‘POWER PLAYERS FEELING THE HEAT’
Coal prices above US$100 likely to pressure electricty rates
GLOBAL coal price is expected to remain high at above US$100 (RM419 ) per tonne until end of next year, said analysts. This will continue to put pressure on Malaysia’s power producers to generate and supply electricity to domestic (households) and non-domestic (industrial, commercial and others) customers at affordable rates.
Demand for coal remained high and was growing in some countries, but supply was struggling to keep up, they said.
Coal has always had two primary markets, material classified as coking, which finds its way into steel-making, and energy (or thermal) coal used to generate electricity.
The benchmark Australian thermal coal price now stands at about US$108 per tonne. This means the price of top quality thermal coal exported from the Australian port of Newcastle has risen by more than 100 per cent after reaching a 10 year-low in 2016 when it fell below US$50 per tonne.
ABN Amro senior energy economist Hans van Cleef said coal demand in the next two years was expected to remain stable at around the current levels.
“Although headlines in the newspapers may suggest that coal demand will peak soon, demand will remain solid in the coming years,” he reportedly said.
Analysts said if prices remained above US$100 per tonne, consumers, especially the nondomestic users, may have to settle with higher tariffs.
Non-domestic customers are now imposed with a surcharge of 1.35 sen per kiloWatt hour from July until December this year under the imbalance cost passthrough (ICPT) mechanism. The surcharge was set based on coal price at US$75 per tonne.
A local research firm said a steady coal price above US$100 per tonne would most likely see a change in the surcharge for the next six months as rebates provided by the government were unsustainable when coal and gas prices continued to escalate.
On the power producers side, Tenaga Nasional Bhd in particular will be grappling with higher operating costs.
The country’s power producers’ total generation and fuel costs rose by eight per cent to RM6.63 billion in the second quarter ended June 30 this year.
This raised TNB’s overall operating expenditure by nine per cent higher to RM10.68 billion during the period.
TNB noted at an analysts briefing on its second quarter results that it had paid an average of US$91.1 per tonne of coal during the period.
Last year, it paid an average US$72.7 per tonne and US$55.7 per tonne in 2016.
Kenanga Research said TNB’s total fuel costs were expected to remain high until at least end of next year as it would be required to use more less cost-effective non-coal fuels.
The group’s non-fuel costs rose 12 per cent to RM4.06 billion in the second quarter.
TNB’s coal needs are sourced overseas. Over 60 per cent is purchased from Indonesia, about 25 per cent from Australia and the rest from South Africa and Russia.
Overall, 53 per cent of Malaysia’s electricity comes from coal, 42 per cent from natural gas and the remainder from hydro and renewable energy.