DC boom energises power players
THE country’s push to expand its data centre (DC) capacity is opening a new investment cycle for gas-fired power generation, creating opportunities for established independent power producers (IPPs) and potential new entrants.
However, the race to build new plants faces hurdles, including global gas turbine shortages, fuel supply uncertainty and rising costs.
First came the NewGen25 tender programme, launched last year. It marked the first competitive bidding exercise for thermal power generation since 2012 to secure new and extended thermal power generation capacity.
The awards included contract extensions for nine existing power plants with a combined capacity of about 4.9GW, as well as a contract for a new 1,400MW gas-fired plant in Paka, Terengganu.
Malakoff Corp Bhd was the largest beneficiary of the contract extensions, while TNB Power Generation Sdn Bhd and Aurora Power Generation Sdn Bhd won the bid to build the Paka plant.
The NewGen26 tender, launched earlier this year, drew bids totalling 3.55GW, according to RHB Research. Bidders reportedly included Tenaga Nasional Bhd (TNB), Genting Bhd, a Petroliam Nasional Bhd (PETRONAS)-Edra Power Holdings Sdn Bhd consortium and a YTL Power International Bhd-led consortium.
As StarBiz 7 reported last week, the government has tightened approval requirements for new DCs, requiring them to secure their own “off-grid” power supply, either by building their own plants or sourcing electricity from dedicated or captive power plant (CPP) operators.
RHB Research also understands that new DC approvals will require a 30% renewable energy (RE) mix and 10-year energy supply agreements.
With another 40 applications reportedly in the pipeline, the requirements could spur gas-fired generation, as solar alone cannot reliably meet DCs’ round-the-clock power needs.
AsiaCarbonxChange founder and chief executive officer Nirinder Singh Johl says the scale of potential DC demand represents a major shift for the power sector.
“This is beyond normal planning,” he tells StarBiz 7.
This presents opportunities for IPPs through the NewGen26 tender and for CPPs supplying electricity directly to DCs.
For starters, if Genting succeeds, it could mark the group’s return to the local IPP scene. Genting was among Malaysia’s early IPPs, but its current power-generation investments are largely overseas.
New players enter the fray
The emerging opportunity is attracting property developers and energy companies seeking to tap long-term demand for DC power.
Earlier this month, Mah Sing Group Bhd and Kinergy Advancement Bhd agreed to explore captive power generation and RE supply for Mah Sing’s proposed DC developments in Selangor and Johor.
Kinergy is also involved in plans to repower a 650MW plant site in Perlis into a gas-fired facility with capacity of up to 1.5GW.
More recently, Hibiscus Petroleum Bhd teamed up with Seri Pajam Development Sdn Bhd to explore power generation for DCs and industrial parks, starting with SPD Tech Valley in Senawang, Negri Sembilan.
Hibiscus will assess gas turbines, gas engines, solar and carbon capture systems, building on its earlier collaboration with Sime Darby Energy Solutions and Kawasaki companies.
The oil and gas (O&G) group already generates 126MW of power across its offshore assets, excluding Brunei.
Sources say Citaglobal Bhd could also seek to capitalise on demand for captive power.
Tiza Global Sdn Bhd, a major Citaglobal shareholder, is said to be in a project to develop a 1,400MW combined-cycle gas turbine plant.
According to Nirinder, DCs’ predictable, round-the-clock demand makes them suitable customers for captive gas-fired plants, allowing operators to forecast fuel needs and negotiate supply contracts.
However, access to gas infrastructure and commercially viable fuel prices could influence plant locations.
He cites PETRONAS Gas Bhd’s cogeneration facilities in Gebeng, Pahang, and NUR Power Sdn Bhd’s electricity generation and distribution network in Kulim Hi-Tech Park, Kedah, as examples of dedicated power supply for industrial users, although both remain connected to the grid.
Sprint DC Consulting chief executive officer Gary Goh sees partnerships with established IPPs as one way for DC developers to overcome power supply challenges, given the IPPs’ experience in power generation and infrastructure.
Such partnerships could ease the upfront costs and complexity of building power plants.
“However, the bankability of such multi-billion-ringgit offtake agreements does add complexity to project execution
“In this case of on-site, off-grid generation, TNB’s role as the designated single buyer would also be bypassed, and this has to be carefully considered.”
Goh adds that while on-site plants are preferred, land constraints and limited gas access could make off-site plants near existing gas infrastructure a viable alternative.
“Electricity could then be supplied through dedicated connections or, where applicable, grid-based arrangements such as Cress (Corporate Renewable Energy Supply Scheme), if the government subsequently formalises third- party access for non-RE.”
However, he says regulatory uncertainty and billions of ringgit in wheeling charges over a plant’s operating life could render projects unviable, prompting developers to shelve Malaysian investments or look elsewhere over the next two to five years
New techs, Chinese turbines
However, an industry player says demand for gas turbines, driven partly by DC growth in the United States and large orders from the Middle East, has pushed delivery lead times for large units to 2030 or 2031.
He says the shortage explains why IPPs are securing equipment ahead of finalising projects.
RHB Research notes that TNB and YTL Power have moved to reserve turbines, positioning both groups well for the NewGen26 tender. Results are expected by year-end.
If successful, the research house estimates potential upside of 2% for TNB and 4% for YTL Power, based on target prices of RM16.50 and RM7, respectively. It also sees potential for the turbines to be allocated to captive CPP projects.
Other options developers could consider include smaller-scale technologies such as reciprocating gas engines and aeroderivative turbines, which adapt aircraft-engine technology for stationary power generation and are widely used in the O&G industry.
Although less efficient than larger turbines, these modular systems can scale up with demand and bridge the gap while a DC ramps up operations, one industry player says.
“A DC may ask for 700MW, but it would take them a few years to reach anywhere near that,” he explains.
“However, Malaysia’s below-market gas prices for the power sector could become less competitive beyond 2027, depending on regulatory decisions.”
The industry player believes turbine shortages could open the door to Chinese manufacturers, which are increasingly being considered as alternatives to established suppliers.
He cites Shanghai Electric’s contract to supply equipment and build Unit 3 of Sarawak’s 500MW-class Samalaju gas-fired plant – its first overseas deployment of heavy-duty gas turbine technology.
On the stock market, YTL Power has risen 59.16% to RM5.30 year-to-date, amid growing interest in its DC-related growth prospects.
Malakoff, however, remains weighed down by last year’s Tanjung Bin incidents. An analyst says an earnings recovery driven by improved operations and newer assets is not fully priced in, with a successful bid for a new gas-fired plant offering a potential catalyst.