RHB Investment Bank Research has maintained an “overweight” call on the sector.
PETALING JAYA: The utilities sector is expected to continue generating market interest on rising demand for electricity from the surge in data centre developments
Market interest is also expected to be gained from upgrades of the power grid increasing regulated net returns, supply gap being bridged by experienced independent power producers (IPPs) and the addition of renewable energy (RE) capacity helping to increase jobs for construction companies.
RHB Investment Bank Research, which has maintained an “overweight” call on the sector, said in a report that there is strong demand ahead after electricity demand hit a new peak of 20,066 megawatts in July.
It noted that Tenaga Nasional Bhd
(TNB) expects annual electricity demand to grow by 3% to 4% from 2.5% to 3% due mostly to demand from data centres, with load utilisation in June alone contributing around RM100mil in sales to TNB.
The research house’s “overweight” calls cover YTL Power International Bhd (target price: RM5.94), TNB (target price: RM16.70) and Samaiden Group Bhd (target price: RM1.33), an engineering, procurement, construction and commissioning solutions provider for RE projects.
“We see energy consumption from data centres having a compounded annual growth rate (CAGR) of 1.6% to 2.6% in 2023 to 2035, if three gigawatts (GW ) to five GW of the data centres are fully operational by 2035.
For every increase or decrease of one GW in data centre developments, we expect the CAGR to swing by circa 0.5%,” it said.
In particular, Peninsular Malaysia’s electricity consumption growth over the next decade should surpass the 10-year average of 2.4%, led largely by the continued expansion of data centres.
More electricity supply is expected to come into the grid as well, with TNB estimating up to 5GW of additional RE under various programmes including the Corporate RE Supply Scheme (CRESS), Large-Scale Solar 5 (LSS5), and Corporate Green Power Programme (CGPP).
“We anticipate increased activity in the second-half, driven by upcoming CGPP EPCC contracts and the launch of the CRESS framework in September,” it said.
Despite concerns on high system access charges and its impact on securing off-takers, CRESS is expected to boost the green power market.
RE generation would also be supported by the anticipated announcement of the LSS5 tender winners in the fourth quarter or first quarter of next year.
“We maintain our view that the solar sector is poised for growth, supported by low panel prices and a stronger ringgit, positioning players for steady expansion and diversified portfolios,” the research house said.
The research house said Malakoff Corp Bhd expects its Prai power plant’s power purchase agreement to be extended in the next two to three years beyond the one-plus-one extension and that other retired plants could be called up if demand continues to spike.
“This is because the barrier of entry remains high for new IPPs as strong financials are needed,” it said, pointing out that IPPs with existing plant sites have an edge on total project cost backed by existing infrastructure (substations and transmission lines installed).
The research house said Malakoff is positive on two new gas plant proposals, pending a further milestone to be fulfilled but also shared that the company believes coal would remain relevant over the next decade.
This is as existing coal plants’ power purchase agreements are to be extended over the medium-term, due to insufficient gas plant additions as well as higher gas generation costs.
