KUALA LUMPUR: Tenaga Nasional Bhd
stands as a major beneficiary of the government's national energy transition roadmap (NETR) as it will be a key player in the projects outlined in the plan.
On July 27, the government launched Part 1 of the NETR, which outlined the approach to accelerate the country's energy transition and provided a framework for the shift from a traditional fossil fuel-based economy to a high-value green economy.
According to Hong Leong Investment Bank (HLIB) Research, the 10 flagship catalytic projects and initiatives could open up energy transition investment opportunities of RM435bil to RM1.85 trillion by 2050.
"Tenaga directly benefits from the cumulative 3GW solar projects as well as the increasing demand for rooftop solar (through GSPARX).
"The government will also allow a two-tier pricing mechanism (higher prices for renewable energy (RE) and export markets), allowing Tenaga to accelerate investments to digitalise the transmission and grid, budgeting RM35bil for 2025-2030, pushing for higher asset base size with higher allowable
income under the regulated asset based-incentive-based regulation (RAB-IBR) framework," said the research firm in a company update.
Meanwhile, Tenaga was also one of the major winners in the recently announced Corporate Green power Programme.
HLIB said Tenaga will also improve its environmental, social and governance (ESG) profile as it transitions into more RE and reduce its exposure to conventional fuel energy as envisaged under the NETR.
"Tenaga is now incentivised to accelerate investments into RE (which include Solar, Hydropower and Biomass), Hydrogen, Ammonia, CCUS (Carbon Capture, Utilisation and Storage) and BESS (Battery Energy Storage System) and is exploring early retirement of coal-fired power plants," it said.
The government has increased its target RE capacity to 70% of total power generation capacity by 2050, up from the intial 40%.
Meanwhile, Tenaga has fully recovered the government's subsidy obligation for imbalance cost pass-through (ICPT) in 1H23 amounting to RM10.4bil in mid-July 2023.
HLIB said the government is committed to a substantially lower amount of RM5.2bil in 2H23 due to the lower fuel generation cost following a drop in global energy and further reform of tariff structure.
Thus, the research firm expects continuous improvement in Tenaga's balance sheet and cash flow, and lower receivables in the upcoming results.
HLIB maintained its "buy" call on Tenaga and target price of RM12.
"Under NETR, we expect Tenaga to accelerate its energy transitioning plan and further diversify its earnings base. Earnings for Tenaga is expected to sustain into 2H23, while cash flow is expected to improve given the reversal of timing mismatch of ICPT," it said.
