Research firms positive on TNB's RE expansion in UK

Research firms positive on TNB's RE expansion in UK
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KUALA LUMPUR (Oct 21): Tenaga Nasional Bhd’s (TNB) move to expand its renewable energy (RE) portfolio has received a positive response from research houses.

On Wednesday, TNB announced that its subsidiary Vantage RE Ltd has acquired a 49% stake in an offshore wind farm company Blyth Offshore Demonstrator Ltd (BODL) from EDF Renewables, a subsidiary of the French utility company Électricité de France (EDF).

The acquisition marks the utility giant’s maiden entry into the international offshore wind market as BODL currently owns offshore wind assets off the coast of Blyth, Northumberland, England.

The assets include five turbines with a total installed capacity of 41.5 megawatts (MW) (Blyth 1) and further development rights for a floating offshore wind project of up to 58.4MW (Blyth 2) off the Northumberland coast.

In a note on Thursday, Kenanga Research said although it is a small investment, the move would set the pace in growing the group’s RE portfolio in the UK and Europe, where the utility giant plans to increase it by 2,733MW by 2025.

"This also helps to address the pressing environmental, social and governance (ESG) concern that has pressured its share price in the past years,” it said, maintaining its "outperform" call on TNB’s shares, with a target price (TP) of RM11.80 per share.

Meanwhile, MIDF Research noted that although no details of the transaction value were revealed, the greenfield installed cost of offshore wind generators has fallen by 28% in the past four years and stood at US$3.8 million per MW in 2019.

“Having said that, Blyth 1 is relatively a mature asset, having been in operations for circa four years, and is backed by the Renewable Obligation Certificates (ROC) subsidy regime, hence we think a premium is likely,” it said in a note on Thursday.

As such, the research house retained its "buy" call on TNB with an unchanged TP of RM11.80 per share, factoring in a 10% ESG discount to reflect the valuation pressure on TNB, given its generation unit’s high exposure to coal power plants. 

It noted that the plants currently account for 24% of overall group revenue and the coal power purchase agreements (PPAs) are expected to fall off the grid only from 2029 onwards. 

“Nevertheless, TNB had revealed its 2050 sustainability pathway, which includes a commitment to reduce emission intensity by 35% and coal capacity by 50% by 2035, as well as an aspiration to achieve net-zero emissions and to be coal-free by 2050. 

"These should eventually provide a clear direction in TNB’s sustainability agenda and gradually reduce the ESG overhang on the stock," it said.