The Energy Commission unveiled a new electricity tariff structure for Peninsular Malaysia, which will take effect from 1 Jul 2025 to 31 Dec 2027.
The announcement outlines three major shifts: (i) reduction in base tariff, (ii) restructuring of tariff structure, and (iii) the replacement of existing biannual ICPT mechanism with a monthly Automatic Fuel Adjustment mechanism.
The new structure is Neutral to mildly Positive for TENAGA. The base tariff reduction is limited to pass-through generation costs, leaving the Group’s regulated return intact while the shift to monthly AFA enhances cost reflectivity and improves cash flow stability.
No change to earnings forecasts. Reiterate BUY with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%).
Last Friday, the Energy Commission (EC) unveiled a new electricity tariff structure for Peninsular Malaysia under Regulatory Period 4 (RP4), which will take effect from 1 Jul 2025 to 31 Dec 2027. The announcement outlines three major shifts: (i) revision in base tariff rate, (ii) restructuring of tariff structure, and (iii) the replacement of existing ICPT fuel cost adjustment mechanism with a monthly fuel cost pass-through under the Automatic Fuel Adjustment (AFA) mechanism.
Base tariff lowered. The approved base tariff for RP4 is set at 45.40sen/kWh, a marginal reduction of 0.22sen/kWh from the previously approved rate of 45.62sen/kWh, but higher than the RP3 rate of 39.95 sen/kWh. Based on the breakdown published by EC (Figure 1), the entire downward revision is due to adjustments in the Single Buyer Generation tariff, which is fuel and forex-driven, and fully pass-through in nature. This confirms that the cut is neutral to TENAGA's earnings The modest downward revision likely reflects updated assumptions for lower fuel costs and a firmer MYR against USD. The global coal benchmarks have corrected meaningfully YTD due to excess supply and weak Chinese import demand.
Tariff structure overhaul. The tariff structure now adopts a voltage-based classification (low, medium or high voltage) in place of customer type segmentation (eg: commercial, industrial). Furthermore, the usual tiered usage breakdown will be replaced with three transparent components:
Generation Charge: cost of generating electricity, which includes:
Energy Charge: generation fuel costs.
AFA: monthly adjustment to reflect fuel price and forex fluctuations.
Capacity Charge: capacity payments under PPA/SLA.
Network Charge: cost of electricity delivery
Retail Charge: cost of customer service and billing
A new Energy Efficiency Incentive (EEI) will be introduced where there will be savings for customers who use electricity efficiently. Domestic users with monthly usage of 1,000kWh or less and non-domestic LV customers with monthly usage of 200kWh or less will be eligible for the EEI.
In addition, Time of Use (ToU) scheme has been streamlined to offer a longer off-peak period. Off peak hours now span the entire Saturdays and Sundays, as well as from 10pm to 2pm on weekdays (Figure 2). Under this scheme, consumers are charged higher tariffs during peak hours and lower tariffs during off-peak hours, thereby encouraging load shifting to flatten the system load profile. Importantly, eligibility for the ToU scheme has been expanded. While previously limited to MW and HV non-domestic users, the revised framework now includes domestic and non-domestic low-voltage users.
Other targeted support measures remain intact. For instance, dedicated tariff schedule will be introduced for the agriculture, water and sewerage operators, and rail operators or traction. A 10% rebate will also be provided for registered institutions of higher learning, welfare organisations, and places of worship. Lastly, RM40 Electricity Bill Rebate Programme will also be maintained, providing a monthly subsidy of up to RM40 for Heads of Households (KIR) registered as Miskin Tegar in the e-Kasih system.
ICPT Replaced with Monthly AFA. The ICPT mechanism will be replaced with AFA mechanism. AFA will review and reflect the actual fuel generation cost every month rather than half-yearly under the ICPT. However, the automatic adjustment is capped at 3 sen/kWh. Any variation beyond this threshold requires government approval, introducing an element of political oversight but limiting customer exposure to large tariff shocks. This refinement should mitigate fuel cost mismatch risk, a key earnings overhang during periods of fuel cost spikes or sharp MYR depreciation against USD. The shorter lag in cash flow recovery reduces risk of working capital requirements and cuts down finance costs.
Our Take. The new electricity tariff framework is Neutral to mildly Positive for TENAGA. The base tariff reduction is limited to pass-through generation costs, leaving the Group’s regulated return unaffected. Meanwhile, the transition to monthly AFA provides improved cost reflectivity and strengthens cash flow stability, particularly during periods of fuel price volatility or forex fluctuations.
Earnings Maintained. We revise our base tariff assumptions to 45.40sen/kWh for FY25F-FY27F to align with the latest EC announcement. As regulated returns remain unchanged and cost pass-through remains intact, we maintain our earnings forecasts.
Valuation and Recommendation. Reiterate BUY with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%). No ESG premium or discount has been applied, given the Group’s three-star ESG rating. We remain positive on TENAGA’s outlook, driven by rising energy demand, ongoing energy transition under the NETR, which requires significant grid investment and modernisation, and potential growth from low-carbon electricity exports to Singapore.
Risk. Sharp plunge in coal prices, unplanned shutdowns of power plants, weakening of Ringgit, policy risks.
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