TENAGA is keeping up the momentum to achieve its renewable energy (RE) capacity target of 8,300 MW (3,100 MW domestically, 5,200 MW internationally) by 2025. The company has pledged invest about RM20b annually over the next 28 years to fast track its energy transition plan, underscoring its firm commitment to its net zero emission target by 2050. We currently value TENAGA at RM10.17/share (WACC: 7.1%, TG: 2%). It remains an OUTPERFORM.

Small RE portfolio for now. As of July 2022, Tenaga National Bhd’s (TENAGA) installed RE capacity is 3,794 MW, comprising 2,801 MW in Malaysia and 993 MW overseas. This made up 16% of the group’s portfolio. In Malaysia, RE accounted for only 8.6% of the generation mix for 2021. Although these amounts are small, TENAGA is determined to transition to RE significantly as costs rapidly decline. Internationally, TENAGA has RE assets in the UK, and it is targeting to expand its RE assets to Southeast Asia (Thailand, the Philippines and Vietnam), the EU (Spain, France and Ireland) and Asia Pacific (South Korea, Taiwan and Australia).

Hydropower and biogas apart from solar. Although conversations on RE often focus on solar energy, hydropower makes up 5.4% of TENAGA’s power generation mix with solar at only 0.9% in 2021, while energy generated by biogas is insignificant. In terms of reliability and stability, hydropower is better than solar but it involves high construction cost for dams as well as ecological impact on rivers and communities who are dependent on rivers for their daily lives.

High performance solar power plant. During our recent visit to the TNB Sepang Solar Photovoltaic power station, we gained a clearer understanding on the entire chain of solar power generation and management of the facility. Commissioned in November 2018, the 50MW solar power station has exceeded the maximum annual energy declared of 104,000 MWh to the off-taker (i.e., TENAGA) for three consecutive years from 2019 to 2021 (6% higher in 2019, 5% higher in 2020 and slightly above in 2021 despite being hit by a flood). Also, it managed to avoid almost 190 tonnes of equivalent CO2 emission during the period.

Risk of flooding. The Sepang solar farm sits on flat land measuring 98.4ha near Sg Langat. The land belongs to TENAGA and was formerly planted with oil palm trees. Although dykes were built along the river, the site was hit by a severe flood in December 2021, disrupting the plant’s operations. Note that the Dec-Jan floods affected 8 states in Peninsular Malaysia.

Source: Kenanga Research - 11 Oct 2022