What power plant developers need to know
Malaysia is no stranger to cross-border electricity transmission, having first made such a connection in 2016. Malaysia's pilot project, which was funded by the Asian Development Bank, saw the transmission of 70 megawatts (MW) of electricity from Mambong to Bengkayang, Indonesia, by way of a 47 kilometre long double-circuit grid line. The announcement of the Laos-Thailand-Malaysia-Singapore Power Integration Project (the LTMS project) in late October 2020 marked a huge step forward for Malaysia's venture into cross-border electricity transmission, as this involves a commitment to initiate cross-border electricity sales of up to 100MW from Laos to Singapore via Thailand and Malaysia.
Following the announcement of the LTMS project, the Energy Commission published the Guide for Cross-Border Electricity Power Sales, which sets out the framework for cross-border electricity sales between Peninsular Malaysia and neighbouring countries, the latter being specified as either Singapore or Thailand.
This article examines the main aspects of the framework for cross-border electricity sales in Malaysia as well as the challenges ahead.
What power plant developers need to know
Any person intending to participate in cross-border electricity sales – namely, a power plant developer, is required to:
- own a power plant that is connected to the grid system; and
- have a supply agreement for the sale and purchase of electricity with a person in one of the listed neighbouring countries.
The cross-border guide envisages power plant developers entering into two contracts – namely:
- a supply agreement, as described above; and
- a system access agreement, which is an agreement between a power plant developer and Tenaga Nasional Berhad (TNB) (the owner and operator of the grid system in Peninsular Malaysia). This agreement should set out the technical and commercial arrangement for the connection and the access to and operation of the grid system, as well as the cross-border interconnection and wheeling of the electricity generated.
A system access arrangement will be required if the power plant developer utilises an existing interconnection that is owned or operated by TNB. The only existing interconnection identified currently in the cross-border guide is between Malaysia and Singapore.
A system access agreement will not be needed if the power plant developer owns or operates a new, dedicated interconnection for the sale and transfer of electricity between their power plant and the receiving point of the purchaser in the neighbouring country.
Interconnection options and technical requirements
Power plant developers have the option to utilise either the existing interconnection or a dedicated interconnection for the transfer and sale of electricity to a neighbouring country. If a power plant developer intends to use a dedicated interconnection, the development and construction thereof is the developer's responsibility and it will be subject to the approval of:
- the Energy Commission;
- the relevant local authorities; and
- the neighbouring country.
Presently, the cross-border guide does not envisage or address the possibility of a dedicated interconnection being constructed and owned by a third party (ie, a party other than the power plant developer or TNB).
The technical requirements for the project depend on whether the power plant developer utilises the existing interconnection or a dedicated interconnection.
All metering equipment must comply with the specifications of the grid code and the terms of the system access arrangement.
All metering equipment must comply with the specifications of the grid code.
The generation and delivery to the grid system and the export capacity must be in accordance with the dispatch schedule approved by the single buyer.(1)
The dispatch must be in accordance with the supply agreement.
Accounting and settlement
TNB is responsible for reading the meters and maintaining the records of electricity generated and delivered to the grid system and to the neighbouring country.
The accounting and settlement must be in accordance with the supply agreement.
The wheeling charges are payable by the power plant developer to the single buyer in accordance with the terms of the system access arrangement.
There are no wheeling charges when using a dedicated interconnection.
To operate a power plant, a power plant developer must obtain a licence under section 9 of the Electricity Supply Act 1990. However, prior to obtaining this licence, a developer must execute the supply agreement and system access agreement (if applicable) and submit the same to the Energy Commission.
Cross-border electricity trade in Malaysia will not be without its challenges given that it is in its infancy. First and foremost, the existing legislative and regulatory framework for electricity must include cross-border electricity trade. While the cross-border guide provides a framework, greater clarity on the regulation of such projects is required. Further, the guide addresses the export of electricity but not the import. In recognition of this gap, in March 2021 the Energy Commission issued a request for the review and amendment of the Energy Commission Act 2001 and the Electricity Supply Act 1990 in order to regulate power import-export activities. However, these amendments and the implementation of the same will take time and may be delayed due to the ongoing covid-19 pandemic. Therefore, it remains to be seen how cross-border electricity trade in Malaysia will be regulated; the uncertainty thereof may deter domestic industry players from venturing into cross-border projects.
The economics of cross-border electricity trade are another key consideration. In developing the project, a power plant developer would have to consider, among other things:
- the cost of procurement and ensuring reliability of energy sources;
- financial returns on the project, particularly as energy generated from the power plant can be used only for sale to a purchaser in a neighbouring country; and
- the time and cost needed for implementing cross-border projects, which would include obtaining approvals and compliance requirements in multiple jurisdictions and involve various stakeholders.
These challenges will have to be addressed to make investment in cross-border electricity trade in Malaysia viable.
Across the strait, Singapore's Energy Market Authority has plans to initiate a pilot project for the import and sale of up to 100MW of electricity by a power plant developer to a buyer in Singapore, utilising the existing interconnection, for two years. Singapore's pilot project could be a trial for the export of electricity for Malaysian players and possibly spur the further growth of renewable energy power plants therein.
Considering the wider implications, cross-border electricity trade is a step forward in the liberalisation of Malaysia's domestic electricity market as it will offer diversity of supply as well as introduce a competitive element to the pricing of electricity consumption. With Malaysia's commitment to the LTMS project and the steps being taken to address the relevant regulation, cross-border trade will play a promising role in this liberalisation. However, the government will ultimately have to play its part in encouraging the development of these projects, for instance, by providing incentives and increased jurisdictional cooperation and coordination. This will be key to ensuring cross-border electricity projects become an attractive and feasible investment opportunity.
For further information on this topic please contact Richard Khoo Boo Hin or Rachel Chiah at SKRINE by telephone (+60 3 2081 3999) or email ([email protected] or [email protected]). The SKRINE website can be accessed at www.skrine.com.
(1) The expression "single buyer" refers to any person or a unit, department or division forming part of a licensee that is authorised by the minister of energy and natural resources under section 22B of the Electricity Supply Act 1990. Presently, there is only one single buyer, a department within TNB that is authorised to conduct electricity planning and manage electricity procurement for Peninsular Malaysia.
(2) "Wheeling charges" refers to the charges imposed by the grid owner or operator for the use of their system to transport energy.