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Data centres, AI initiatives to boost electricity demand & lift TNB's earnings

Publish date: Wed, 17 Apr 2024, 01:43 PM

KUALA LUMPUR: Rising electricity demand from data centres (DC) projects and artificial intelligence (AI) will lift Tenaga Nasional Bhd's (TNB) long-term profitability.

But they may have limited impact on TNB's immediate earnings, according to Affin Hwang Investment Bank.

In Malaysia, TNB has received 74 supply applications from DC customers with total maximum demand in excess of 11,000MW (40.6 per cent of Peninsular Malaysia's installed capacity). 

"We do not expect all the projects to be implemented. TNB added that the group delivered electricity for nine DC projects with a total energy demand of up to 635MW in 2023," said Affin Hwang in a note today.

For 2024, TNB expects to connect to nine DC projects with 700MW of total energy demand.

In the long run, TNB sees potential maximum demand from DC in excess of 5,000MW by 2035 (18.5 per cent of Peninsular Malaysia's installed capacity).

"We believe Malaysia will need to invest further in the power infrastructure and this should improve TNB's long-term profitability (via higher capex under the Income-Based Repayment framework)," it said.

The International Energy Agency (IEA) estimates that DC, cryptocurrencies and AI consumed about 460 TWh of electricity worldwide in 2022, almost 2.0 per cent of total global electricity demand. 

IEA forecasts global electricity consumption of DC, crypto and AI to range between 620TWh and 1,050TWh in 2026 (up 35 per cent-128 per cent), with a base case of 800TWh (up 74 per cent from 2022).

The rising DC projects should also benefit TNB's non-regulated business units such as Allo (fibre connectivity) and GSpark (rooftop solar). 

"We continue to like TNB - a direct beneficiary of Malaysia's energy transition initiatives and indirect beneficiary of rising DC and AI demand," Affin Hwang said..

It maintained a "Buy" call on TNB with an unchanged price target of RM12.80.

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