The new tariff structure tackles two key issues: (i) fuel cost volatility and (ii) unfair recovery of fixed (network) costs.
Majority of MV customers will see bill reductions, while data centres are expected to pay more for electricity.
While data centres are expected to pay more under the new tariff structure, the average tariff remain significantly below Singapore’s. As such, we do not expect the higher rates to hinder DC growth in Malaysia meaningfully.
No change to earnings forecasts. Reiterate BUY with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%), implying 22.2x FY25F EPS.
We left TENAGA’s analyst briefing on the New Tariff Structure with the following key takeaways:
Addressing volatile fuel costs and fixed cost under-recovery. The new tariff structure tackles two key issues: (i) fuel cost volatility and (ii) unfair recovery of fixed (network) costs. To mitigate the impact of fuel cost fluctuations, the bi-annual ICPT has been replaced with a monthly Automatic Fuel Adjustment (AFA), allowing quicker and more predictable cost pass-throughs. While AFA adjustments will be applied automatically, they are capped at 3 sen/kWh. Any increase beyond the threshold requires government approval. A new detail revealed during the briefing is that domestic users consuming 600kWh/month or less is exempted from AFA.
For context, the ICPT previously involved a 6-month lag in fuel cost recovery (eg: fuel cost incurred in Jan-Jun 2024 were reflected in the ICPT for Jul-Dec 2024). Management disclosed that fuel costs incurred in Jan-Jun 2025 will be absorbed by the Kumpulan Wang Industri Elektrik (KWIE), a fund established to cushion the impact of tariff fluctuations on customers. Meanwhile, the AFA for July 2025 has been reset to zero, with July’s fuel cost pass through to be reflected in the AFA for August.
The second issue addressed is the unfair recovery of fixed costs. Prior to RP4, there was a structural mismatch between system cost and tariff revenue. The under-recovery of fixed costs has been exacerbated by the increasing adoption of solar power, particularly under schemes such as Net Energy Metering (NEM) and Self-Consumption (SELCO), where solar users can reduce or avoid paying their fair share of infrastructure costs. The new tariff structure under RP4 aims to minimise this under-recovery, ensuring that all customers contribute fairly to the network costs (Figure 1).
Reduction in pass-through Generation Energy Tariff driven by forex revision. As highlighted in our previous report, there are three major changes under the new electricity tariff structure: (i) a reduction in base tariff, (ii) a restructuring of tariff schedule, and (iii) the replacement of the biannual ICPT with a monthly AFA. The base tariff has been revised downward to 45.40sen/kWh (+13.6% vs RP3) from the December 2024 approved rate of 45.62sen/kWh (+14.2% vs RP3) (Figure 2). The reduction is entirely attributed to a downward revision in the pass-through Generation Energy Tariff, reflecting a more favourable forex assumption of RM4.307/USD compared to RM4.40/USD previously. There are no changes to the network and retail tariff components under RP4, which are the key determinants of TENAGA’s regulated return. As such, the reduction in the base tariff is neutral to TENAGA’s earnings. Additional details disclosed during the briefing include the demand forecast for RP4 (2025: 134,560GWh; 2026: 141,873GWh; 2027: 148,860GWh).
Data centres classified under a separate Ultra-High Voltage (UHV) category. As part of the tariff schedule restructuring, the new tariff structure now adopts a voltage-based classification (LV, MV and HV) in place of the previous classification by customer activity (eg: commercial, industrial). Under RP3, data centres (DCs) were classified under High Voltage Commercial Tariff category. In RP4, they will be classified under a dedicated UHV category, with Time of Use (ToU) the only available option (Figure 4).
The ToU scheme has also been refined to offer longer off-peak hours. Previously, off-peak hours spanned 10pm to 8am daily. Under RP4, off-peak hours now extend from 10pm to 2pm on weekdays, cover the entire Saturdays and Sundays, and include 15 selected public holidays, the latter being a new feature not previously disclosed. The extension of off-peak hours is expected to result in meaningful cost savings for most customers, as further detailed in the next section.
Majority of MV customers to see bill reductions, while data centres expected to pay more. According to TENAGA, 71% from 3.3k MV customers will experience bill reductions, while the remainder will face higher bills due to inefficient system utilisation, primarily from low load factor. Load factor measures the average utilisation of capacity relative to peak demand. Customers with a low load factor still require the grid to be ready to supply electricity at peak levels, even if actual usage is low, hence driving up the cost of infrastructure readiness.
Our analysis confirms that MV customers on general tariffs with sufficiently high load factor will enjoy electricity bill savings (Figure 5 and 6), in line with management guidance. Meanwhile, ToU scheme is expected to deliver cost savings across all categories due to the extended off-peak period under RP4 compared to RP3.
For MV customers under ToU, bill reductions are expected regardless of load factor (Figure 7 and 8). In contrast, HV Industrial customers on ToU are also expected to benefit, but higher load factor may reduce magnitude of savings (Figure 9). Lastly, DCs are expected to face higher electricity bills under RP4 compared to RP3, based on both our estimates and management’s disclosures.
Our Take. While DCs are expected to pay more under the new tariff structure, the average tariff of 58.4 sen/kWh (based on TENAGA’s example) or c.54 sen/kWh (based on our estimates) remain significantly below Singapore’s c.98.7 sen/kWh (29.94¢/kWh). As such, we do not expect the higher rates to hinder DC growth in Malaysia meaningfully.
Earnings Maintained. Maintain earnings forecasts unchanged.
Valuation and Recommendation. Reiterate BUY with an unchanged TP of RM16.04 based on DCF valuation (WACC: 7.1%, g: 2.0%), implying 22.2x FY25F EPS. No ESG premium or discount has been applied, given the Group’s three-star ESG rating. We have yet to incorporate the contingent capex in our model, implying further upside potential. We remain positive on TENAGA’s outlook, underpinned 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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