The Association of Water and Energy Research (Awer) predicts a further hike in electricity tariffs, by 24 to 39 percent within 18 months from now.

This will come about when the price of natural gas used to generate electricity is based on the market price by January 2016, Awer president S Piarapakaran said in a statement today.

Piarapakaran (right) said the Energy Commission announced in 2013 that the Incentive-based Regulation (IBR) will be go on a trial run from Jan 1 this year and the fuel cost pass-through mechanism will be implemented.

“The federal government has also pledged to increase gas prices for electricity generation periodically to reach market price by the end of 2015. This also means also that the electricity tariff will be reviewed every six months, if government follows the planned schedule,” he said.

Based on Awer’s calculations on these two scenarios, the increase in electricity costs would be unavoidable as a result of the government's plan to increase natural gas prices periodically until it reaches the market price.



“Awer further urges the federal government to implement a transparent tariff-setting mechanism to ensure the rakyat and businesses are prepared for possible impacts of the electricity tariff increases,” Piarapakaran said.

The last electricity tariff hike was on Jan 1 this year, when the rate was increased by 15 percent.

Prime Minister Najib Abdul Razak had earlier this week said the rise in electricity tariff was unavoidable following the rise in fuel prices.

Expanding on the two scenarios, Awer said the first scenario uses different natural gas prices, where the increase is pro-rated and passed periodically and coal prices remain unchanged.

“If the government takes this approach to increase the natural gas price periodically until it reaches the market price, the estimated tariff increases will be between 23.75 percent and 39.33 percent within 18 months, compared with the current average tariff,” Piarapakaran said.

‘Generation costs account for 69 percent’

The second scenario, Awer said, was based on current natural gas market prices and the increases were at a fixed rate. Here, the tariff increase within the 18 months is estimated at between almost seven percent and 30 percent.

The two scenarios show that the tariff increase cannot be avoided, where the three main costs in electricity tariff are generation costs, transmission and distribution, Piarapakaran said.

He added that according to a Tenaga Nasional Bhd presentation, generation costs account for 69 percent, transmission cost at nine percent and distribution costs at 21 percent, while others were at one percent.

Fuel costs, he said, account for 41 percent of the generation costs.

“Hence, the increase in fuel cost will give the biggest impact to the tariff.”

Piarapakaran said speculation about direct negotiations of new power plants is another worrying issue as Malaysians have been haunted with the lopsided Power Purchase Agreements (PPA) for decades.

“Since fuel cost is passed through and gives a high impact of 41 percent on the tariff, the federal government must ensure that the impact of new power plants’ capacity charges on the tariff is minimised and there is also a transparent, open bidding process.

Piarapakaran said Aver views this current development seriously as it will impact Malaysia’s competitiveness internationally.

Hence, he added, an independent panel must be formed to study the steps and criteria of the bidding process set by the Energy Commission and make the necessary changes.

“Pledges made by the federal government in the 10th Malaysia Plan, that the Malaysian Electricity Supply Industry (MESI) reforms, and the Economic Transformation Programme, must be fulfilled to ensure the rakyat and businesses only pay for equitable and affordable tariff,” he added.