ESG compliance: TNB to gradually chalk up renewable energy footprint

UTILITY giant Tenaga Nasional Bhd (TNB) is currently working on its sustainability pathway – expected to be announced in 2H 2021 – where details such as its long-term commitments and key performance indicators (KPIs) to monitor its sustainability performance annually will be disclosed.

This follows its investors’ major environmental, social and governance (ESG) concerns over the group’s carbon emissions, affordability of electricity access and the Government’s growing emphasis on environmental sustainability.

“The majority of investors are constantly engaging with TNB to understand its efforts to address the ESG issue; only a few funds are shying away due to the group’s coal-related exposure,” revealed analyst Ngo Siew Teng in a company update.

“TNB is ranked average among its regional peers, and slightly slower than some of its leading peers in terms of ESG progress due to its business model where it has to balance sustainability, affordability and energy security of the electricity supply.”

To further buck up its ESG compliance, CGS-CIMB Research noted that TNB has set up a dedicated team by hiring external consultants to specifically look at ESG and identify business opportunities (such as batteries) from energy transition.

“TNB is trying to address this ESG issue by ensuring its revenue from coal generation plants does not exceed 25% of total revenue,” the research house pointed out.

“TNB has pledged not to invest in greenfield coal plants after Jimah East Power which was commissioned in 2019. With major coal plants gradually going offline, TNB’s coal-related revenue should not exceed 20% by 2030F (vs 22.1% in FY2021F) as per TNB’s forecast.”

Moving forward, TNB has also set a renewable energy (RE) capacity target (including large hydro plants) of 8,300 megawatts (MW) by 2025F. Its RE capacity as of December 2020 stood at 3,398MW (domestic: 2,732MW; international: 666MW).

According to CGS-CIMB Research, TNB’s RE growth strategy is focused on (i) international assets in selected growth markets and regions where it already has presence (the UK, Europe and Southeast Asia); and (ii) domestic assets by participating in large scale solar (LSS) projects, small RE projects and rooftop solar projects.

“Out of the target 8,300MW RE capacity, 3,100MW will be coming from domestic locations, 3,400MW from UK/Europe and 1,800MW from the Southeast Asia region,” noted the research house.

“Upon achieving the RE target, TNB’s RE revenue will be 10% of its total revenue (2020: 4% of total revenue) and 32% of its total installed generation capacity by 2025F. We gather the total capex needed will be circa RM6.5 bil.”

All-in-all, CGS-CIMB Research reiterated its “add” rating on TNB with an unchanged target price of RM13.40. “We view ESG risks for TNB as opportunities given the rapid growth in RE, rising electricity demand and continuous investments in grid,” added the research house.

At 12 noon, TNB was up 1 sen or 0.1% to RM9.77 with 620,800 shares traded, thus valuing the company at RM55.94 bil. – July 21, 2021

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