New electricity tariff to improve transparency with five billing components
THE ENERGY Commission (EC) has introduced a revised electricity tariff structure for Peninsular Malaysia under Regulatory Period 4 (RP4), effective from 1 July 2025 to 31 December 2027, within the Incentive-Based Regulation (IBR) framework.
The reform includes three key elements:
i) A slightly lower base tariff of 45.40 sen/kWh, representing a 13.6% increase over RP3 (vs the 14.2% hike announced in December 2024).
ii) A newly restructured electricity schedule.
iii) A shift from the semi-annual Imbalance Cost Pass-Through (ICPT) to a monthly Automatic Fuel Adjustment (AFA), enabling more timely cost recovery.
The impact on Tenaga Nasional (TNB) is neutral, as the regulatory rate of return on its Regulated Asset Base (RAB) remains at 7.3%, while the AFA mechanism is expected to ease TNB's working capital requirement amid volatile fuel prices.
'We maintain our Overweight rating on the sector, driven by rising electricity demand, renewed investments in Independent Power Producers (IPPs) and renewable energy, and TNB's planned RM42.9bn in capital expenditure,' said Public Investment Bank (PIB).
New tariff schedule categorises users into domestic and non-domestic groups, based on voltage levels, replacing the previous multi-tier kWh usage (for domestic) and business-type-based classification.
It also introduces five distinct charge components , that is Energy, Capacity, Network, Retail, and AFA, enhancing billing transparency.
Notably, the Time of Use (ToU) scheme has been expanded to domestic users, offering extended off-peak hours from 10:00 p.m. to 2:00 p.m. on weekdays and all day on weekends, encouraging more efficient energy consumption during these periods.
Overall, more than 23m domestic users are expected to remain unaffected by the changes, with those consuming between 0–900 kWh per month likely to enjoy slight savings.
Non-domestic users in the Medium and High Voltage categories will face a higher effective Maximum Demand (MD) charge.
This will incentivise large-scale commercial and industrial consumers to optimise their energy usage, particularly by reducing load during peak demand periods. This will also support broader grid stability and sustainable electricity supply-demand market.
'We maintain Overweight call with TNB (Outperform, TP:RM16) as our top pick. TNB's earnings outlook remains favourable, as the regulatory rate of return remains unchanged at 7.3%,' said PIB.
The marginal reduction in base tariff is likely attributable to lower generation cost components, reflecting the decline in fuel prices observed in 1H2025.
Looking ahead, the introduction of the monthly AFA mechanism is expected to enhance cost pass-through efficiency, easing TNB's working capital requirements amid ongoing fuel price volatility. —June 23, 2025
Main image: ETF Trends
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Focus Malaysia
3 hours ago
- Focus Malaysia
Global markets on edge as conflict risks push oil prices higher
THE US strikes on Iran's nuclear facilities over the weekend has marked its direct involvement in the Israel-Iran war, which we fear could escalate an already volatile situation in the Middle East. If this conflict is prolonged, it could further destabilise the fragile market sentiment, which has been weighed down by weak economic conditions. In the short-term, the uncertainty could prop up oil prices, exacerbating inflationary pressure and sending bond yield higher, especially in the developed countries – US, Europe, Japan. Iran's parliament has now voted to close the Strait of Hormuz, where c.30% of global seaborne oil trade flows through the chokepoint. 'We believe the market will remain in a cycle of risk aversion with investors shying away from risky assets, until peace and stability prevail,' said Public Investment Bank (PIB). Although global market has regained losses since the announcement of a 90-day tariff pause in April, this trend could reset. We maintain our bearish outlook, favouring defensive stocks that predominantly focusing on the domestic market i.e. Maybank, Telekom, TNB, CCK and IGB Comm REIT. While we have a neutral call on the oil and gas sector, we believe there is upside risk in the immediate term, we have Outperform rating on Hibiscus and Bumi Armada. Since the start of the Israel-Iran conflict on 13 June, the US has largely refrained direct engagement in the war with its Secretary of State Marco Rubio stressing Israel has acted unilaterally while President Donald Trump announcing, just last week, that he will decide whether or not the US gets involved within the next two weeks. However, within days, the US has changed the course of the conflict, launching strikes on three Iranian nuclear facilities on 21 June. Promising to be a 'peacemaker' in his run up to return to the White House, Trump has taken a dramatic step by bringing US directly into the conflict. Should this escalate into a protracted conflict, it could strain the US' fiscal deficit even further, which is projected at about 6.2% of GDP in 2025. This should also increase its swelling debt, which stood at about 123% of GDP. Note that US artillery stockpiles are depleting quickly due to increased demand while the urgency to replenish may be constrained by limited rare earth supplies from China. The US military industrial base is already facing challenges in ramping up production to meet increasing demand from Ukraine and Gaza. Although Trump claimed the Iranian nuclear facilities had been destroyed by the US bunker-blaster, the extent of damage to the underground enrichment plants remains unclear, especially Fordow which is believed to be buried at a depth of 80-90m with mountain above ground. Iran could retaliate by closing the Strait of Hormuz or launching attacks on the US military base. The US operates a broad network of military sites, both permanent and temporary, across approximately 19 locations in the Middle East. The uncertainty in the Middle East is likely to cause a spike in oil prices as the region contributes to 30% of the world's total output, with Iran being the third-largest OPEC producer. If there is no material disruption to global supply of oil with the Strait of Hormuz remains accessible (the final decision now lies with Iran's national security council after the parliament voted to close the critical oil trade route), this may well be short-lived, as there is still ample supply of oil in the market while global demand could weaken due to slowdown in international trade following the increase in tariffs. Nonetheless, given the uncertainty and risk of escalation, oil prices are likely to surge in the immediate term while investors would rush to safe-haven assets (likely to be gold or JPY instead of USD or Treasuries) and avoid risky investments such as equities. US CPI remains under control partly due to low energy prices but a protracted conflict in the Middle East could potentially lead to a sustainable rise in energy prices, increasing the likelihood of the US economy slipping into a stagflation in 2H 2025. —June 23, 2025 Main image: Maukerja
Malaysian Reserve
3 hours ago
- Malaysian Reserve
TNB tariff reform neutral to earnings but enhances transparency and cash flow
TENAGA Nasional Bhd (TNB) is expected to maintain earnings stability while benefiting from improved cost recovery and billing clarity under the newly announced Regulatory Period 4 (RP4) electricity tariff framework for Peninsular Malaysia. The revised tariff, announced by the Energy Commission and published on Bursa Malaysia earlier today, will come into effect on July 1, 2025, and remain in place until December 31, 2027. It includes a new base tariff of 45.40 sen/kWh, replacing the previous 39.95 sen/kWh, and introduces a monthly automatic fuel adjustment (AFA) mechanism in place of the current semi-annual imbalance cost pass-through (ICPT) system. CIMB Securities views the tariff change as earnings-neutral. 'Regardless of tariff changes, the IBR framework provides regulatory adjustments such that TNB ultimately earns the regulatory rate of return (7.3%) on the regulated asset base (RAB),' the research house said in a note. It added that the AFA 'will reflect the market fuel prices and forex on a monthly basis (instead of every 6 months),' which would help the utility better manage working capital amid fuel price volatility. PublicInvest Research, which maintained an 'Outperform' rating on TNB with a target price of RM16, also welcomed the new mechanism. 'The AFA mechanism is expected to ease TNB's working capital requirement amid volatile fuel prices,' it said, highlighting that the structural shift allows for 'more timely cost recovery.' The base tariff of 45.40 sen/kWh is slightly lower than the 45.62 sen/kWh announced in December 2024, and according to PublicInvest, 'the marginal reduction in base tariff is likely attributable to lower generation cost components, reflecting the decline in fuel prices observed in 1H2025.' For residential users, the new structure is expected to be favourable, with CIMB noting that 'residential customers that use 50–900 kWh per month will see their electricity bills fall by 1–15%,' aided by Energy Efficiency Incentive (EEI) rebates of up to 25 sen/kWh. However, customers who consume more than 1,000kWh monthly will be subject to fuel price adjustments under the AFA. The tariff structure also introduces a revamped classification system based on voltage levels – categorising users into domestic and non-domestic groups – and breaks down charges into five components: energy, capacity, network, retail, and AFA. PublicInvest pointed out that the change 'enhances billing transparency' and extends the time-of-use (ToU) scheme to domestic users, allowing them to optimise electricity consumption during off-peak hours. Non-domestic customers, especially in the medium and high voltage categories, will face a higher effective maximum demand (MD) charge. 'This will incentivise large-scale commercial and industrial consumers to optimise their energy usage, particularly by reducing load during peak demand periods,' said PublicInvest. While the new structure may introduce variability in bills for business users depending on usage profiles, peak/off-peak load patterns, and maximum demand, analysts believe it encourages long-term grid stability and sustainable electricity use. CIMB forecasts TNB's core net profit will grow from RM4.36 billion in FY2025 to RM4.97 billion in FY2026, supported by regulated earnings and a healthy capex pipeline. 'Under RP4, the RAB is expected to grow healthily, led by a 12% higher base capex of RM26.6 billion and contingent capex of RM16.3 billion,' the firm added. PublicInvest remains bullish on the sector, citing rising demand, TNB's RM42.9 billion planned capex, and the expansion of renewable energy initiatives. 'We maintain our Overweight rating on the sector,' it said, identifying TNB as its top pick. TNB, in its own announcement today, reaffirmed that the implementation of RP4 supports the goals of the National Energy Transition Roadmap (NETR), and that it remains committed to ensuring a reliable and sustainable power supply for the country. — TMR
Malaysian Reserve
3 hours ago
- Malaysian Reserve
TNB confirms tariff revision and fuel cost mechanism overhaul starting July 1
TENAGA Nasional Bhd (TNB) has announced that the government has approved a new electricity tariff schedule for Peninsular Malaysia under Regulatory Period 4 (RP4), marking the first comprehensive revision since 2014. The revised schedule, approved under the Incentive-Based Regulation (IBR) framework, will take effect from July 1, 2025. It aims to offer a fairer rate structure for more than 23.6 million domestic users, according to a statement by the Energy Commission (Suruhanjaya Tenaga) under the Ministry of Energy Transition and Water Transformation (PETRA). In tandem, the government is also rolling out an enhanced fuel cost pass-through mechanism, dubbed the Automatic Fuel Adjustment (AFA), which will replace the existing Imbalance Cost Pass-Through (ICPT). TNB said the AFA mechanism preserves the neutral impact of fuel cost fluctuations on the utility's financial performance. TNB said in a Bursa Malaysia filing today that the RP4 revisions are positive for the group's role in supporting the National Energy Transition Roadmap (NETR). The utility reiterated its commitment to ensuring reliable and continuous electricity supply across Peninsular Malaysia. — TMR
