Yeo said reform was urgently needed in Malaysia's power sector to reach a long-term goal of producing cheaper and cleaner energy. — Picture by Zuraneeza Zulkifli

KUALA LUMPUR, July 23 — The Pakatan Harapan government will end opaque power supply contracts as part of its election pledges to lower costs for consumers, said Yeo Bee Yin.

According to The Straits Times, the energy, technology, science, climate change and environment minister said such deals encouraged the inordinate production of excess power, to the tune of 46 per cent more than prevailing demand.

She said another seven Independent Power Producer (IPP) agreements may be cancelled as the government bids to lower the margin of excess power to 25 per cent under a 10-year action plan that will be disclosed soon.

Four contracts have already been cancelled without any cost incurred and another four are under study.

"I'm seeing one or two are already not possible to scrap due to cost and legal implications,” she told The ST.

Malaysia’s IPP deals regularly contain clauses that guarantee the independent producers payment for energy generated even if this is never used, which consequently adds overhead costs to utility Tenaga Nasional Bhd (TNB) that increase the pressure to raise tariffs.

"The money is just ridiculous and you don't need these plants. Normally, people have less than 20 per cent margin. If we don't cut some of the plants that are going to come up, we are going to hit 46 per cent. Who is going to pay for it?" Yeo told Straits Times.

Although she declined to name the IPP agreements that are under review, she said some were awarded just before the May 9 general election in which Barisan Nasional was finally voted out after over 60 years in power.

Industry analysts say the projects at risk could include two power plants awarded to Edra, the energy unit of scandal-hit 1MDB that was sold to China General Nuclear Power Corporation in 2015 to pare down debt that had hit as high as RM51 billion.

Yeo said reform was urgently needed in Malaysia's power sector to reach a long-term goal of producing cheaper and cleaner energy. This will include more opportunities for power sector players, in different parts of the power sector, not just generation.

These include transmission and distribution which are now fully controlled by state utility firms like Tenaga Nasional in Peninsular Malaysia.

She also suggested further empowering the Energy Commission with greater punitive measures.

The government maintained tariffs for domestic users for the second half of the year, but allowed TNB to maintain a cost past-through mechanism that effectively raises rates for commercial and high-consumption user.

PH in its election manifesto vowed to increase renewable energy from the current two per cent to 20 per cent of total supply, which limits its ability to lower rates.

Yeo has already discounted nuclear power and will not factor large hydroelectric plants into the renewable energy target due to their ecological cost.

Solar remains as the main option, with current market prices at just under 40sen/kWh .

While this is over 30 per cent higher than the EC's estimated generation costs of 27.05sen/kWh for this year to 2020, Yeo insisted renewable energy can achieve "grid parity" with Malaysia's largely fossil fuel-based power plants.