• The Energy Commission (EC) has announced the winners of the Corporate Green Power Programme (CGPP). Out of the allocation of 800MW, about 563MW were awarded under the CGPP. The CGPP is expected to start commercial operations in 2025F. The winners will have to apply to the Single Buyer to be in the NEDA programme within 3 months.

• The Single Buyer is a ring-fenced arm operating independently within Tenaga Nasional (TNB) that determines how much electricity each power plant generates and sells. NEDA is short for the New Enhanced Dispatch Agreement, which allows power producers that do not have PPAs, to bid at their lowest cost to the Single Buyer.

• The CGPP is a commercial agreement between the solar producer and corporate customer. Under the CGPP, the corporate customer will buy electricity from the solar producer based on an agreed price. If the system marginal price is lower than the price agreed under the CGPP, the corporate customer will pay the difference and vice versa.

• The system marginal price is the clearing price for electricity at a certain time period. It is based on market demand and supply conditions.

• In our coverage, the winners of the CGPP are TNB Renewables (under TNB), Sime Darby(SD) Plantation Renewable Energy and Mega First Power Industries (under Mega First).

• TNB Renewables on its own and via two consortiums won a total of 90MW under the CGPP. SD Plantation won 15MW while Mega First secured 30MW.

• We do not know the earnings contribution from the CGPP contracts yet as these would depend on two things. First, the agreed price between the corporate customer and the solar producer and second, the system marginal price. Under NEDA, we believe that the system marginal price would fluctuate as it depends on market conditions of demand and supply.

• In any case, we do not think that the earnings contribution would be significant to TNB, SD Plantation and Mega First. This is due to the size of the wins of only 15MW to 90MW. TNB’s win of 90MW is small compared to its total generating capacity of more than 13,000MW. We believe that SD Plantation’s net profit would still be driven by CPO prices instead of renewable energy (RE). As for Mega First, the group’s earnings would be underpinned by the Don Sahong Hydropower Plant in Laos.

• Although the earnings contribution are not expected to be significant, we believe that the CGPP wins are positive for TNB, SD Plantation and Mega First as the companies would be able to increase their RE exposure. We maintain BUY on TNB (Fair value: RM11.80/share) and Mega First (Fair value: RM3.60). We maintain HOLD on SD Plantation (Fair value: RM4.30/share).

Source: AmInvest Research - 8 Aug 2023