, Malaysia
149 views

Risks heighten for Malaysia's new coal and gas plants

The government will discontinue the existing PPA framework for future plant-ups.

Malaysia’s new coal and gas plants may be more exposed to market and pricing risks moving forward as the government intends to discontinue the existing power purchase agreement (PPA) framework for future plant-ups of thermal power plants, according to a report by RAM Ratings.

With the new policy, new gas and coal plants will be awarded shorter-tenure contracts with variable and competitive payment structures. Future PPAs will only be rolled out in late 2023 at the earliest, given the high power reserve margin in Peninsular Malaysia.

“The credit considerations for new plant-ups will include a detailed assessment of the power sector’s supply and demand dynamics as well as the independent power producers’ (IPP) competitive strategies,” RAM Ratings said.

In the old policy, capacity and energy payments are almost certain as long as the IPPs meet their PPA requirements. RAM Ratings noted that in the absence of fixed capacity payments for new PPAs, liberalisation could render it more difficult for IPPs to recover their fixed costs in the wholesale market.

Those with expiring PPAs will be allowed to auction their excess capacities through the improved New Enhanced Dispatch Arrangement (NEDA+) Framework, apart from the present energy-payment-only auctions.

Still, the Malaysian government continues to uphold the terms of all existing PPAs between various IPPs and TNB. This makes the situation a key credit anchor for the sukuk ratings of IPPs. Outstanding power bonds and sukuk comprised 9% of Malaysia’s total outstanding corporate bonds as of 23 January 2020.

Join Asian Power community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!