Race for watts

WITH electricity demand rising from data centres and industrial users, the Energy Commission (EC) has called for tenders to secure new baseload power generation capacity.

This move comes even as the country continues to advance its renewable energy (RE) goals.

The bids, which opened on May 10, are structured into two categories:

> Category 1 targets existing gas-fired power plants with expiring or expired power purchase agreements (PPAs), allowing for potential contract extensions and capacity upgrades.

> Category 2 invites bids to develop new gas-fired power plants.

Tenders are being called via a competitive bidding exercise, which observers say will promote cost efficiency and fair market participation.

Notably, this marks the first tender for baseload capacity in more than a decade.

The last award was in August 2016 for a 1.2GW gas facility in Pulau Indah, Klang, which only recently began full operations and started supplying electricity to the grid.

That project is 75%-owned by Worldwide Holdings Bhd, a wholly-owned subsidiary of Selangor State Development Corp, with the balance 25% stake owned by Korea Electric Power Corp.

Does this contradict Malaysia’s push for RE? Not quite, says an expert.

With the acceleration of local RE projects, the move to call for new gas-fired power capacity might appear contradictory.

However, industry expert Nirinder Singh Johl describes the approach as “pragmatic”.

“It’s a matter of timing and system reliability.

“Renewables like solar are intermittent by nature, so the extension of existing gas-fired plants will likely be the first line of defence to mitigate potential capacity crunches in view of electricity demand growth,” Nirinder, founder and chief executive officer of energy trading platform Asia CarbonX Change, tells StarBiz 7.

To address the intermittency of renewables, this is where battery energy storage systems (BESS) come in, helping to store excess solar power for use during peak demand or low generation periods.

However, the rollout of large-scale BESS is still in its early stages. Until then, gas-fired plants – particularly those using combined cycle gas turbines (CCGT), the preferred option under the Malaysia Generation Development Plan – remain key as a transitional solution.

“Natural gas is widely considered as a transition fuel, emitting about 50% to 60% less carbon dioxide than coal when burned, making it a cleaner alternative in the short to medium term as countries scale up RE capacity,” Nirinder adds.

Last month, Spain and Portugal faced a major power blackout.

While the exact cause is being investigated, observers say the episode highlighted the need for a more resilient grid, especially with a growing reliance RE.

As for Malaysia, it aims to phase out all coal-fired power plants in Peninsular Malaysia by 2044 and increase the RE share in its power capacity mix to 70% by 2050.

Achieving this ambitious goal will require annual RE installations to climb to 2.2GW – more than four times the current pace.

The reserve margin (the extra generation capacity available to meet unexpected surges in demand or supply disruptions) has remained comfortably above 30% in recent years.

However, analysts are projecting a sharp decline by 2028 and 2029, driven by surging peak demand from data centre and industrial growth, along with more plant retirements than new capacity additions.

As of the fourth quarter of 2024, Tenaga Nasional Bhd (TNB) had signed electricity supply agreements totalling 5.9GW with data centre operators.

This suggests that power demand could grow by about 5% annually over the next six years, assuming other factors stay the same, according to CGS International Research (CGSI Research) in a May 13 report.

CGSI Research estimates a potential supply shortfall of more than 5GW by 2030.

With RE still insufficient to cover the urgent demand growth, MIDF Research senior analyst Royce Tan says Category 1 offers a “quick win” by allowing existing power producers to renew their concessions and potentially upgrade capacity at the same site.

This brownfield approach shortens commissioning timelines and requires less capital investment compared to building entirely new plants.

The move is not entirely unexpected, as many existing independent power producers (IPPs) are understood to be seeking extensions.

Tan also notes the possibility of repurposing ageing or expiring coal plants into gas-fired power facilities, which could provide critical breathing room while new RE projects are developed and integrated into the grid.

Since the initial capital expenditure of older plants would have been amortised over their concession period, any extension could come with lower tariff rates, as future payments would primarily cover operating and maintenance costs, Tan tells StarBiz 7.

As natural gas is a pass-through cost, observers say bidding will likely focus on capacity charges, plant efficiency and technical merit.

Among the PPAs expiring soon are Malakoff Corp Bhd’s Segari Energy Ventures in 2027 and TNB’s Block 1 of SJ Tuanku Jaafar in 2028.

The PPA for Kapar Energy Ventures, a joint venture between TNB and Malakoff, is also set to expire in 2029.

In a report this week, TA Research estimates that around 4GW of new CCGT capacity, scheduled for operations in 2029 and 2030, has yet to be awarded.

Given the estimated four-year development timeline for a greenfield CCGT power plant, the research house expects these contracts to be awarded within the next 12 to 19 months.

TA Research identifies Malakoff and TNB as potential contenders for the latest gas-fired power plant tenders, due to their strong track records and existing sites that are readily connected to the grid and gas pipelines.

“For Malakoff, this includes its GB3, Prai Power and Segari Energy Ventures sites.

“Meanwhile, we understand TNB has proposed to repower its Paka and Kapar Energy Ventures sites with new CCGT capacity,” the research house adds.

YTL Power International Bhd and Edra Power Holdings Sdn Bhd are also seen as strong contenders, backed by their sizeable balance sheets and proven experience in thermal power development and operations.

Last year, Edra’s Telok Gong Power Station 2, a 705MW CCGT plant, received a one-year PPA extension.

The contract is now set to expire in mid-September this year.

Another IPP player is THB Power Sdn Bhd, which obtained the concession licence to build and operate a 1,200MW CCGT plant in Gurun, Kedah.

However, there has been little update on its progress.

Nimble newcomers like Kinergy Advancement Bhd (KAB) have also entered the IPP scene.

Last year, KAB bought a 47.5% strategic stake in Jati Cakerawala Sdn Bhd, giving it an effective 38% indirect ownership in Teknologi Tenaga Perlis Consortium.

The consortium is involved in the repowering of a 650MW CCGT power plant in Perlis, which was decommissioned in March 2024.

PETRONAS Gas Bhd (PetGas) may also emerge as a contender, having expressed interest in expanding its power generation portfolio, CGSI Research says.

Currently, PetGas operates two regasification terminals – one in Sungai Udang, Melaka, and another in Pengerang, Johor – as well as the national gas transmission pipeline.

It was recently reported that PetGas’ parent company, Petroliam Nasional Bhd, may be developing a third regasification terminal, signalling further integration between upstream gas infrastructure and downstream power generation.

To meet future load requirements, analysts say new power plants could be developed in states like Johor, where data centres have been mushrooming.

However, there could be emerging challenges as Peninsular Malaysia, where most of the demand is concentrated, does not produce as much gas as East Malaysia.

For now, the tender exercise could revive investor interest in listed IPPs, with players such as Malakoff, TNB, and YTL Power likely to benefit from improved visibility on future earnings and asset utilisation.

Bidding opens on May 13, 2025, and closes on June 16 for Category 1 and July 14 for Category 2.