Tenaga Nasional Berhad (TNB) is the
largest electricity utility in Malaysia and a leading utility company in Asia.
TNB has been Keeping the Lights On in Malaysia ever since it was set up as the
Central Electricity Board in 1949, powering national development via the
provision of reliable and efficient electricity.
This article is based on the article, "Demand for electricity has exceeded supply: TNB chief", in The Star
Unfortunately in the year 2012,
there had been a shortage of power supply in Malaysia. According to TNB Chief
Dato Seri Che Kalib Mohamad Noh, “ The demand for electricity has exceeded
supply with some industries not getting the supply they need. “ In the
electricity industry, it works in a very simple way as the target of the
company is to convert energy resources into electricity and supply to every
household, commercial blocks and even industrial plants in the country. Before
1992, a natural monopoly exist in the electricity industry as the cost of
producing electricity will be lower if there is only one electric utility
company which is Tenaga Nasional Berhad(TNB). The company had played a major
role in our country in the generation, transmission and lastly distribution of
electricity in the whole Malaysia including Sabah & Sarawak.
In 1995, due to a national blackout
crisis, several Independent Power Producers(IPP) had been introduced and also
resulted in the signing of the Power Purchase Agreement (PPA), thus the market
structure has changed from monopoly to oligopoly. This open the floor gate to more players which are the YTL Power Generation Sdn. Bhd.
(the first player that signed the PPA with TNB), Segari Energy Ventures Sdn.
Bhd. , Port Dickson Power Bhd., Powertek Bhd. and Genting Sanyen Power Sdn.
Bhd.
The
above shows the graph of demand curve for electricity . The steepness of the
demand curve is due to the relatively inelastic demand of electricity. This can
be explained by any changes in price of electricity will not affect the demand
of electricity. For instance, so far as
we know, TNB is the only main distributers of electricity in Malaysia, if the
rate of electricity had gone up let’s say this month, we cannot just simply
disconnect the service and find a substitution, there is no close substitution
other than TNB itself and this result in the inelastic demand for electricity.
On
the other hand, as fellow citizen of Malaysia we have also noticed that there
had been and increase growth in population since the past few years. Malaysian’s
population doubled in size from 13.7 million in the 1980 to 28.3 million last
year, which is 2010. (Lee, 2011) This explains that the increase in population
will also increase the demand of electricity in the country as more firms and
industrial plants establishing in the market.
If
we refer to the graph above, as the increase in
population, there should be an increase in the demand for electricity,
therefore the price will increase too. But hold on to that, and let’s take a
look for the next graph.
This
graph shows that when the demand increases, supply also increases thus
maintaining the price and only increasing the market equilibrium in quantity.
This graph shows clearly about our electricity market in Malaysia where IPP are
also part of electricity suppliers in Malaysia but they are not the
distributors. In the past years, IPP
like YTL Power International had supplied TNB with huge amount of electricity
which increase the supply of electricity. All these satisfied the graph above
where the price won’t change that much and the demand and supply increase at
the same time.
So
if our National Grid has the support of
IPPs, why there’s still a shortage in power supply in 2012 by TNB chief? Well
there can be several reasons for the shortage of power supply. Firstly TNB
relies heavily on gas supplies subsidies by Petronas Malaysia. As there Petronas
has to supply to both power and non-power sectors in the Peninsular Malaysia,
it fails to supply adequate gas to TNB due to its frequent maintenance
(Malaysian Digest, 2011) . As cheap gas supplies are limited , TNB will have to
look for expensive gas supplies elsewhere. This problem has dragged on until
2012 although there had been contributions of power supply from IPPs. Another reason of shortage also due to the
aging of power plants, a number of TNB power plants are already ineffective and
thus reducing the maximum capacity of electricity generated, maintenance were
not performed to ensure continuous supply of electricity.
Nonetheless scarcity also occurs as
the supply of gas is not unlimited. These are all limited resources used by TNB
to power up the power plant’s turbines. Because of scarcity, various economic
decisions had to be made in order allocate the resources efficiently as most
natural resources not only in Malaysia but in the world is depleting drastically
and one day we will run out of gas and fuel. TNB will have to plan and make their
decision wisely in allocating their available resources in order to minimize
cost and then maximize their profit but also provide adequate electricity to
the country.
The
graph below represents the shortage of electricity in Malaysia. Let P2 and Q2
be the market equilibrium point. A shortage occurs below the market equilibrium
at the point of (Q3-Q1). This explains that at Q3 when quantity demand is
greater than quantity supply at Q1 there is a shortage of electricity. At
such a price, consumers are willing to consume more electricity than TNB is
willing to generate and sell. This is due to the high production cost incurred
during the gas shortage as TNB was forced to spend an additional 400 million
ringgit ($134.4 million) per month to burn oil and distillates as an alternative to keep generating electricity. Additionally, the quantity demand and quantity supply will eventually move up along the demand and supply curves to reach market equilibrium, however this will take a longer time because when TNB need to setup new power plants to increase supply capacity, it will be a long run as these buildings are not easy to build.
All
of the above explains very clearly why the article reported a shortage of power
supply during the year 2012. However, with all these problems why there’s still
no other close substitution for electricity in the Malaysia market? Why does it
still seem like TNB is a monopoly company although the market had changed to
oligopoly since the signed of PPA. Why
is it that TNB is the only distributor of electricity to households in
Malaysia? Even if other big companies like YTL have huge capital to start up
their own utility company, they still can’t do so. This is not due to high
barrier of entry but a licensed barrier of entry formed by the Malaysia government
itself. This license obtained by TNB allows it to be the one and
only distributor of electricity supply in Malaysia where YTL and other IPPs are
just part of the suppliers and are not allowed to distribute electricity.
Take for instance there are two companies in Malaysia that distribute electricity, if one of the company offers a lower price everyone will go for that option thus increasing the amount of power stations and transmission towers in the country. Another problem is direct cables to household will be extremely complicated and unorganized. Therefore we can’t really consider TNB as a monopoly company in supplying electricity as there are many more IPP companies that supply electricity but in general distribution of electricity it is a monopoly company.
Take for instance there are two companies in Malaysia that distribute electricity, if one of the company offers a lower price everyone will go for that option thus increasing the amount of power stations and transmission towers in the country. Another problem is direct cables to household will be extremely complicated and unorganized. Therefore we can’t really consider TNB as a monopoly company in supplying electricity as there are many more IPP companies that supply electricity but in general distribution of electricity it is a monopoly company.
So
lets take another scenario for example, if a company really rises up and be able
to obtain the license for distributing electricity to the household. Will TNB
losses profit and failed to compete with the other new company? No, TNB will still
have vast amount of high profits due to the trust and stability it has
maintained all over the years since the independence of Malaysia. But fear not, that is not going to happen as according to our Prime Minister, "TNB will be always be the premier electricity provider." (2013).
At the end of the day, TNB will still be the major distributor of electricity to Malaysia although it is being supported by various IPP companies. The problem of gas supply shortage will eventually resolved due to the plans from the government to use nuclear generator as the source of electricity for the upcoming years.
At the end of the day, TNB will still be the major distributor of electricity to Malaysia although it is being supported by various IPP companies. The problem of gas supply shortage will eventually resolved due to the plans from the government to use nuclear generator as the source of electricity for the upcoming years.
