Archive for March, 2011

‘Govt may delay nuclear plans’

Posted on March 30, 2011. Filed under: Energy |

-The Borneo Post-

MONUMENTAL: Workers carry out final stages of work on the Bakun Hydroelectric Dam near Belaga. Deemed as the largest dam in Asia, the dam is slated to be fully operational by the end of next year, with a capacity to generate approximately 2,400MW of hydroelectricity power. – Bernama photo

KUCHING: The nation’s plan to build nuclear plants here was likely to be delayed, following protests from various organisations against the programme, especially after the recent nuclear disaster in Japan.

Under the ambitious Government Transformation Programme (GTP), Malaysia was envisioned to have two nuclear power plants with a 1,000-megawatt (MW) capacity each, with the first plant slated for operations in 2021 and the second one a year later.

“Apart from the possible delay, the government is also unlikely to go ahead with unpopular programmes ahead of the upcoming election,” HwangDBS Vickers Research Sdn Bhd’s analyst June Ng observed in an e-mail note yesterday.

Specifically, the analyst believed that plans for the nuclear power plants would not be pushed through as more time would be needed to review potential safety issues.

In December last year, the government announced plans to build two nuclear power plants as part of an overall long-term plan to balance energy fuel mix.

The move towards nuclear power was earlier made in view of the nation’s declining oil reserve and rising fuel costs, of which national power company Tenaga Nasional Bhd (TNB) had not been able to pass through to users due to inflationary concern.

“While construction cost for nuclear plant is likely to be four times higher than coal- and gas-fired power plants, nuclear plants can provide access to cheap, reliable and clean energy that does not produce greenhouse gases that cause global warming and climate change,” remarked Ng.

Notably, the move to have these nuclear plants could also have stemmed from the confirmation that power from the Bakun hydroelectric station here would not come to Peninsular Malaysia.

It was estimated that by the time all eight turbines at the colossal Bakun Dam had become fully commissioned by the end of next year, it should be able to generate approximately 2,400MW of hydroelectricity power.

With regards to the nuclear programme, TNB was already working closely with the Malaysian Nuclear Agency and the Atomic Energy Licensing Board for the basis on potential nuclear power development in the country.

Given the delay in the proposed nuclear plants, Ng opined that the government might ramp up its effort to ensure adequate investment in coal- and gas-fired power plants would meet the country’s power need – currently estimated to grow at four per cent per annum over the next five years – in line with the nation’s projected gross domestic product (GDP) growth rate.

“The new power plants are crucial to address the declining reserve margin in Malaysia, which is currently at 40 per cent but will decline to 20 per cent come year 2015, based on estimated average power demand growth of three per cent per annum,” Ng pointed out.

Mirroring this, TNB is now developing a new 1,000MW coal-fired power plant on its existing power plant site in Manjung Perak, while another 1,000MW new coal plant will be awarded to either MMC Corp Bhd or Jimah Energy Ventures Sdn Bhd over the next two to three months, noted Ng.

Additionally, the analyst also viewed that new liquefired natural gas (LNG) facilities in Sabah and Melaka should ease gas supply constraints in Peninsular Malaysia; at the same time, allowing for the possible extension of first generation power purchase agreements (PPAs).

Nearer to home, Dialog Group Bhd and its consortium partners clinched a RM1.6-billion engineering, procurement, construction and commissioning (EPCC) contract from Petronas Carigali Sdn Bhd for the Sabah-Sarawak Gas Pipeline (SSGP) project.

The project would involved a 512-kilometre, 36-inch diameter onshore natural gas pipeline and associated facilities from the proposed Sabah oil and gas terminal (SOGT) in Kimanis, Sabah to Petronas LNG complex in Bintulu – running about 90 kilometres in Sabah, and 422 kilometres in Sarawak.

Ng noted that as EPCC work would be reaching completion soon, the SOGT should be able to bring new gas supply from next year onwards.

“There will be additional gas supply for Sabah upon completion of this project. Furthermore, TNB and Petronas Gas Bhd (PetGas) are considering using piped natural gas or LNG for a proposed 300MW power plant in Sabah, after both federal and Sabah state governments scrapped a plan to build a coal-fired power plant,” added the analyst.

Across the South China Sea, PetGas is currently developing LNG facilities and services in the vicinity of Sungai Udang Port, Melaka where the re-gasification plant will have a maximum capacity of 3.8 million tonnes per annum upon completion by July next year.

Owned and operated by PetGas, the RM1.08-billion plant construction contract was awarded to a consortium comprising Perunding Ranhill Worley Sdn Bhd (70 per cent) and Muhibbah Engineering Bhd (50 per cent) in January this year.

Be clear about nuclear risks

Posted on March 27, 2011. Filed under: Energy |

Tajuddin: The best plans may still not be doable

Posted on March 26, 2011. Filed under: Energy |

-The Star-

The multitude of challenges faced in planning the country’s energy supply is not unfamiliar terrain for Energy Commission chairman Tan Sri Ahmad Tajuddin Ali (pic), who was appointed to the regulatory body exactly a year ago. Between 1996 and 2000, he called the shots as chief of the national power company Tenaga Nasional Bhd, after taking over the role from Tan Sri Ani Arope. It was a hot seat then as confidence over the utility company was battered following a nationwide blackout in 1996. Over the years, following several restructuring and reorganisation efforts, he had managed to place the company on steadier footing.

Today, the power sector is again faced with myriad of issues; the biggies include how to reduce dependence on fossil fuels, should the country harness nuclear energy and formulating a clear tariff pass-through formula.

In an interview with StarBizWeek‘s ANITA GABRIEL and LEONG HUNG YEE, the engineer by training who also holds a PhD in Nuclear Engineering, speaks candidly about these issues.

SBW: As it stands now, what is the compulsion to get our energy mix correct?

AT: It is of national interest that we do the right thing for the future energy supply. Hopefully we will get to that optimal (point) but there other factors that are unanticipated and unexpected that come in which can cause disruption to the supply chain. So, the best plans you make may still not be doable because of disruption like floods in Queensland or an earthquake in Japan …

One is the lack of indigenous supply. To use gas from other sources, it needs to be priced to the market. Otherwise someone has to bear the difference … if it is negative, it will impact Petronas’ bottomline, which is not fair.

The other thing is the continued large-scale use of fossil fuel, be it coal or gas, which affects global climate change. Any effort to reduce dependence on this is in the right direction, hence the move towards utilising more renewable energy. From the energy mix standpoint, we need to do this balancing within a policy framework.

Also, there are small contributions that can have an impact, such as more efficient utilisation of energy which can help manage demand.

What needs to be done to promote alternative energy sources such as renewables?

For the private sector to invest in renewable energy, there must be some economic justification. In order words, the pricing of product must be right. In the end, who has to pay for it? It’s the consumer.

Could that mean that the Government may need to subsidise electricity generated by renewable sources?

Not subsidies per se. If the Government subsidises, that money comes from taxpayers anyway. The Government collects money from people and redistribute. At the end, whether you do it through government subsidy or direct payment by consumer, the net effect is the same.

To nuke or not to?

Is there an ideal target in terms of fuel mix for power generation?

Yes. There is a general scenario planning. The Government has announced that it is looking at future supply and demand. Beyond 10 years, nuclear is projected to be one of the options, constituting about 22% of the fuel mix in the peninsula. Will that happen? That will definitely be the subject of intense debate, in the light of Fukushima.

Because of Japan, the public is demanding that we rethink this. In the end, the Government will have to listen to the people, but it also has to ensure there is enough capacity. It needs to decide if this is a risk we have to take and move on or at whatever cost, we are not going to go into nuclear and find other sources.

We, in the Energy Commission, will try to manage this going forward. It is not for us to push one or the other. It is for nation to make that decision.

Is a rethinking going on?

We haven’t signed any contract (for nuclear plant). It is very preliminary. I would say the overriding thing at the moment is that we are in the phase of public consultation. With this new reality of Fukushima, maybe this public consultation will be more intensified. My hope is that finally a rational decision will be made. We have to secure long-term reliable adequate power supply.

If we were to take nuclear out of the equation, how does it change the dynamics for you as a planner?

That’s the biggest issue at the moment. If we are to look at renewable energy, it is not enough. People say we’ve got plenty of sun, but it is nothing compared to the demand. Nuclear generation cost is lower but the availability of solar itself, even if we cover the whole of the peninsula with solar panels, we still cannot fulfil energy demand.

There are two coal plants with 1,000MW each in the pipeline. One has been awarded, while the other one in the process to be awarded soon. Malakoff (Bhd) and Jimah are preparing their bids at the moment to be submitted to us by early April. Our demand is increasing at about 1,000MW a year. If you take into account decommissioning (of old plants), the additional plant replacement is about 1,000MW.

If we were to tap power from Bakun, do you need these two coal plants?

The decision at the moment is not to tap. That’s why we had the coal plants to fill up the gap.

Something to worry about?

Do we have a comfortable reserve margin at the moment?

There is such a thing as name plate reserve capacity and real life reserve capacity. This is because there are plants that need to be taken out or forced shutdowns due to equipment failure and so on. The real life margin could be less. Scheduled maintenance and unscheduled outage cuts out the reserve margin and depending on which plant that is not available, it also affects the fuel supply chain. For example we may have stacks for coal in the coal yard but if the plant not working that day, it is useless. These are things we have to manage on a day to day basis.

Our reserve margin is tough. The fact that the light is on means there’s enough capacity but I won’t go into details. It is something we have to manage.

What is the mix for renewables currently?

On renewable fuel mix, currently hydro produces the most. Although hydro is renewable, it is in a slightly different bracket. The real renewable is mini and micro hydro.

Do you see renewable energy gaining in a big way? I find that it is largely rhetoric.

We are not too far off. We targeted 5,000MW. At the moment, we produce some 500MW renewable energy but the total connected to grid is 50MW as others are for in-house use. They are generating power using biomass but it’s for in-house use in palm oil mills. The Government is doing its best. At the end of the day, for the investors, it’s whether it makes economic sense … otherwise they will not do it.

Which renewable energy, in your opinion, is the most preferred?

Best, if you take from a technical standpoint, it would be mini and micro hydro. Next, we have a lot of biomass. We also have waste from palm oil mill to generate biogas. Still, these are limited in quantities to meet demand. That’s why even as we talk about a few MWs here and there, we still need to invest in a 1,000MW coal plant.

The trappings of power

Posted on March 26, 2011. Filed under: Energy |

-The Star-

DO you remember the feeling of relief that sweeps over you when the lights come back right after a power outage? Now, imagine this. Millions of Japanese are on tenterhooks, bracing themselves for the exact opposite to be blanketed by darkness as the country grapples with the after-effects of a series of catastrophes which have led to a hair-raising power crunch.

In Malaysia, not unlike many other countries, Japan’s Fukushima nuclear fallout has slammed the brakes or so it appears on the plan to harness nuclear power. Safety over climate appears to be the realisation that has set in, throwing a wet blanket over the so-called global nuclear renaissance.

Shelve the nuclear plan and move on, you say? Sadly, it’s not that simple. Definitely not when it comes to managing the country’s energy supply.

The gas-sing game

Status check currently, 52% of electricity in Peninsular Malaysia is fired up by natural gas, 40% coal, 5% hydro and the rest from diesel, fuel oil and renewables. But that’s not to say all’s fine even with the current mix.

Gas is supplied by the national oil company Petroliam Nasional Bhd to the power sector at a pegged price of RM10.70/mmbtu (million British thermal unit) with an allocation of 1,250 mmscfd (million std cu ft per day). On the other hand, Tenaga Nasional Bhd (TNB) buys its coal at market prices, which means the utility is vulnerable to the volatile prices of coal in the international market. Hydro power in the peninsula, unlike its abundance in Sarawak, remains largely limited as it is almost fully tapped.

Here’s the headache. Gas and coal are traditional fossil fuels, which means they will one day run out (note: not soon, but sometime in future).

For as long as Petronas has to subsidise the price of gas it supplies to the power sector, the supply will likely remain capped. “Petronas cannot afford subsidising to the tune of about RM19bil every year in gas subsidy alone. That’s a huge amount,” its president and chief executive officer Datuk Shamsul Azhar Abbas had said late last year.

“A significant issue is how best to allocate scarce energy resources between competing users. Competition for resources exists between the power sector and non-power sector. The current situation whereby some fuels are made subject to price control while others are subject to free market prices has led to inappropriate allocation of fuels within the energy sector,” Energy Commission chairman Tan Sri Ahmad Tajuddin Ali points out.

In a nutshell, for as long as Petronas can reap healthy margins by exporting natural gas at international prices (LNG is largely exported to East Asia namely Japan and South Korea), there is really no appeal to raise the gas supply to the power sector as that would mean more subsidies, hence further eroding the oil company’s margins.

It is widely known that both TNB and Petronas have held talks on gradually raising the purchase price for gas but divergent views on what those levels should be have led to a stalemate.

That’s not to say the Government has not indicated that subsidies would have to eventually be cut. In fact, Pemandu, an agency that is driving major reforms in the country, has crafted out a plan to gradually cut subsidies and raise the price of natural gas provided to the power sector on a half yearly basis to eventually close the gap with international benchmarks.

The inevitable consequence is that end-users will have to brace themselves for the ascent of electricity bills. For a Government working on winning voters’ hearts, raising electricity rates is largely viewed as political suicide. So, that plan is on hold.

The impact is far reaching. “It is very difficult to determine the future balanced/optimal energy mix for power generation given the huge subsidy element on gas which distorts consumer preference to buy cheapest energy source,” says an industry analyst.

“Only when the subsidy is removed, will market forces determine consumer choices,” he adds.

Gas crunch?

Meanwhile, the power industry is facing a gas crunch of sorts. According to industry observers, the volume of gas allocated to the power sector is sliding despite the fact that demand has been rising. There’s data to back that up.

Based on a 2010 Grid System Performance Report posted on the Energy Commission’s website, the average daily gas off-take by the power sector slipped from 1,270 mmscfd in 2008 to 1,224 mmscfd in 2009. Last year, it fell further to 1,139 mmscfd due to higher gas curtailment.

Consequently, the energy generated by gas plants slipped from 61.7% in 2009 to 52.8% in 2010. This year, the supply of gas to the power sector is expected to further fall to 1,100 mmscfd.

“There is a lack of indigenous supply. For the industry to use gas from other sources, it has to be priced to the market. Otherwise someone has to bear the difference and if it is negative, it will impact Petronas’ bottomline, which is not fair. Is it tenable to the system that someone has to sell below the cost? Gas pricing is not just about the impact on voters but also the economy,” says Ahmad Tajuddin.

To meet the burgeoning demand, Petronas is building its maiden LNG regasification facility in Malacca to import LNG which is expected to be available by April 2012.

“Once that’s done, we can start buying LNG from Qatar or other markets and pump into the Peninsular Gas Utilisation pipeline network,” he says. But, as an analyst points out, this will be market driven. In other words, TNB has to be prepared to pay market prices for imported natural gas.

Coal conundrum

Meanwhile, to make up for the gas shortfall, coal utilisation is expected to rise. In fact, it has already from 32% in 2009 to 42% in 2010.

Tajuddin says a shift to coal may appear to improve fuel diversification, but “relying on more imported fuel might not be the right decision” and this it is inconsistent with Malaysia’s commitment to reduce its carbon intensity by 40% in 2020.

With the nuclear emergency still being played out in Japan, the prices of conventional fuels have been steadily rising. That’s bad news for TNB, which earnings are highly sensitive to the swings in coal prices. Worst still, as it stands now, it has no wiggle room to pass the extra cost on to the independent power producers it buys electricity from, nor to the end-users.

That’s a big headache. According to TA Research, every US$1/tonne change in coal price could shave 1.9% off TNB’s earnings.

Furthermore, if nuclear is struck out of the list of sources for future energy supply, that would mean Tenaga has no option but to expand its gas and coal capacity.

With that, industry analysts are not holding their breath for a possible upward re-rating. If anything, there’s grave concern.

“… we are concerned about the current high coal prices and lack of clarity on a tariff hike that is undermining TNB’s earning potential,” says Maybank IB Research.

Renewing the commitment

On the back of that, it appears that the siren call for the country to join the race to tap renewable sources of energy is also growing louder. “Our RE agenda can no longer just be about rhetoric. We have to seriously start planning for this in a big way,” says an industry observer.

The climb has to start from somewhere and for Malaysia, the starting point is way low.

Back in 2001, the Four-Fuel Strategy (oil, gas, hydropower and coal) was expanded to to a Five-Fuel Strategy which included renewable energy into the mix. The target, on hindsight, was rather lofty for 5% of electricity generated to be tapped from renewable sources by 2005 or some 500MW-600MW of installed capacity.

Currently, there’s merely 500MW of power that stems from renewable sources. Here’s the crunch only 50MW is connected to the grid while the rest are owner-consumed. This is, needless to say, way below the target.

As the pursuit of RE is relatively new, there are kinks that need to be sorted out. The subsidy element in the power sector is one.

The other involves the daunting cost factor. “At what price will it (RE) become competitive is something we have got to manage and adjust, so it becomes a real option. At the moment, at current prices, there are many who say that it is still not economically feasible,” says Ahmad Tajuddin.

A good starting point is the Feed-In-Tariffs which is expected to be implemented by the second quarter of the year. Essentially, the tariffs, a mechanism for energy producers to sell their power at guaranteed prices which in turn provides some form of financing support for new investments, are meant as incentives to woo industry players to get in on the country’s renewable realm. (more on page 22).

Meanwhile, until large-scale power from solar panels or wind turbines are deployed to the grid, energy consumers are likely to remain apathetic.

Game changer

Naturally, like all things new, scepticism abounds. Some say that the country’s stand on renewable energy and climate change, at this point, is powered by near-empty rhetoric. Others say, the potential may be there but sadly, the political will is weak. Lest you forget, the renewable agenda is still work in progress for many major developed nations in the world.

Rattling the new-fangled clean and sustainable energy drive is Japan’s nuclear meltdown which has forced many key countries

to re-assess their stance on carbon-free civil nuclear energy. It helped little too that nuclear energy has long been a heated divisive issue.

OSK Research’s Chris Eng puts it succintly: “It’s just a matter of which is the worse devil fossil or nuclear.”

Still, not all is lost. There’s hope yet and it’s wrapped up in two words new technology.

“Safe nuclear does exist” screams the headlines in UK’s The Telegraph over the week. There’s a safer and cleaner nuclear “Wonder Fuel” called thorium, which has much lower radiation than uranium. India and China, the two countries with the most ambitious nuclear plans in the world, are leading the pact with this new system.

Indeed, it if works, that’s great news for the world’s energy landscape. For Malaysia, it would be an unexpected game changer.

Thorium is present in the ores of rare earth elements. The theory is that rather than bury it underground in concrete, thorium could be bred into a nuclear fuel.

Now, remember the controversial rare earth refinery – the world’s largest and the first outside China being built by Australia’s Lynas Group in Kuantan, which potential environmental hazard has been the root of much public scorn in Malaysia?

Indeed, these are interesting times …