The Energy Commission (EC) has announced 22 successful bidders out of 71 applicants for the Corporate Green Power Programme (CGPP). Only 563.44MW was awarded out of the 800MW total quota allocation however. Among all bidders, TNB won the biggest slice as it was successfully awarded in all 3 bids via its fully owned subsidiary TNB Renewables SB. We reckon the award is timely given the EC’s target to be in commercial operations by 2025, and for TNB to lock-in raw materials at lower prices. Over the medium term, TNB will benefit from the overall CGPP framework as a Single Buyer entity with lower generation cost from System Marginal Price (SMP) at an average of 25sen/kwh as compared to approved generation Base Tariff of 26.2sen/kwh under the Regulatory Period 3 (RP3). Despite this, we make no changes to our earnings forecast as the size of 90MW for all 3 bids is only marginal considering the Group’s existing generation capacity of 23,551MW in its portfolio. We retain our Outperform call with an unchanged DCF-derived TP of RM12.42.

• TNB won the biggest slice after it secured all 3 bids via TNB Renewables SB. As per the guideline, a company or the lead member of the consortium is allowed to be a member of 2 other consortia with equity interest of not more than 30% in each of the consortium. This means a company can have a maximum 3 bids under CGPP.

• Timely award. Instead of waiting for the entire 800MW allocation, we applaud this early announcement as this will accelerate the process for the successful bidders to meet the EC’s target for commercial operation by 2025. Successful bidders still have to get approvals from relevant authorities and meet other precedent conditions to achieve Financial Close for the financing prior to commencing EPCC stage. As such, the announcement is timely to capitalise on the low raw material price environment with polysilicon prices having dropped to USD7.84/kg in July, the lowest in 3 years due to global oversupply. This is crucial to have healthy returns with estimated virtual power purchase agreement (VPPA) tariff slightly above SMP at an average of 25 sen/kwh, though better than LSS4 (17-24sen/kwh).

• CGPP commands lower generation cost for TNB as Single Buyer entity with SMP price lower as compared to approved generation Base Tariff at 26.2sen/kwh under RP3. The base assumption for the coal price under RP3 is USD79/MT. The Base Tariff would potentially be revised higher in the next RP cycle from 2025 onwards given the current coal price is steadily above USD100/MT, with coal remaining the main generation mix in the medium term.

Source: PublicInvest Research - 9 Aug 2023