MALAYSIAN ELECTRICITY SUPPLY INDUSTRY (MESI) REFORM INITIATIVES

By

Datuk Ir. Ahmad Fauzi Hasan

Energy Commission

30 October 2014

IEEJ Roundtable for SIEW 2014:Electricity Market Reform in Asia – Opportunities and Challenges

The Energy Industry Policy and Regulatory Framework

Regulator

Regulatees

(Peninsula and Sabah)

Electricity SupplyIndustry

• Sets Electricity Supply Policy• Prescribes Electricity Supply

Regulations• Approves Electricity Supply

Licences and Tariffs

Minister of Energy, Green Technology and Water

Minister of Petroleum

Energy Commission• Advises the minister on matters relating to the

energy sector• Develops legal frameworks• Implements policy• Issues licences and certifications • Regulates the electricity and piped gas supply

industries

Po

licy

Exe

cuti

on

&

Ind

ust

ry

Re

gula

tio

n

• Sets Piped Gas Supply Policy• Prescribes Piped Gas Supply

Regulations• Approves Piped Gas Supply

Licences and Tariffs

Downstream Piped Gas SupplyIndustry

Po

licy

Fo

rmu

lati

on

Policymakers

Electricity Generation Capacity and Fuel Mix

Sabah

MFO/Diesel

Hydro

RE

Gas

GENERATION

CAPACITY

(MW)

PEAK

DEMAND

(MW)

RESERVE

MARGIN

(%)

Pen.

Malaysia

20,944 16,901 24%

Sabah 1,392 907 53%

Sarawak 3,725 1,758 112%

Need /

Benefits

Efficiency Operational efficiency Better price signals Improved investment

Transparency Dispatch Pricing Tariffs

Choice Retailers Products and services Pricing

Fairness Access Dispatch Tariffs

Drivers of Electricity Supply Reform

Evolution of MESI

Distribution

“Vertically Integrated”

Dominated by National Utility-TNB

Early 1990’s -Fully Regulated

TNBG & TNBH

Transmission and Distribution by TNB

Privately-owned IPPsallowed to participate in the generation sector

Mid 1990’s -Multiple Generation

Players

IPPs

Transmission(system operator)

TNBDistribution

Retail

Present

IndependentPower

Distributors /Retailers

Energy Commission

Generation

Transmission

Transmission and Distribution by TNB Privately-owned companies allowed to

participate in generation and limited areas of distribution

Transmission

Distribution

TNB Generation IPPs

Current MESI Structure – Single Buyer “Managed Market” Model

Single Buyer (SB)

A ring-fenced entity in TNB responsible for

procurement of electricity from Generators

and scheduling of generation to meet

demands based on least cost.

Generation Despatch

Daily despatch of IPP/TNB plants based on

variable costs provided in PPA/SLA

Merit order of despatch based on least

variable cost in half-hourly tranche.

Cogen and RE generators sell electricity based

on contract rates/FiT rates.

Grid System Operator (GSO)

A ring-fenced entity in TNB responsible for

the real-time operation of the Grid System in

a safe, secure and least-cost manner.GSO

SB

IPPsCogen, RE

Gencos

Consumers

Franchise Distributors

TNBGeneration

Transmission(Grid Owner)

Planning

Distribution

Consumers

ENERGY COMMISSION

Gradual phasing-out of gas subsidy with stabilization

mechanism

Incentive-based electricity tariff regulation with regulatory

accounts unbundling, performance incentive scheme and

imbalance cost pass-through mechanism

Competitive framework for new generation capacity

development

IPP generation efficiency savings sharing framework

Generation fuel security policy framework

Ring-fencing of single buyer and system operator with

market rules and regulatory oversight

Gas third party access framework

Enhanced time-of-use and cost-reflective tariffs framework

New enhanced dispatch arrangement

Ongoing MESI Reform Initiatives

Current Dispatch Arrangement

New Enhanced Dispatch Arrangement

New Enhanced Dispatch Arrangement (NEDA)

Introduction of Price-based

Bidding to complement current

PPA/SLA arrangements:

Generators with PPA/SLA can offer optional reduced heat rates & VOR. If dispatched, generators will be paid at cost using the lower of the PPA/SLA or optional offer of heat rates & VOR.

Non-PPA generators bid to sell energy to the Single Buyer. If dispatched, generators will be paid at Price as Bid.

In addition to sales of energy, non-PPA generators can offer term-based capacity for short-term system reserve, if required by regulator

Single Buyer Single Buyer

Generators with

PPAs/SLAs

Generators with

PPAs/SLAs

Price

Non-PPA Generators

PPA/SLA ratesPPA/SLA rates

or optional offer of reduced rates

Current Reform Initiatives Are Based On “No Regrets” Steps Approach

Existing situation No regrets stepsMarket implementation

Status quo – Managed market

Improvements to the status quo that have benefits in and of themselves

Initiatives required for trading to commence

Benefits flow from the market introduction rather from the individual initiatives

The reform process consists of two distinct phases:

No regrets steps

Market implementation steps

A possible future MESI structure change in 2020

TNB Transmission

Co

TNB Gen Cos. IPPs

ST Close

oversightIMO / ISO

TNB Distribution Co

Retail Cos.

Non-

contestable

Consumers

Contestable

Consumers

Generation

IPPs

TNB

Transmission

Distribution

Current “Managed Market”

Consumers

Future Liberalised Market

THANK YOU