Cheaper power with competitive bidding

STAR, 25 April 2012

A MORE competitive bidding process seems to be emerging in the power sector.

The first-generation independent power producers (IPPs) have been asked to put in their proposals for possible extension of their power purchase agreements (PPAs), which will mostly expire in 2016/17.

But approval is not going to be automatic; it will be based on the cheapest cost of electricity.

“If these IPPs can produce electricity that is cheaper than the new power plants, they are likely to be considered,'' said an industry player.

The first gauge of competitiveness, said analysts, would be against the cost of producing electricity from the Prai combined cycle gas turbine power plant, for which nine consortia and sole bidders have been shortlisted to take part in the tender process.

“If these IPPs can produce electricity that is cheaper than the Prai plant, the plan appears to be an initial uptake of 2,500 megawatts,'' said an analyst.

The first-generation IPPs YTL Power International Bhd; Segari Energy Ventures Sdn Bhd (a subsidiary of Malakoff); Port Dickson Power of the Sime Darby group; Powertek Bhd and Genting Sanyen Power Sdn Bhd have a combined capacity of 4,150MW.

1Malaysia Development Bhd (1MDB) had earlier announced it would acquire the power assets of Tanjong plc which would include Tanjong's wholly-owned unit, Powertek, the holding company of Pendekar Power.

These IPPs can submit bids for possible extension of up to 10 years, subject to some conditions, including reducing capacity payment for four years from now till the end of their current agreements.

“They are still preparing the bids,'' said the analyst. “It will probably take until September or October.''

Originally, the first-generation IPPs were supposed to negotiate for their PPA extensions on a one-on-one basis; however, Tenaga Nasional Bhd (TNB) was said to be firm in its stand that these IPPs had already made a lot of money.

Currently, these IPPs are also part of the nine consortia and sole bidders taking part in the tender process for the Prai plant.

Based on the cheapest cost of producing electricity, industry players have voiced their concerns that Tenaga Nasional Bhd (which owns the site for Prai power plant) and Petroliam Nasional Bhd (which controls the availability of gas) could be in a more advantageous position to lower costs.

The consortia comprise 1MDB, which has teamed up with South Korean conglomerate Hyundai Engineering & Construction; YTL Power with Marubeni Corp of Japan; CI Holdings Bhd and Teknologi Tenaga Perlis Consortium Sdn Bhd with Daelim Industrial Co Ltd of South Korea; Amcorp Power Sdn Bhd with Japanese group Mitsui & Co Ltd; and Malakoff and Petronas Power Sdn Bhd with Mitsubishi Corp of Japan.

Sole bidders are represented by local players Pendekar Power, Mastika Lagenda Sdn Bhd, an indirect 97.7%-owned subsidiary of Genting Bhdand the holding company of Genting Sanyen; TNB and Sime Darby Power Sdn Bhd.