Penjanabebas

Penjanabebas
The role of Independent Power Producers The role of Independent Power Producers
(IPPs) in Malaysia (IPPs) in Malaysia
Editor Briefing Editor Briefing - - 2006 2006
Programme
1. Penjanabebas
• Historical Perspective
• The Penjanabebas Council
• Our Members
• Penjanabebas today
2. Power Purchase Agreements
• The structure of the PPAs
• Different types of PPA
• Fuel Supplies
• IPPs Risk exposure
3. Contribution to socio-economic development
4. Future Challenges
• The reserve margin
• Fuel price dynamics & maintaining low energy tariffs
• Ensuring long term sustainability of Malaysia’s Independent
Power Production sector
Penjanabebas
Penjanabebas
Penjanabebas
Formed in June 1995 Persatuan Nasional Penjanakuasa Bebas Malaysia or "Penjanabebas" in
short, is the Association of the Independent Power Producers (IPP) of Malaysia.
All member IPPs had effected contracts, Power Purchase Agreements (PPAs), with Tenaga
Nasional Bhd. (TNB) for the sole purpose of funding, building, maintaining and operating their
power stations.
The association’s charter calls for the promotion of efficient, reliable and sustainable power-
generation in Malaysia
The association’s members meet often to exchange and share knowledge and experiences gained
in the field and to further promote the development of the industry, conducting briefings on
developments and emerging opportunities for members abroad, and as a central focal point to
coordinate member’s corporate social responsibility programmes.
The terms of each of the individual PPAs are entirely exclusive and between the IPP and TNB. As
such the Association is not in a position to discuss or negotiate matters relating to the PPAs on
behalf of their members.
The Association does, however, coordinate on behalf of the member, discussions with the Energy
Commission and TNB in relation to technical engineering standards employed in Malaysia and
common issues faced by the members.
Council
Penjanabebas Office Bearers for the 2006/2007
Panglima Power Sdn Bhd
Teknologi Tenaga Perlis Consortium Sdn Bhd
1. Mr. Ng Chee Wah
2. Mr. Ti Chee Liang
Honorary Auditors
Segari Energy Ventures Sdn Bhd
Jimah Energy Ventures Sdn Bhd
Port Dickson Power Berhad
Powertek Berhad
YTL Power Generation Sdn Bhd
Tanjung Bin Power
Kapar Energy Ventures Sdn Bhd
GB3 Sdn Bhd
1. En. Mohd Radzuan Yahya
2. YBhg. Dato’ Zulkifli Ibrahim
3. En. Yahya Yunus
4. Dr. Ong Peng Su
5. Mr. Woo Chee Yan
6. En. Azhari Sulaiman
7. En. Abdul Rahman Marhaban
8. En. Habib Husin
Council Members
Prai Power Sdn Bhd En. Ahmad Ali Honorary Treasurer
Pahlawan Power Sdn Bhd En. Mohd Wafa Abd Rahman Honorary Secretary
Individual Founding Member En. Ahmad Jauhari Yahya Honorary Vice
President
Genting Sanyen Power Sdn Bhd Dr. Philip Tan Honorary President
Historical Perspective
In 1992, following a nationwide power blackout, and a series interruptions and
rationing caused the government to conduct an immediate assessment of the nation’s
power generation industry. As a result of rapid development of the national economy
in the preceding years, it appeared the country was unable to cater for the parallel
growth in demand for power.
To narrow this widening gap, and under its successful privatization agenda, the
Government identified the Independent Power Producer (IPP) model, whereby the
capital-intensive development of new generation assets could be outsourced to the
private sector. This was to become the initiative that would deliver the immediate
national power security needed to maintain GDP growth whilst not putting
unnecessary pressure on Tenaga Nasional Berhad (TNB) resources.
The initial IPPs were awarded licences to pursue the IPP model under power
purchase agreements (PPAs) that would span periods of up to 21 years and govern
how the IPP would construct, purchase and/or use of fuel, operate and sell energy
produced.
The terms also incorporate very large and real exposure to financial damages in the
event that the IPPs fail to perform to their contractual obligations such as for the late
delivery of the plants, inability to maintain operational performance standards as
specified, inability to capacity declared and others. The ultimate possible penalty
incorporated into the PPAs would also allow for their termination.
Our Members
The first five IPPs, often referred to as the 1
st
generation were awarded their
licences for gas-fired power plants from April to December 1993, these IPPs
include;
• YTL Power Generation Sdn Bhd
- Paka & Pasir Gudang Power Plants
• Genting Sanyen Power Sdn Bhd
- Kuala Langat Power Plant
• Segari Energy Ventures Sdn Bhd
- Lumut Power Plant
• Powertek Bhd
- Teluk Gong Power Station
• Port Dickson Power Sdn Bhd
- Port Dickson Power Plant
These companies invested over RM10 billion into these ventures, adding a
combined generating capacity 4,105MW to the national system.
Our Members cont’d
Licenses for the second generation of IPPs were issued for gas-fried power plants
from1998 to 2004.
The PPAs were granted on a two-tiered based payment mechanism, whereby
after a pre-determined period the rates at which power was purchased from these
companies would step down to a lower rate.
This change in PPA policy reflected the developing industry maturity and growing
confidence in the sector by the government, regulators, investors and importantly,
the financial community.
These IPPs include:
• Teknologi Tenaga Perlis Consortium Sdn Bhd
- Perlis Power Plant
• Pahlawan Power Sdn Bhd
- Tanjong Kling Power Station
• Panglima Power Sdn Bhd
- Telok Gong Power Station
• GB3 Sdn Bhd
- Lumut Power Plant
• Prai Power Sdn Bhd
- Prai Power Plant
• Kapar Energy Ventures Sdn Bhd
- Kapar Power Station
Our Members cont’d
1
st
Generation PPA 2
nd
Generation PPA
C
a
p
a
c
i
t
y
R
a
t
e

F
i
n
a
n
c
i
a
l
s
C
a
p
a
c
i
t
y
R
a
t
e

F
i
n
a
n
c
i
a
l
s
The payment structure for the first two generations of PPA
• One CRF throughout term of PPA
• YTL- single energy pricing throughout
the term of the PPA
• Scheduled and forced outages are
lumped together as one measurement
for monitoring purposes
• Two-tier CRF (except for TTPC)
• Forced and scheduled outages are
monitored separately
Our Members cont’d
Third generation licensees were awarded to private coal-fired power plants.
These PPAs further reflect the growing national confidence that had developed in the
industry and also the shift in the national energy policy to move the country away from
the dependence on a key industrial resource, gas.
The PPA for the private plants maintained the two tiered structure of the second
generation, but significantly vary in they adopted a degree of demand risk sharing of
up to 15%.
These PPAs were awarded to:
• Tanjung Bin Sdn Bhd
- Tanjung Bin Power Plant
• Jimah Energy Ventures Sdn Bhd
- Jimah Power Plant
PPAs incorporating a Demand Risk Sharing mechanism:
• 85% of CRF is payable subject to the usual performance guarantee;
balance 15% is subject to Maximum Demand Capacity (MDC)
• MDC is determined by taking the highest dispatched capacity in any
30-minute interval on a given day
80% 90%
0.850
1.000
1.025
100%
CRF Factor based on Weekday Dispatch Profile
MDC
Full
CRF
Guaranteed
CRF
Bonus CRF
0%
Our Members cont’d
Our Members cont’d
First Generation:
YTL, SEV, GSP, PDP,
Powertek
One CRF throughout
term of PPA
YTL- energy only, take
or pay basis
• Scheduled and forced
outages are lumped
together as one
measurement for
monitoring purposes
Second Generation:
Pahlawan, TTPC,
Panglima, GB3,
Prai Power
Two-tier CRF (except
for TTPC)
Forced and scheduled
outages are monitored
separately
Third Generation:
Tg Bin & Jimah
3
rd
generation has
Demand Risk Sharing –
15% of CRF is payable
on dispatch
Our Members cont’d
IPPs in Sabah & Sarawak
IPPs awarded to licences outside the Peninsular are not typically examined in
the same manner as those discussed above.
In these PPAs, the contracting parties in the agreements would comprise the
respective IPP and Sabah Electricity Sdn Bhd (SESB), a subsidiary of Tenaga
Nasional Berhad or Sarawak Electricity Supply Corporation (SESCO).
Members operating outside the Peninsular include:
• ARL Tenaga Sdn Bhd
- Melawa Power Plant
• Ranhill Power Sdn Bhd
- Ranhill Power Plant
Penjanabebas Today
Since formation, Penjanabebas membership has grown and now stands at 16 IPPs
with a combined generation capacity of over 12,000 MW, which represents
investments of over RM42 billion in the industry.
Last year, our members generated approximately 60% of the power consumed in
the peninsular.
Through the Electricity Supply Industry Trust Fund, our members have participated
in the country’s rural electrification programme by contributing 1% of annual
electricity sales (less fuels costs) to the fund.
To date, our members have provided scholarships to more than 180 scholarships
to students pursuing technical studies in local universities such as Uniten.
Our members operate power generating and desalinisation facilities in over nine
countries and have expanded their scope to also include operations of the
electricity grid in southern Australia and water facilities in the UK.
Penjanabebas Today
Simple cycle plant 76 MW Nanjing Coastal Xingang Cogen Power Plant
Simple cycle plant 42 MW Wuxi Huada Gas Turbine Electric Company
CCGT 109 MW Suzhou Coastal Cogeneration Power Plant
Thermal plant 724 MW Fujian Pacific Electric Company Limited China
CCGT 113 MW ABAN Power Company Ltd
CCGT 368 MW Lanco Kondapalli Power Pte Ltd India Genting Sanyen Power
Dhofar Power Company SAOG Oman
Desalination plant 200,000 m3/day Algeria
Crude oil power plant and desalination plant 900 MW/194 MIGD Shoaiba Phase 3 Independent Water and Power Project Saudi Arabia Malakoff
Thermal coal plant 1220 MW PT Jawa Power Indonesia
Regional water and sewage Wessex Water Limited England
Transmission line ElectraNet Pty Limited South Australia YTL Power
Thermal plant 682.5 MW Suez Gulf Suez Gulf, Egypt
Thermal plant 682.5 MW Port Said Port Said, Egypt
Thermal&CCGT and desalination plant 969 MW/68 MIGD Taweeelah B (extension) Abu Dhabi, UAE
Thermal&CCGT and desalination plant 1069 MW/92 MIGD Taweeelah B (existing) Abu Dhabi, UAE Powertek
Co-generation 170 MW Laem Chabang Thailand PD Power
Type of plant Capacity Plant Name Country IPP company
The Power Purchase Agreements
The Power Purchase Agreements
IPP Contractual Structures
IPP Contractual Structures
Power Purchase Agreement (PPA)
A PPA is a contract between TNB (Purchaser) and an IPP (Seller).
They commence with the awarding of an IPP license, TNB enters into a PPA with
the licensee.
These long term agreements encompass the construction of a power plant, the
financial obligations this will entail, fuel supply to the IPP, operational requirements,
maintenance of the facility, the dispatch of electricity and the rates of payment for
electricity generated.
All three generations of power purchase agreements have been drafted to ensure
that all commercial, operational and performance risks are borne solely by the IPP.
These risks are explored further later in the presentation, however, they include but
are not limited to changes in foreign exchange rates, interest or financing rates.
Subsidiary agreements flowing from the PPAs therefore include:
Financial Agreements
Designing & construction of the power plant - EPC
Operation & Maintenance Agreement – O&M
Fuel Supply Agreement
IPP
Shareholders
TNB
EPC
Contractor
Operator
Financial
Institutions
Fuel Supplier
Shareholders’
Agreement
Power Purchase
Agreement
EPC
Contract
Operation &
Maintenance
Agreement
Financing
Agreement
Fuel Supply
Agreement
Power Purchase Agreement (PPA)
Structures of PPAs
There are two types of structures in PPAs used in Malaysia today.
Take or Pay, where seller and buyer are contractually bound to supply and to
purchase a fixed amount of energy (kWh) over a specified period of time.
As with the other form of PPA, the IPP is still bound to ensure performance of
the facility to high standards of efficiency, whilst exposing the IPP to very high
penalty payments for any failure in performance.
Capacity & Energy Charges, where the buyer purchase a fixed quantum of
capacity at a pre-determined performance standard. The actual quantum of
energy dispatched is dictated by the buyer and market demand.
This forms the most common structure applied to Penjanabebas members.
• In these agreements energy sale and purchase of electricity are further
divided into categories:
- Capacity (MW) – capacity payment
- Energy (kWh) – energy payment
Structures of PPAs
1. CAPACITY PAYMENT
Capacity Rate
Financial
Fixed Operating
Rate
2. ENERGY PAYMENT
Fuel
Variable Operating
Rate
Capacity Payment
• This entails payments to the IPPs at rates determined during the PPA negotiation to
enable to IPP to meet financial obligations and payments for Fixed Operating Expenses.
• An analogy representing this part of agreement could be described as a leasing
agreement for the facility or a vehicle.
Energy Payment
• This would entail the operational cost and expenses of operating a facility and for the
fuel consumed by the plants in generating electricity.
• The same analogy here would apply to the fuel, spare parts and maintenance of the
vehicle.
Fuel Supplies
Fuel costs represent a major cost centre in our members operations. Fuel supplies,
gas or coal are supplied directly to Penjanabebas members by TNB Fuel Supplies
for coal, or for gas supplies allocated through TNB from Petronas. Supplies are
provided on the internationally standard ‘pass-through’ basis for the production of
electricity.
In the Malaysian IPP model, fuel pricing under the pass through had originally
been calculated through a pegging mechanism where the price was pegged to
the price of oil.
In September 1997, however, due to increasing international oil pricing, the
Government took the decision to fix the gas supply price at RM 6.40/million
British Thermal Units (MMBTU), to limit the potential destabilising effects on
national electricity pricing.
Under the PPA model, all IPPs are contractually obligated to perform to
international efficiency and availability standards, referred to as Heat Rate and
Availability Guarantees. Failure to fulfill these standards will affect the
commercial viability of the IPP.
Our members PPA fuel supply agreements carry a with TNB carry a “pass-
through” provision relating to fuel costs.
Fuel Supplies cont’d
• Theoretically, under this ‘pass through’ mechanism, IPPs transfer the fuel cost
component to TNB who then passes it down to the end users via tariff adjustment.
• As such, the IPPs derive no commercial benefit from the gas pricing as set by
Petronas and the government.
• As depicted in the energy value chain, it is noteworthy that in essence, Petronas
(and the government) subsidise the power sector (not Tenaga or IPPs) to ensure low
electricity tariffs.
IPPs
PETRONAS
TNB
Energy
Conversion
Electricity
Consumer
Tariff
Single Supplier
PASS-THROUGH COST
Gas
Coal
TNB Fuel Supplies
Fuel Supplies cont’d
• Currently the national energy mix is predominately fuelled by gas, 70.2%
of the national energy mix is gas based, coal accounts for 23.3%
• The Government in the Ninth Malaysia plan has declared that by 2010,
coal utilisation in the nation’s energy mix should account for 36.5%.
• Amongst our members, Tanjung Bin, Malaysia’s first private coal fired
plant and upon completion, Jimah Power station, will be responding to
this call and adding 3,600MW of capacity.
• The coal supplies to these facilities are secured from TNB Fuel Supplies
only, and at no time are these or other IPPs able to secure supplies
directly from international markets.
IPPs Risk Exposure
1.Delays in construction and commissioning of facility.
Increase in interest charges arising from a delay
Liquidated damages for failure to deliver on schedule:
• Tg Bin’s exposure is RM300,000/day of delay.
• Kuala Langat Power Plant exposure was RM500,000/day of delay.
2.Changes in foreign exchange rates:
During the construction phase
Throughout the life-span of the facility
3.Changes in interest rates:
During the construction phase
Throughout the life-span of the facility
The four major sources of risk exposure common to all our members
include:
IPPs Risk Exposure cont’d
Capacity Payment/Year (%)
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0 10 20 30 40 50 60 70 80 90 100
Availability (%)
R
M
/
y
e
a
r
4. Failure to meet one of initial the IPP’s PPA availability performance
conditions.
Capacity Payment vs Availability
Contribution to Socio
Contribution to Socio
-
-
economic
economic
development
development
Contributions of IPPs
Through participation in the Malaysian IPP programme, some of the benefits our
members have contributed include:
1. The improved availability and efficiency of the Malaysian power generation sector
whilst shielding TNB from burdening their balance sheet.
2. Providing investment opportunities for private investors to participate in the many
supporting sectors of the Malaysian and international power generation industry.
3. Driving the evolution of the local financial institutions, particularly in the lending,
bond and insurance markets. Bonds issued by our members are currently valued
at over RM20 billion.
4. Through EPF’s investments in our member companies, we continue to contribute
positively to the pensions of the nation.
5. Through the introduction of new benchmarks and standards to the industry, thus
establishing world standard operating parameters for the development of power
plants and project financing.
Future Challenges
Future Challenges
Future Challenges
1. Reserve Margin
2. Fuel price dynamics and maintaining low energy tariffs
3. Ensuring the long term sustainability of Malaysia’s independent power
production sector
Reserve Margin
Media reports on the national reserve margin
Total plant capacity at system (SC)
Total load available to system
Load connected to grid system
Peak Demand (PD)
Spinning Reserve
(SR)
Reserve Margin
EXAMPLE ONLY FOR 24 HOURS
PERIOD
Reserve margin (%) = SC – PD
PD
Spinning reserve (%) = SR
At peak demand PD
Spinning reserve (%) = Spinning reserve at time t
At time t Maximum demand at time t
Base demand (BD)
Base to Peak (%) = BD
PD
x 100%
x 100%
X 100%
x 100%
System
Load
Factor (%)

24
º
MW dt x 100
Peak demand x 24
=
Load connected at
time x
Spinning reserve
at time t
Maximum
demand at time
t
12 6 12 6 12
Fuel Prices & Maintaining Low Tariffs
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
$8.00
$8.50
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
2
0
0
6
Gas price for fuel supplied to IPPs 1995 – today.
Fuel Prices & Maintaining Low Tariffs
23.27
25.4
26.2
29.7
30.49
31.31
35.9
42.51
50.29
65.93
0
10
20
30
40
50
60
70
Indonesia Taiwan Malaysia Thailand Korea China Singapore Hong Kong Phillippines Japan
sen/kWh
Regional overall tariff comparison
Ensuring long term sustainability of Malaysia’s
Independent Power Production Sector
TNB Revenue vs IPP Contracted
Capacity Payment
2,646
2,800 2,787
3,285
3,965 4,254
4,280
4,766
5,735
6,703
6,704
6,715
6,718
6,719
6,721
40,467
13,719
14,363
15,375
16,458
17,712
18,978
20,926
22,973
25,121
27,377
29,746
32,234
34,845
37,588
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Year
RM million
Capacity Payment
TNB Revenue
Revenue Forecast at
5%pa beginning 2006
Post tariff increase
Capacity Payment (est.)
Tg Bin
Jimah
Pahlawan
GB3
Panglima
Prai
TTPC
Ensuring long term sustainability of Malaysia’s
Independent Power Production Sector
Penjanabebas, the association of 16 independent power producers,
continues to discuss ways and means of accommodating the
changing needs of the country in order to create an efficient and
reliable industry to ensure sustainable energy supply.
Our role is to coordinate the views and position of the individual IPPs
with the government with regards to the various Power Purchase
Agreements. This includes discussions from time to time with the
Energy Commission and other stakeholders in exploring win-win
solutions for all.
Thank you
Thank you