Energy Commission says fuel costs will stay elevated in 2H, but sees some price stability

Energy Commission says fuel costs will stay elevated in 2H, but sees some price stability
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KUALA LUMPUR (July 4): The Energy Commission sees electricity generation fuel costs remaining elevated in the second half of this year (2H22), but its projection indicates some stability in coal prices after being on the rise for 21 months since the third quarter of 2020 (3Q20).

Responding to queries from The Edge, the commission said it expects coal prices to hover around US$365 (about RM1,610.74) per tonne and natural gas prices at RM40.66 per mmbtu (metric million British thermal units) in 2H22 “based on fuel prices forecast as of June 2022”.

Bloomberg data showed that the Australia Newcastle coal price settled at US$375 per tonne on July 1. The benchmark indicator averaged at US$353 in 2Q22, up from an average of US$196 in 1Q22.

Comparatively, Tenaga Nasional Bhd’s (TNB) coal price assumption averaged at US$134 per tonne in 1Q22, and its 1Q22 natural gas reference market price for purchase beyond the first 1,000 mmscfd (million standard cubic feet per day) stood at RM36.86 per mmbtu.

Fuel costs climbed in 1H22 as demand exploded following the economic reopening. One of the biggest gainers is coal, which is back in vogue as even carbon-conscious countries in the European Union began burning the fossil fuel having pledged not to do so in favour of green energy.

In 1Q22, Peninsular Malaysia’s electricity fuel mix consisted of coal (54.1%), gas (39.1%), hydro (4.8%), oil and distillates (1.1%), and solar (0.9%).

TNB, which uses coal and gas for the power sector, procures 65% of its coal supply from Indonesia, followed by Australia, India and Russia.

RM5.8 billion electricity subsidy 'funded by govt'

The government has kept its electricity tariffs unchanged for 2H22 despite higher fuel costs in 1H22, resulting in a RM5.8 billion shortfall. The additional subsidy is 13.81 sen per kWh (kilowatt-hour).

In its reply, the Energy Commission reiterated that the allocation of RM5.8 billion “will be funded by the government to cover the cost of maintaining the ICPT (imbalance cost pass-through) rebate and bear the surcharge”.

In 2020, the electricity bill discount of RM2.78 billion was split among the Electricity Industry Fund or KWIE (RM1.99 billion), the Ministry of Finance (RM534.8 million) and TNB (RM250 million).

KWIE, which is funded from ICPT collection, contributions from power producers and interest income, amounted to RM552.43 million at end-2020, from RM1.12 billion at end-2019. It collected RM1.37 billion in 2020, down from just under RM2 billion in 2019.

S Kanagaraju