUMPUR (MAY 17): On May 7 this year, five states suffered power cuts as utility firm Tenaga Nasional Berhad raised the orange alert, prompting unscheduled load shedding to safeguard the national power grid’s stability.

Two sizeable plants had tripped that day, while four coal-fired blocs were offline. And just like that the nation’s power reserve of 31 per cent evaporated.

The incident cast a worrying light on the the state of Malaysia’s energy security said The Edge Malaysia Weekly in its cover story, which delved into the poor state of the country’s power assets, the resultant heavy costs to power producers, Tenaga, and ultimately the people and the country.

On paper, installed power generation capacity at 21,600 MW is some 31per cent more than the highest peak demand of 16,562 MW recorded last year.

But on closer examination, said the weekly, actual available capacity that could realiably fire up could be as little as 17,500 MW, thinning reserve margin to only 6 per cent.

The May 7 incident, a stark illustration of the grid’s vulnerability, had been dismissed as Murphy’s Law at work as in “if something can go wrong, it will all go wrong” by Tenaga Nasional Berhad’s Grid System Operator (GSO) officials.

To top it off, it happened during peak demand on a day when demand would have reached new highs, if things had been running smoothly, they said.

But the sanguine sentiment is apparently not shared by the powers that be who want to accelerate the planting-up of new capacity particularly Project 4A.

The weekly learnt that the cabinet had last week given its approval for Project 4A - an upcoming combined cycle gas turbine (CCGT) plant - to be awarded through direct negotiation instead of open tender.

Apparently, this would knocked roughly a year off the time needed to roll out the proposed 1,100MW-1,400MW CCGT plant.

But a GSO official contended that with a 31 per cent on-paper reserve margin, “ we don’t need Project 4A to be accelerated”.

“These power plants are like cars. They are bound to break down. We have extra cars on standby but they are not 100% guaranteed to run. At the same time, we can’t keep too many cars on standby because that would be too expensive,” the official opined.

At the time of writing, GSO officials guided that operational reserve available stood at slightly over 2,000MW for a margin of 12 per cent.

Problematic plants

The blame for the low availability had fallen on the Malakoff Corp Berhad’s Tanjung Bin and 1Malaysia Development Bhd’s Jimah coal-fired plants which had been facing leaking boiler tubes.

Both plants are only expected to be operational again in mid-2015.

To make matters worse some of Tenaga’s plants also seem to be having problems. Its 60 per cent-owned Kapar Energy Ventures Sdn Bhd (KEV), which has a 2,420 MW plant has been largely contributing to outages in 1Q14.

The May 7 power cuts were partly attributable to Tenaga’s Manjung plant. “We had one block at Manjung (700 MW) offline for emergency maintenance. Then, two more blocks (2X700 MW) were forced to shutdown ... On top of that there was a shutdown at Jimah ... that is 2,800 MW of our 5,000 MW reserve gone,” a GSO official said.

Heavy cost of outages

According to the weekly, the country’s coal-fired plants which accounted for 36.1 per cent of Malaysia’s power generation capacity were designed to run round the clock as base load plants.

However, almost half of them consistently suffered from operational problems in the past year due particularly to unscheduled outages at Tanjung Bin and Jimah.

“When we can’t fire our coal plants, which are cheaper, we are forced to fire more expensive fuels such as gas and distilates. It is a lose-lose situation,” a GSO official told the weekly.

Compounding the problem is the shortage of gas, which forced Tenaga to burn distillates, which are eight times more expensive than gas.

Going forward, the dry season coupled with the El Nino phenomenon could put further pressure on the national grid as consumers turn up air conditioners, while hydroelectricity generation takes a beating from shrinking dams.

This could lead to even more gas and distillate being burnt in the coming months at Tenaga’s expense and ultimately the consumers, the weekly said.

Direct negotiation - open tender debate

The weekly said  fast-tracking the 4A project through direct negotiation rather than open tender would be controversial and a step back in terms of transparency.

The EC and the Ministry of Energy, Green Technology and Water have already drawn criticism for its award of a 50MW solar plant to 1MDB through direct negotiation last month.

It was bound to be become a touchy subject, warned the weekly, especially since all recent power projects had been secured by government-linked companies like Tenaga  and 1MDB.

End of the road for IPPs?

The weekly also drew attention to the possibility that the role of independent power producers (IPPs) might be drawing to a close.

By the end of next year, YTL Power may be out if its PPA with Tenaga is not extended, leaving only Tan Sri Syed Mokhtar Albukhary’s Malakoff to take on government-linked power houses like Tenaga and 1MDB which paid billions for power plants belonging to Genting Group and T Ananda Krishnan.

Tenaga is believed to be a strong contender for the upcoming Project 4A.

“If indeed a Tenaga-Sultan of Johor joint venture is awarded Project 4A, it could signal the beginning of the end for the country’s independent power producers,” the weekly said.

The weekly also carried a detailed analysis on the impact of prevailing developments on Tenaga shares by Asia Analytica.

The Edge Malaysia Weekly is available at newstands and on subscription online at theedgemalaysia.com