Over the past year alone, electricity prices have increased significantly in countries like Singapore, Thailand, Hong Kong, Italy and Germany. Even in Peninsular Malaysia, electricity demand in the first quarter of 2022 charted a 4% increase year-on-year, according to a recent analyst report.
In Malaysia, more than 65% of the electricity base price is made up of the cost of producing electricity, including the cost of buying fuels like coal and gas. Our base tariff is reviewed and defined every three years to ensure pricing stability. In addition to this, there is an Imbalance Cost Pass-Through (ICPT) tariff included in our utility bills, which is based on changing fuel prices. As more than 65% of electricity is produced using fuel, this mechanism enables companies to respond to fluctuations in fuel prices in the international market.
The Imbalance Cost Pass-Through (ICPT) has been in place since 2014 to help protect the industry from fluctuating fuel costs. Market liberals may argue that it distorts market supply and demand, but it has allowed Malaysian consumers to benefit from price stability for decades.
In this article, we will explore how ICPT plays a part in businesses in Malaysia and how implementing renewable energy solutions with the help of Sunview can help manage energy costs.
Understanding your electricity tariff through ICPT
In essence, ICPT is a mechanism under the Incentive Based Regulation (IBR) framework that allows TNB, as the utility, to reflect changes in fuel and other generation-related costs in the electricity tariff.
Under the ICPT system, fuel and generating costs will be assessed every six months, and any cost reductions or increases will be passed on to the customers in the form of a rebate or surcharge. More than 90% of the electricity produced in Peninsular Malaysia is made using coal and gas, and since October 2021, the price of coal has grown dramatically.
As a result, the cost of fuel to produce electricity has increased dramatically, leading to a 74% increase in generation costs and a large ICPT surcharge for the period from 1 January 2023 to 30 June 2023.
Unfortunately, the government has no control over the global rise in coal prices, and the rise in fuel prices is putting pressure on all sectors involved in the generation of power worldwide, not just in Malaysia.
But who does this ICPT implementation affect?
New surcharge rate effective 1 Jan 2023
From 1 January 2023, the new surcharge rate affects businesses including non-SMEs with Tariff C & E as illustrated in the diagram below.
What it means for businesses is that, for example, if your TNB bill is RM10,000/month and ICPT increases x10 times, your total bill will be RM100,000. Due to the ICPT being adjusted every 6 months, your total electricity bill will be RM600,000 for a 6-month period.
Moreover, businesses with Tariff C & E are likely to face an average of 3% increase in their utility bill per annum, which will further increase their OpEx.
While it may seem that having the ICPT mechanism in place reduces the risk of combating the fluctuation of fuel, in reality, rising industrial electricity costs can create challenges for businesses. Companies paying more for electricity than their competitors may struggle to offer comparable prices and services, leading to reduced sales and profits. Higher electricity costs can also make investing in new equipment or hiring additional staff difficult, further reducing profitability. This may force companies to pass on the increased expenses to customers, resulting in lower revenue and sales, and potentially leading to downsizing and negative effects on the economy.
In order to navigate the effects of increasing electricity rates, companies must plan measures to cut their electricity consumption. This can be accomplished in a number of ways, including by making investments in renewable energy sources such as utilizing energy-efficient machinery, and putting energy-saving measures in place.
Green solutions may be the answer to your business needs
As a stable and reliable source of power, renewable energy can help benefit businesses in a number of ways, such as ensuring that their electricity costs remain stable, reducing their carbon footprint, and in the long run, reducing their overall reliance on fossil fuels.
As a leading provider of solar energy solutions in Malaysia, Sunview offers a wide range of solar solutions for businesses and homeowners with a focus on sustainable, long-term benefits. Through a hassle-free solution like SunVertax and SunValue, you can significantly reduce your OpEx, be ESG-compliant, or invest in a sustainable future with zero CapEx.
Furthermore, you would be able to enjoy up to two tax benefits including the Capital Allowance (CA) and Green Investment Tax Allowance (GITA) which are both offered by the government to encourage businesses to invest in capital assets and promote sustainable and eco-friendly practices.
As Sunview is committed to helping businesses reduce their carbon footprint, it would also be beneficial to know that the Green Energy Tariff (GET) program allows customers to be exempted from ICPT, to better manage their OpEx against any surcharge fluctuations. Businesses that make the switch to solar energy would also benefit from Renewable Energy Certificates (RECs) which are a globally recognized tool that enables companies to further boost their green corporate branding and credibility by claiming the rights to renewable energy generated.
In conclusion, navigating the ICPT mechanism and implementing sustainable energy solutions can be a challenge for businesses in Malaysia. However, by working with Sunview, businesses can implement solutions that can help them manage their energy costs more effectively while reducing their environmental impact.
Connect with us today to learn how you can navigate your business through the ICPT mechanism with green solutions.
Source:
90% of the electricity produced in Peninsular Malaysia is made using coal and gas
