DISTRIBUTION NETWORK Business Plan FY25 – 29 & Annual Operating Plan FY25 1 June 2024
2 ▪ Full DN Business Plan & Annual Operating Plan ▪ Appendices – DNFA AOP FY25 & SU 2030 Initiatives Contents
3 Contents Key areas of focus Financial projections ▪ Financial projections – 9.1: Projected EBIT & PAT for FY25-29 and other targets – 9.2: OPEX & CAPEX Requirement for FY25 Implementation plan ▪ Identification of key risks, linked to impact on aspiration and mitigation measures Enablers BAU outlook and initiatives for EBIT uplift Aspirations and strategic themes Risks and mitigation plans ▪ Corporate strategy that provides top-down guidance on: – Aspirations – Potential focus areas (e.g., productivity, digitization), including areas which will deliver step change improvements Market outlook ▪ Market outlook that highlights growth opportunities and constraints Historical performance ▪ Past performance review and drivers of performance Executive Summary ▪ Executive summary of business plan, including an overview of Distribution Network 2 7 8 9 4 1 3 5 6 ▪ Strategic Initiatives and BAU to deliver aspirations: – 5.1: Strategic Initiatives and BAU for FY25-29 (inclusive of Sustainability initiatives) – 5.2: Detailed Strategic Initiatives for FY25 – 5.3: Workforce Planning ▪ Resources needed, including capital, technology and IT infrastructure and talent and capabilities – 6.1: Key enablers for FY25-29 – 6.2: Key enablers for FY25 ▪ Implementation plan – 8.1: Implementation plan for FY25-29 – 8.2: Implementation plan for FY25
4 ▪ Distribution Network (DN), a regulated business entity, has delivered near 100% electrification in Peninsular Malaysia with fair revenue growth and profitability besides high achievements in operational performance ▪ Moving forward, energy transition is transforming our electricity distribution landscape, in response to the global and local climate change actions which will open opportunities through growth of network investment to accommodate bi-directional flows, more renewable energy and new innovations and technologies. There is also a need for DN to support TNB’s sustainability commitments considering stakeholder expectations, its impacts and sector trend which have been put into sharp focus by the pandemic ▪ DN aspires to be an efficient, green and secure network to provide better services and more choices to customers through sustainable solutions in achieving Reimagining TNB 2.0 (RT2.0) and Net Zero 2050 aspirations to support national agenda of becoming a net-zero emission and carbon neutral nation by 2050 ▪ We plan to achieve an EBIT of RM 3.51 bn with 8.7% RORAB by 20251 (vs. RM2.59 bn EBIT2 and 7.1% RORAB2 in 2023), and EBIT of RM 3.90 bn with 7.5% RORAB by 20291 . A total of RM ~41 bn CAPEX1 will be invested from 2025 – 2030 (1.6x annual average CAPEX from RP3 level) ▪ To deliver the EBIT targets, DN will prioritize efficient growth of its Regulated Asset Base (RAB) over the next five years. This will be accomplished through careful execution of RP4 projects, which will lay a solid foundation for positive outcomes in RP5. Additionally, DN will strive to maintain productivity in a difficult macroeconomic climate while still achieving performance-based rewards under the IBR (including SAIDI, supply project completion, metering service, etc.). ▪ Key enablers are CAPEX investment of RM ~41 bn (RP4: RM ~19 bn, RP5: RM ~22 bn), collaborate with Procurement (P&SC) to fortify a resilient supply chain of materials and services, establish the enhanced value-focused organization with HR, team up with ICT on building digital & analytics capabilities through Smart Utility 2030 projects, successfully adopt a high safety culture, and institutionalize a culture of excellence with new capabilities to achieve triple role of operator of network, facilitator of energy transition and enabler of customer empowerment ▪ Throughout these 6 months, DN is putting more focus on RP4 negotiation sessions which includes regulatory and stakeholders' engagements to maximize CAPEX approval which will be the key driver for the EBIT uplift. DN is also pushing for full utilization of the RP3 CAPEX budget, while meticulously tracking the value generated and customer benefits achieved through SMART projects Chapter 1 Executive summary 1 Based on DN RT2.0 2 Based on actual segmental EBIT, includes Unpredictable OPEX (UPOX) Executive summary
5 ▪ Distribution Network Portfolio – DN plays a vital role in distributing power to the 10.16 million homes and businesses in Peninsular Malaysia – Distribution network (i.e. lines and transformer capacity) had grown at a rate of 2-3% in 2021– 2023, in line with the approved energy demand in IBR as well as 2021-2023 actual energy demand ▪ Financial Performance – Revenue growth of 3.65% p.a. from FY21-23, which includes tariff revenue and non-tariff revenue – EBIT surpassed the UMT target in FY21-23 – RORAB higher than WACC of 7.3% and surpassed the UMT target in FY21-23 ▪ Operational Performance – SAIDI maintained within 50 mins/customer/year in FY21-23, on par with developed countries e.g. UK, Italy and France – Distribution losses managed to keep up the achievement throughout FY21-23 with a decreasing trend of 6.16%, 5.45% and 5.42% respectively. – LTIF surpassed the UMT in FY23 with a notable 0.70 score, however 3 fatality cases were recorded – Smart Grid Index continued to record a good improvement in FY23 with 78.57% score from 71.4% score in FY22 5 DN has a strong starting position in terms of asset size, financial and operational performance, and people Chapter 2 Historical performance Figure 1: Electricity Supply Chain in Peninsular Malaysia Distribution Network 1 2 3 DN has delivered near 100% electrification in Peninsular Malaysia with fair revenue growth and profitability CESS4 1 PMU: Pencawang Masuk Utama 2 PPU: Pencawang Pembahagian Utama 3 PE: Pencawang Elektrik 4 CESS: Community Energy Storage System
6 Total Customers, million Energy Demand Takeaways 1 , GWh Lines2 , km Transformer Capacity, MVA ▪ DN has maintained its regulated monopoly position for distributing electricity in Peninsular Malaysia ▪ Distribution network had grown at a rate of 2-3% per year, in line with the approved energy demand in IBR and actual energy demand Chapter 2 Historical performance 113,909 115,835 723,134 741,764 761,546 +2.62% p.a. 2021 2022 9.66 9.90 +2.55% p.a. 123,084 126,355 127,747 +1.88% p.a. 10.16 2023 116,367 +1.07% p.a. 2021 2022 2023 2021 2022 2023 2021 2022 2023 Portfolio performance: DN plays a vital role in distributing power to the 10.16 million homes and businesses in Peninsular Malaysia 1 Based on IBR approval by ST. Actual energy sales: 2021 = 111,996 GWh; 2022 = 118,827 GWh; 2023 = 123,102 (CAGR 2021-2023: 4.8%) Source: BP Finance DN, DN IBR Team
7 Revenue, RM bn EBIT, RM bn Takeaways RP3 CAPEX, Approved vs. Actual, RM bn RoRAB, % ▪ EBIT decreased in 2023 from 2021 due to unpredictable OPEX (UPOX) coupled with RP2 and RP3 tariff levelisation impact. DN contributed approximately 35% to TNB EBIT in 2023 ▪ RORAB of 9.0% in 2021 reduced to 7.1% in 2023 due to lower regulatory return, resulted from UPOX Chapter 2 Historical performance 0.30 8.89 0.32 9.91 9.59 9.19 +3.86% p.a. 3.10 3.28 -9% p.a. 2.99 13.32 9.0% 8.9% 7.1% XX Upper Meet Target Tariff revenue Non-tariff revenue 7.3 7.3 9.63 0.28 9.92 2021 2022 2023 2.59 2021 2022 20231 2.86 9.63 Approved (2022-2024) Actual (2022-2023)2 7.2 2021 2022 2023 -11% p.a. 2.79 Financial performance: While revenue grew steadily at about 4% per year, EBIT in 2023 was lower than expected. This was due to unpredictable OPEX (UPOX) resulting in increase for repair and maintenance (R&M) cost as well as the impact of tariff levelisation for RP2 and RP3 1 FY23 Actual Segmental EBIT & includes Unpredictable OPEX (UPOX) 2 As at Dec 2023 for 2022-2023 (72% utilization from total RP3 2022-2024) Source: BP Finance DN, DN IBR Team
8 SAIDI1 , minutes/customer/year Distribution Losses, % Takeaways LTIF Score Smart Grid Index, % ▪ Operational performance improved from 2021 to 2023 despite the continued challenges faced during the pandemic and unprecedented year-end floods in 2021 ▪ However, more efforts are required to prevent fatality cases moving forward Chapter 2 Historical performance 45.25 45.06 46.10 +0.93% p.a. 48.05 48.11 6.16 5.45 5.42 -6.20% p.a. 6.52 6.34 0.59 0.77 0.7 +8.92% p.a. 67.9 71.4 78.57 48.00 6.29 2021 2022 2023 2021 2022 2023 +7.57% p.a. 2021 2022 2023 2021 2022 20233 1.0 1.0 1.0 XX Upper Meet Target 64.0 71.0 73.0 2 fatality cases 3 fatality cases Operational performance: Excellent performance in SAIDI, Distribution Losses, LTIF and Smart Grid Index vs. Targets. Preventing future fatality incidents is a top priority moving forward 1 fatality case 1 SAIDI for 2021 was lower due to MCO. The normalized SAIDI is 48.11 2 Distribution losses for 2020 is much higher due to MCO 3. SGI assessment for 2023 was conducted by UNITEN
9 The world's geopolitics might threaten TNB's supply chain, and a late 2023 cabinet reshuffle in Malaysia is affecting TNB's stakeholder engagement efforts Politics Economy Social Technology Environment Legal Strategic Position Chapter 3 Market Outlook • The current Malaysian Government appears to be stable with minimal risk of another ‘Sheraton Move’ –type of disruption. • The new Yang di-Pertuan Agong, Sultan Ibrahim has warned politicians against causing political instability during his tenure. • Views among Malaysians regarding Anwar's government performance have a mixed reviews after one year, with an approval rating of 50%, contrasting with the 68% rating recorded in 2022. • Malaysia announced a major Cabinet reshuffle on 12 Dec 2023, with new ministers being appointed to key portfolios, including finance, foreign affairs and health. • Due to coalition politics arising from the unity government, along with the rise in state government powers (especially East Malaysia), there has no significant reforms on corruption, education and the economy. • Possible regional escalation of Israel-Hamas conflict may lead to significant increases of fuel prices which would impact TNB’s supply chains. • With the Middle East geopolitical conflict and Ukraine- Russia war, US ability to keep it focus on its foreign policy objectives in Asia will be affected • 6 important economies namely USA, Russia, India, Indonesia, UK and Taiwan will be having their general elections in 2024 which may impact the current geopolitical situation. • The ramifications of these elections on geopolitics, global business, and society are poised to be substantial, potentially molding the policies and priorities of some of the world's largest and most influential economies. Global Outlook Malaysia’s Outlook Source: SVD
10 If Trump emerges victorious in the US election 2024, experts anticipate a significant change in global environmental policies, US foreign policies and capital markets Politics Economy Social Technology Environment Legal Strategic Position Chapter 3 Market Outlook Impact to Malaysia and TNB Donald Trump as the President • Increased risk of US protectionism measures in the form of tariff and non-tariff measures that may adversely affect bilateral trade between Malaysia and US. • Any withdrawal of US support for climate change mitigation will lead to less green funds available for climate change research and aid. • Increased geopolitical risks will affect TNB through global supply chain disruptions. • Increased chance of an immediate US equity market rally that may lead to foreign investors pulling out their funds from Malaysia’s equity market, which would reduce TNB’s market capitalization Biden as the President • Biden’s administration may promote multilateral trade agreements especially in the Indo-Pacific, to moderate Chinese regional influence, which can be positive for Malaysia. • Withdrawal of funds from US equity market may potentially be beneficial to other equity markets including Malaysia. • A prolonged Ukraine-Russia war will continue to weigh negatively on the global economy including Malaysia. • Strengthen the viability of nascent Energy Transition techs including CCS and BESS, and improves global clean energy supply chain resilience Scenario • Trump plans to reinforce his "America First" policy by imposing a 10% tariff on all imported goods while cutting taxes on US businesses. This will incentivize US domestic production but potentially trigger trading partners’ retaliatory tariffs, escalating into trade wars, especially with China. • Trump could pull the US out of the UNFCC, which would be step up on the withdrawal from the 2015 Paris Agreement, which would upend global climate change mitigation plans. • Trump’s unpredictable approach to international relationship (e.g., China-Taiwan, Ukraine-Russia, Israel) may lead to heightened geopolitical risks, thereby impacting market valuations. Impact to US & the world • A second term for Biden will allow for current US policy continuity, and room for him to implement further reforms. • Biden’s preference for individual or corporate tax hikes will lead to a negative US stock market reaction. • Biden will maintain US global leadership through a strong focus on multilateralism and strengthening its alliances, including NATO, Ukraine and Israel. • He may push for more environmentally friendly policies include the introduction of more initiatives to boost the clean energy industry and his climate agenda. Source: SVD
11 Global Economic Outlook 2023-2025 Observations & Key Priorities Observations: ▪ The forces shaping the outlook: ‒ The longer-term effects from the COVID-19 pandemic ‒ Russia’s invasion of Ukraine ‒ Poor growth in productivity & increased geoeconomic fragmentation Key Priorities: ▪ Fight inflation ▪ Priority investments ▪ Address rising debt ▪ Ensure financial stability & debt sustainability ▪ Strengthen social safety nets for people at risk ▪ Speed transition to the green energy The global economy remains resilient despite uneven growth, challenges ahead Politics Economy Social Technology Environment Legal Strategic Position Source: International Monetary Fund (IMF) Chapter 3 Market Outlook
12 While the global environment is expected to be challenging in 2024, the Malaysian economy will continue to grow . . . The economy is projected to grow by 4% - 5% in 2024, and continues to surpass the pre-pandemic level Source: Department of Statistics Malaysia and Bank Negara Malaysia estimates) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
13 . . . at a moderated rate amidst higher inflation 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% World EU USA UK China Japan Thailand Singapore Indonesia Malaysia 4-5% GDP Growth Forecasted in 2024 for Malaysia ASEAN APAC International 1.2% Growth Forecasted in Electricity Sales for 2024 ▪ BNM’s forecast of an improved 4-5% Malaysian GDP growth in 2024, driven by continued expansion of domestic consumption, resilient labor market and potential recovery in global trades bodes well for the country in 2024. ▪ Expect moderate in energy demand especially in APAC driven by positive GDP growth and low inflation ▪ With the fuel subsidy rationalization, increase in service tax and minimum wage implementation in 2024, there will be an impact to the cost of production which influences the inflation rate in some residential and commercial sectors. International Monetary Fund has estimated Malaysia’s inflation to 2.7%(2024) as compared 1.5% (2023). ▪ Maybank Forex and MIDF expects the Ringgit to appreciate against the US dollar in 2024, as there is an expectation that the Federal Reserve will reduce interest rates in the second quarter of 2024 ▪ Oil and gas prices will continue to strengthen, driven by the increase in demand despite the strong growth in renewable energy considering parallel effort of strengthening energy security and decarbonization efforts ▪ TNB will need to recover a forecasted ~RM10.0 bn ICPT costs in 2024 with fuel prices still hovering above the RP3 base prices. ▪ With the announcement of NETR in 2023, TNB will champion some of the initiative which may enhance a favorable RP4 proposal in enhancing Capex for green and digitalize investments. Item TWh % yoy 2020 Sales 110.9 0 2021 Sales 111.8 0.9 2022 Sales 125.0 4.1 2023 Sales 123.2 (1.8) 2024 Sales Forecasted 124.4 1.2 -61% Drop in Natural Gas Prices (Henry Hub) 2023 Additional generation cost due to high coal price above base line across the remaining RP3 period Implications Monthly U.S Henry Hub natural gas spot price Dollars per million British thermal units Monthly U.S Henry Hub coal spot price Dollars per million British thermal units -41% Drop in Coal Prices from 2023 9257 3438 6537 6013 2H 2023 1H 2024 2H 2024 1H 2025 Actual We are here Imbalance Cost (RM Mn) Forecasted by Single Buyer as of 9 October 2023 ICPT Implementation Period ICPT Surcharges (+) Rebates (-) senkWh -2.00 Domestic up to 1.5GWh consumption +10.00 Domestic > 1.5GWh consumption +3.70 MSMEs, Agriculture & SPAN customers +17.0 Other Non-Domestic customer +5.55 Estimated average ICPT surcharge for ALL customers +10.57 Estimated average ICPT surcharge for ALL customers +9.62 Estimated average ICPT surcharge for ALL customers RM4.7Bn Gov Subsidy RP3 Coal Baseline:USD79.00/MT RP3 Gas Baseline: Tier 1:USD 5.51/MMBtu Tier 2:USD 7.04/MMBtu Source: SVD (IMF,BNM, Moody’s, RSMD and Markets Insider) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
14 At RM393.8 Bn, the Budget 2024 is one of the largest supply bill tabled, with a record RM303.8 Bn for operational expenditure and RM90 Bn for development expenditure Income Tax RM174.7 bil 44% Indirect Tax RM58.6 bil 15% Other direct tax RM10.3 bil 3% Non-tax Revenue RM64.0 bil 16% Borrowings & use of govt assets RM86.2 bil 22% BUDGET 2024: WHERE IT COMES FROM RM 393.8 bil 100% Emoluments RM95.6 bil 24% Retirement Charges RM32.4 bil 8% Debt Service Charges RM49.8 bil 13% Subsidies & Social Assistance RM52.8 bil 13% Supplies & Services RM38.0 bil 10% Others RM26.4 bil 7% Grants & transfers to state govts RM8.7 bil 2% Development Expenditure RM90.0 bil 23% BUDGET 2024: WHERE IT GOES RM 393.8 bil 100% Year Overall Construction Services Manufacturing Agriculture 2024f 4.0-5.0% 6.8% 5.6% 4.2% 1.2% 2023e 4.0% 6.3% 5.5% 1.4% 0.6% Malaysia’s growth by sector Public Private Year Overall Consumption Investment Consumption Investment 2024f 4.0-5.0% 3.8% 10.5% 8.3% 7.5% 2023e 4.0% 2.0% 10.4% 7.8% 6.3% Malaysia’s growth by expenditure 2024: -4.3% of GDP 2023: -5.0% of GDP Smaller Budget Deficit 2024: RM308 bn 2023: RM303 bn Increase 1.5% Revenue The NMB outlined plans to consolidate the fiscal deficit while sustaining development expenditure levels 1 2 3 All sectors are forecasted to grow more than last year The private sector continues to drive Malaysia’s economy Source: SVD Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
15 Overall, Malaysia’s Budget 2024 will be mostly positive to TNB while helping the nation to decarbonize Opportunity Risk +74% in diesel cost +2% SST Risk of 3 rd party claim from new TPA model Increase attractiveness of Energy Efficiency (Including Solar) Transfer of SESB to Sabah regulator Increase opportunity to fund ET related startup Increase TVET education business R&D into ET areas incl. CCUS, hydrogen and energy storage Enhance Talent Recruitment & diversity Additional Government funding for ET Tax deduction for biodiversity conservation Improve Malaysia EV adoption Additional revenue from ET Source: SVD Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
16 National electricity demand, GWh 111,868 113,964 115,969 113,909 115,835 116,367 113,469 118,184 116,525 110,879 111,858 118,839 123,102 124,587 127,497 132,075 137,685 141,314 145,891 2018 2019 2020 2021 2022A 2023A 2024F 2025F 2026F 2027F 2028F 2029F As per IBR RP2 & RP3 approval for DN RR Actual & JPPPET 2023 Forecast Approved WACC for IBR RP1-RP3, % DN revenue requirement for IBR RP3, proposed vs. approved, RM bn. 7.50 7.3 7.3 RP1 RP2 RP3 29.79 29.01 Proposed Approved -1.3% -2.6% Energy trilemma SECURITY SUSTAINABILITY AFFORDABILITY DN tariff for IBR RP3 proposed vs. approved, cents/kWh 8.50 8.28 Proposed Approved -2.6% Although Malaysia economic outlook is in tandem with the positive trend of national electricity demand forecast, challenges in meeting a favourable regulatory outcome persist Source: JPPPET 2023, IBR RP1-RP3 approval Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
17 With the global Energy Transition (ET) underway, we are seeing profound changes on the job market as well as the requisite skill sets Politics Economy Social Technology Environment Legal Strategic Position New skills Existing skills in demand Skills in decline • Energy efficient building design • Energy & sustainability legislation • AI & chatbox programming • Scientific research • Software engineering • Data science & analytics • Health & safety • Remote mining operations • Rare earth mining & processing • Mineral mining and processing (e.g. lithium, copper, nickel) • Seismic interpretation, geology • Coal mining frontline operations • RE infrastructure, power plants, CCUSs, and grids • Green building construction & conversions • Project management • Electrical repair & installation, pipefitting, plumbing • Civil engineering & architecture • Coal-fired power plants • Basic petroleum refineries • Production engineering for hydrogen, biofuels, nuclear • Manufacturing for EVs, batteries, turbines, RE equipment • Chemical, mechanical, electrical and process engineering • Plant operations & maintenance • ICE manufacturing • Coal processing • Repetitive frontline factory tasks • Installation of solar & EV endpoints (batteries, charging stations) • Energy efficiency facilities management • Repair of wind turbines, EVs • Last-mile logistics • Public relations & corporate communications • Petrol stations • ICE repairs • Frontline retail & sales • Customer service • Meter reading R&D and Knowledge Supply Construction Production & Operations Service & Repair Coal Oil & Gas Critical Minerals Bio Energy Cars Other Energy Tech Power Gen & Grids 76.0 Energy Workforce (2030 est.) 65.7 -2.6 0.7 2.8 7.9 4.4 Energy Workforce (prepandemic baseline) NZE: Net Zero Emissions by 2050 Scenario APS:Announced Pledges Scenario ▪ By 2030: o ~60% of the ET jobs will be to build new infrastructure o ~40% of the ET jobs will be to operate existing infrastructure -2.0 11.5 88.4 Energy Transition Net Job Gain / Loss by Sector (mn jobs) Notes: 1. APS - Announced Pledges Scenario assumes all national energy and climate targets made by governments are met in full and on time. 2. NZE - Net Zero Emissions by 2050 Scenario which limits global warming to 1.5 °C (much additional progress is required) Energy Transition and increase of jobs across sectors New workforce skills required and others that decline in demand Source: SVD (Korn Ferry, Building Capabilities for the Future Energy Workforce, The ET Conference 2023 (IEA, Korn Ferry Analysis)) Chapter 3 Market Outlook
18 To address ET, governments are funding skills development and community transformations & businesses are using different approaches to transition employees into clean energy jobs 16,000 clean energy jobs to be filled by 2024 by training oil & gas workers and the underprivileged 99.8% of coal workers were re-employed, mostly into the solar industry Unemployed citizens trained as ‘energy advisors’ (80% found jobs after the programme) VOLKSWAGEN: VESTAS, ACCIONA, GPG, TILT: 7,700 workers were re- trained for EV production BRUNEL x ENERGY DELTA INSTITUTE: Post-graduate hydrogen degree offered to oil & gas professionals 600+ trained annually at a new wind energy training tower Zwickau, Germany The Netherlands Ballarat, Australia Shanxi, China Barcelona, Spain Penonomé, Panama Source: SVD (Korn Ferry, Building Capabilities for the Future Energy Workforce, The ET Conference 2023 (IEA, Korn Ferry Analysis)) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
19 The EY Global survey conducted across 18 markets over a span of three years illustrates the evolving landscape of the utility sector in response to the profound shifts brought about by the ET Japan Ireland Belgium UK Spain Italy Germany France Portugal Netherlands Sweden US Australia Brazil Canada Hong Kong Malaysia China The Energy Transition Confidence Curve Stage of advancement in the energy transition WEF Energy Transition Index Score High Energy consumer confidence (ECCI) EY Energy Consumer Confidence Index High Plateau of normalcy Low Low Peak of uneducated expectation Valley of disillusionment 33% 55% blame energy price increases on geopolitical tensions and energy providers making more profit of consumers report they spend 10% or more of income on electricity and natural gas and half say they are spending more than a year ago 77.6 70.6 69.2 66.2 65.5 65.5 64.8 63.2 61.5 61.3 61.2 61.1 61.1 58.5 56.9 56.6 56.4 51.2 China Malaysia Hong Kong Canada Australia Brazil US Netherlands Sweden Portugal Italy Germany France Spain UK Belgium Ireland Japan High energy consumer confidence Low energy consumer confidence Energy Transition is becoming real for customers as it has started to impact their lifestyles Energy Consumer Confidence Index (ECCI) ▪ Japan show lowest confidence towards energy transition. ▪ Most European countries are in between. ▪ Malaysia and China has a significantly high confidence toward energy transition. ▪ An in-depth analysis was conducted in three phases (A, B, C) to comprehend the wide variation in ECCI across countries. ▪ Post analysis, we would highlight that it is imperative to consistently reduce disillusionment's impact, in terms of both intensity and duration, to ensure a successful energy transition. Consumers embrace energy transition with positive messaging, fostering excitement. Consumers are increasingly aware of how energy transition impacts lifestyle, including key energy usage areas (heating, cooling, transportation, lighting and cooking). Customers' positivity increases as they acknowledge their ability to embrace change, supported by technology, capabilities, and policies facilitating their transition. A B C Source: SVD (EY, Customer Confidence on the Energy Transition, The ET Conference 2023) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
20 Customers are still somewhat uncertain over the overall energy transition but are keen to have some form of energy independence ▪ There are several other factors that created a more complex environment for consumer to embrace energy transition. ▪ We have consumers that worry about stability, affordability, value proposition, accessibility and even equity. ▪ For energy transition to be successful, it needs to be able to deliver value to all level of income, and not restricted to the higher income group. ▪ As we are evaluating the relationship between energy transition and consumer, it is necessary to consider all relevant parameters as we acknowledge that energy transition will come to different customers (in rural area, urban area & different level of income) in many ways. Consumer Confidence in Energy Transition Security of consumers are interested in some form of energy independence are confident in the stability of their energy providers business only 45% Stability have confidence in the affordability of their energy costs in the next three years only 35% Affordability have confidence the direction their energy provider is going will create value for them and their community in the future only 40% Value have confidence in the regulator's/ government's support of a fair and equitable energy transition only 35% Equity are confident they will have the ability to access clean energy options only 41% Accessibility 1 2 3 4 5 6 89% Source: SVD (EY, Customer Confidence on the Energy Transition, The ET Conference 2023) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
21 Global energy transition investment has grown rapidly since 2020 Politics Economy Social Technology Environment Legal Strategic Position Note: Start years differ by sector but all sectors are present from 2020 onwards. Nuclear start in 2015 and power grids in 2020. 33 51 80 107 156 153 213 267 239 212 313 388 428 469 526 565 934 1,190 1,511 1,769 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 $ billion Power grids Clean shipping Clean industry Electrified heat Electrified transport Hydrogen CCS Energy storage Nuclear Renewable energy Fig 1: Global energy transition investment, by sector ▪ Annual global investment in energy transition technologies rose to $1.77 tn in 2023, a new all time high and a 17% y-o-y gain. ▪ Electrified transport (EVs and charging infrastructure), overtaken RE as largest sector for spending at $634 bn in 2023 – up 36% y-o-y. Electrified transport saw the largest absolute gain of any sector, reflecting continued acceleration in global EV adoption. ▪ Investment in new RE project (wind, solar, biofuels and others) grew 8% to $623 bn in 2023. ▪ Nuclear ($33 bn) and electrified heat ($63 bn) were slightly down from 2022, at -0.7% and -4% respectively. Other significant y-o-y development included: o Hydrogen – grew 203%, from $3.4 bn to $10.4 bn o CCS – grew 94%, $5.7 bn to $11.1 bn o Energy storage – grew 76%, $20.6 bn to $36 bn o Clean industry – grew 7%, from $45.3 bn to $49 bn Source: SVD (Bloomberg – ET Investment Trends 2024) Chapter 3 Market Outlook
22 Global electricity generation (by technology) towards achieving energy transition Generation (GWh) – data by technology 22,051,746.71 22,349,181.99 23,096,037.46 23,429,217.06 24,016,738.63 24,545,612.52 25,485,528.01 26,052,979.99 25,957,023.71 27,149,724.28 28,156,572.33 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Coal - all Natural gas - all Large hydro Nuclear - all Wind Oil & Diesel Solar PV Biomass & waste Small hydro Other - fossil Geothermal Solar - Thermal Marine - all Hydro - all OTHER FOSSIL FUELS Grand Total by year ▪ Top 10 technologies in generating power globally are depicted below: Negative / lowest growth In embracing energy transition towards net zero, power producers globally are adopting RE e.g., solar PV and wind to generate the electricity, with CAGR of 5.4% and 14.9% respectively. Solar PV ▪ China, USA, India, Japan and Brazil are the top solar power producers via solar PV with 427, 204, 102, 89 and 64 TWh energy produced respectively in FY2022. ▪ Chile and Brazil exhibited the highest growth with CAGR of 190% and 167% (FY2012 – 2022). Wind ▪ China, USA, Germany, Brazil and UK are the top wind power producers with 762.4, 434.8, 125.3, 81.6 and 80.2 TWh total energy produced in FY2022. ▪ Among the 5 countries, Brazil exhibited the highest growth with CAGR of 32% (FY2012 – 2022). Oil & diesel ▪ Saudi Arabia, Japan, Iran, Mexico and Bangladesh are the top power producers that leveraged on oil & diesel to produce electricity – with 193.61, 82.16, 56.22, 40.03 and 26.30 TWh energy produced in FY2022. ▪ Saudi Arabia, Iran and Bangladesh show positive CAGR at 3%, 4% and 17%, while Japan and Mexico show negative CAGR at -4% and -3%, signifying their effort to reduce resources from oil & diesel in generating electricity. Rank Technologies Total energy produced (TWh) CAGR (%) FY2012 - 2022 FY2012 FY2022 1 Coal 8,691.21 9,797.70 1.2 2 Natural gas 5,199.60 6,416.22 2.1 3 Large hydro 3,250.83 3,717.01 1.3 4 Nuclear 2,465.10 2,630.05 0.6 5 Wind 526.93 2,107.00 14.9 6 Oil & diesel 848.97 666,69 -2.4% 7 Solar PV 378.65 1,340.32 30.3 8 Biomass & waste 376.87 638.01 5.4 9 Small hydro 95.06 572.03 4.3 10 Other - fossil 143.35 160.76 1.2 Highest growth Trends in global electricity generation Key Considerations Source: SVD (BNEF – Global Electricity Generation) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
23 CCUS, Nuclear, Hydrogen and EV is expected to keep growing under the current push for Net Zero globally CCUS Nuclear Hydrogen EV UK Ukraine Canada India South Korea Japan Russia China France US 36 35 40 20 23 33 29 9 38 43 9 15 19 22 25 33 37 57 61 96 Cumulative installations (GW) Age (Year) ▪ Nuclear power accounts for about 10% of electricity generation globally, rising to almost 20% in advanced economies. ▪ As 2023, US, France and China are the top three producer, totaling 96GW, 61GW and 57GW respectively. ▪ China’s nuclear fleet is youngest, with 70% of its reactors are 10 years old or younger. ▪ Additional effort is needed to accelerate new constructions. 8GW of new nuclear capacity was brought online in 2022, but the Net Zero Scenario calls for over 4x as much annual deployment by 2030. ▪ Support for innovation in nuclear power, including small modular reactors, will help expand the range of lowemission options and widen the path to net zero power. ▪ Several utilities in North America, Europe and the Asia-Pacific region are exploring the possibility to co-fire hydrogen with natural gas in combinedcycle or open-cycle gas turbines. ▪ Hydrogen and ammonia-fired power generation capacity can achieve 5,800 MW by 2030 based on project announcements, principally from hydrogen co-fired in combined-cycle gas turbines. ▪ Low-emission hydrogen production can grow massively by 2030 but cost challenges are hampering deployment. ▪ For hydrogen produced from renewable electricity, an increase of 3% points in cost of capital could raise project cost by ~1/3. Several projects have revised their initial cost estimates upwards by up to 50%. 0.7 1.1 2.0 2.2 3.2 6.5 10.5 14.1 17.5 22.4 26.6 0 5 10 15 20 25 30 2016 2021 2026 Million China Europe US Japan Canada S. Korea S0.7 1.1 2.0 2.2 3.2 6.5 10.5 14.1 17.5 22.4 26.6 0 5 10 15 20 25 30 2016 2021 2026 Million China Europe US Japan Canada S. Korea Southeast Asia Australia India Rest of World Global 0% 10% 20% 30% 40% 50% 60% 2016 2021 2026 ▪ EV share of global new passenger vehicle sales jumps from 14% (2022) to 30% (2026). Some market are showing much higher shares e.g., 52% sales in China and 42% in Europe. ▪ European car markets move faster, with Nordics at 89% and Germany at 59%. ▪ The fleet grows even faster, from 27 mn passenger EVs on the road at the end of 2022 to over 100 mn by 2026. ▪ Light commercial EV sales are set to rise quickly due to attractive economics, more models available, growing fleet commitments and city policies, reaching almost 70% of global sales by 2040, led by China. Total installed capacity in power gen using Global near-term passenger EV sales hydrogen and ammonia by region Top nuclear power nations’ nuclear installations and avg age of fleets Announced carbon capture capacity at gas and coal power plants ▪ Carbon capture is currently more established in coal-power plants than in gas projects. The technology has been proven at 2 largescale coal-power plants, the Petra Nova project in the US1 and Canada’s Boundary Dam2 . ▪ CO2 capture capacity at coal-power plants could rise to 31.7Mtpa by 2030, based on project announcements. ▪ CO2 capture capacity in power could grow eightfold by 2030 with $21 bn of capital investment is needed for this growth. ▪ 3.4 bn metric tons of CO2 emissions could be abated by CCUS in power sector by 2050 (BNEF Net Zero Scenario). 1 Removing 90% of CO2 from a 240-MW flue gas slipstream 2 Removing 1 mn tonnes CO2 from 120 MW coal fired power unit Source: SVD (BNEF – Carbon Capture Costs for Power: Breakdown for Coal and Gas, BNEF- China Set to become World’s Top Nuclear Power Producer, IEA- Global Hydrogen Review 2023 and BNEF - EV Outlook 2023) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
24 Investments into global power grids continue to trend up steadily with US, China and Europe leading the way 78 79 84 87 74 75 76 79 9 9 11 12 14 13 8 10 8 9 9 10 38 41 44 47 26 26 25 28 17 14 12 13 21 22 25 286 24 288 295 310 0 50 100 150 200 250 300 350 2020 2021 2022 2023 $ billion Rest of World Rest of Americas Rest of Asia Rest of Europe Canada India Germany China US Global power grids investment, by region Global power grids investment, by sector ▪ Global grid investments grew at 2.8% CAGR during the 2020-2023 period, to USD 310 bn in 2023. Europe and Canada are the two regions which has seen the highest ramp-up in grid investments, while US and China are the two regions that have invested the most in terms of absolute value, which is correlated to their country size. ▪ A significant portion of US grid spending was allocated to building climate change resiliency, including undergrounding lines and strengthening storm resiliency. The bulk of the expenditure was directed towards upgrading the grid for RE sources, increased EV adoption and data centers. ▪ China’s grid investment was centered around integrating large clusters of RE sources and enhancing interregional transmission capabilities, while across Europe grid investments were driven primarily by digitalization and HV transmission. ▪ Distribution grid investment outpaced transmission in both value (Total investments of USD 653 bn vs USD524 bn) and growth rate (CAGR of 3.4% vs 2.1%) during the 4-year period of 2020 – 2023. ▪ Solar installations connection to the distribution grid reached record levels in 2023, along with rising EV adoption which necessitated distribution network strengthening. ▪ Investment in transmission grid was centered around improving power transfer over long distances, integrating new wind and solar farms and enabling power trading and system balancing across regions. ▪ Countries with large, cross-border projects saw the highest growth in transmission spend (e.g., Denmark and Australia) Trends in global power grids investment Key Considerations 55%, 157 55%, 157 57%, 167 56%, 173 45%, 129 45%, 131 43%, 128 44%, 137 286 288 295 310 0 50 100 150 200 250 300 350 2020 2021 2022 2023 $ billion Transmission Distribution Source: SVD (Bloomberg – ET Investment Trends 2024) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
25 Artificial Intelligence (AI) revolution is coming for electric utilities to optimize and decarbonize grids ▪ In 2023, BNEF tracked 206 digital projects/partnerships in power sector, with 44% incorporated AI e.g., power system planning, cybersecurity, operations and maintenance. Example, partner with tech software companies to use AI analytics of satellite images to detect wildfire risks. ▪ In 2023, US leads AI activities by ~33% globally, followed by Europe at 30% and Asia – Pacific at 26%. ▪ The number of AI projects/partnerships grew y-o-y to 91 activities in 2023 (Fig 2): o 75% focused on analytics software e.g., digital twin and grid control e.g., virtual power plant (VPP). o AI focus has shifted downstream towards the networks and customers to accommodate complex grids, distributed energy resource (DER) integration and retail programs. ▪ 16% of AI applications in 2023 involved advanced models (deep learning algorithms & generative AI) e.g., E.ON internal gen AI based tool and E.ON GPT to support employees with energy-related questions. ▪ 50% of AI projects/partnerships in 2023 involved grid O&M such as AI in analytics software, grid control and automation (including drones/robots for grid inspection/maintenance. Fig 1: No of digital projects and partnerships in power sector Fig 2: No of digital projects and partnerships in power sector Trends in global AI activities in power sector Key Considerations Fig 3: Share of AI projects/partnerships by segments Fig 4: AI projects/partnerships by tech area 0 50 100 150 200 250 2018 2019 2020 2021 2022 2023 Number of activities Other digital projects AI activities 2X 0 50 100 150 200 250 2018 2019 2020 2021 2022 2023 Number of activities Other digital projects Advanced AI AI Partnerships that support AI 0% 25% 50% 75% 100% 2018 2019 2020 2021 2022 2023 Share of activities Retail Grid Generation 0 25 50 75 100 2018 2019 2020 2021 2022 2023 Number of activities Cybersecurity Grid control Automation Analytics software Cloud/data Sensors/edge control Source: SVD (BNEF, AI Joins the Front Lines in Battle to Clean Up Power Grids) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
26 Market Outlook Future Scenarios Jul Climate Change and Energy Transition (ET) Snapshot Dec Aug Sep Nov Sep Jul Mar Dec Malaysia to become a carbon-neutral nation by 2050 TNB announced its Sustainability Pathway 2050 (Net-Zero5 by 2050) Paris Agreement: 1.5ᵒC temperature rise limit Oct 2025: 10k EV charging points Sustainability Pathway 2050 2015 2021 2022 2023 May RE 2050 : 70% RE Lifts RE export ban EV 2040: 38% share RE RE 2040: 18.4 GW 2025: 31% (13 GW) 2035: 40% (18 GW) Four (4) Scenarios established for Malaysia Energy Transition Outlook Current Position in Malaysia : 25% RE1 (DN: 8.36%2 ) | >100k EV3 | 1,500 EV charging points 4 TNB Sustainability Pathway 2050’s Internal Study for Two (2) Future Net Zero scenarios Decarbonization of power mix EE & demand side mgmt. EV for light vehicle fleet Aug NETR Part 2 Low Carbon Pathway Energy Mix Targets & Initiatives NETR Part 1 6 ET Levers 10 Flagship Projects & Modalities Politics Economy Social Technology Environment Legal Strategic Position 1 As of Mar-23 2 %RE DN as of Mar-24 (2,264 MW) vs. Total Installed capacity of 27,085 MW as of 2 May 2023 3 As of Dec-23 including hybrid (11.6k for EV only) 4 Public station as of Jan-24 5 Net-Zero GHG emissions Source: Team analysis, Asset Planning DN, DG Planning DN, PMO Energy Transition TNB, SVD Chapter 3 Market Outlook
27 2023 in a nutshell from the environmental & climate change perspective Overview of global climate change in 2023 ▪ 2023 is the warmest year on record, driven by humancaused climate change and the El Nino phenomenon ▪ This exacerbated many extreme weather events globally – from intense heatwaves and wildfires in Canada and US, to prolonged drought and flooding elsewhere ▪ Concluded the first global stocktake of the world’s efforts to address climate change under the Paris Agreement ▪ The stocktake recognises the science that indicates global GHG emissions need to be cut 43% by 2030, compared to 2019 levels, to limit global warming to 1.5°C. ▪ Deal drafted for countries to ‘transition away from fossil fuels in energy systems in a just, orderly and equitable manner to achieve Net Zero by 2050 in keeping with the science” ▪ Established new USD700 mn funding arrangements for assisting developing countries that are particularly vulnerable to climate change in responding to loss and damage ▪ Targets for the Global Goal on Adaptation (GGA) and its framework were agreed upon, which will help guide adaptation planning & strategies at all levels ▪ Governments were called on to consider ecosystems, biodiversity and carbon stores, such as forests, when developing their stronger national climate action plans (‘nationally determined contributions’ or NDCs) due by early 2025. ▪ Looking forward, governments must establish a new climate finance goal at COP29 in 2024 ▪ At COP30 in 2025, governments must share new NDCs that are more comprehensive, and fully aligned with the 1.5°C temperature limit Global average temperature by year, compared with pre-industrial average (1850 – 1900) Environmental & Climate Change Milestones in 2023 Source: SVD Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
28 Key ESG-related events in 2023 in Malaysia ▪ Malaysia witnessed a significant influx of battery EVs (BEV) including the official entry of Tesla into the country ▪ Proton announces that it will accelerate the introduction of EVs for Malaysian consumers as early as 2025 ESG-related highlights in 2023 (Malaysia) ▪ The inaugural carbon credit auction was launched by Bursa Malaysia’s BCX, which saw 15 buyers from various industries participate ▪ The government lifts its ban on exports of renewable energy and raises its 2050 RE generation capacity target to 70% compared with its previous target of 40% ▪ Malaysia launches the National Energy Transition Roadmap (NETR), outlining the pathway required to transform its energy system by accelerating its shift to RE, during TNB’s Energy Conference 2023 ▪ The Dewan Rakyat passes the Energy Efficiency and Conservation Bill, which requires compulsory energy audits from larger commercial and industrial electricity and gas consumers ▪ The Sarawak State Legislative Assembly passes the Environment (Reduction of Greenhouse Gases Emissions) Bill, making it the first state to have legislation to address climate change ▪ Moving on from climate-change related financial disclosures, which was synonymous with TCFD1 – governments and central banks are now moving towards nature-related financial disclosures through the TNFD2 framework. ▪ Bank Negara is developing a TNFD-aligned risk assessment guide for financial institutions and businesses. ▪ The TNFD framework allows companies to assess, disclose and manage nature-related risks and impacts by establishing the right governance, risk & impact management, strategy and KPIs. ▪ The Kunming Montreal Global Biodiversity Framework (GBF) was established in Dec’2022 with the aim to help prevent the further extinction of species and protect the global ecosystems. ▪ As one of the GBF’s signatories, Malaysia will have to integrate the GBF into its national-level biodiversity policies. ▪ Businesses like TNB should take heed and start exploring further its interaction with Malaysia’s biodiversity (especially GenCo, Grid, DN and TRe). 1 TCFD – Taskforce on Climate-Change related Financial Disclosures 2 TNFD – Taskforce on Nature-related Financial Disclosures Source: SVD Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
29 UNFCCC COP-21: Paris Agreement UNFCCC COP-26: Malaysian declaration1 on environmental measures Plant 100 million trees Zero waste & recycling rate target of 40%3 Low carbon cities National Adaptation Plan Min 50% forest cover 100% non-ICE gov. vehicles2 31% RE in 2025 & 40% RE in 2035 Carbon Pricing Policy UNFCCC COP-26 held in Nov 21 accelerates global actions towards the climate goals of the Paris Agreement (COP-21) and seen new declaration on environmental measures from Malaysia 1 Malaysia also supports Global Methane Pledge & Glasgow Leaders Declarations on Forests and Land Use during COP-26 2 by 2030 3 by 2025 Note: UNFCCC=United Nations Framework Convention on Climate Change; COP=Conference of the Parties; Source: https://unfccc.int/sites/default/files/resource/MALAYSIA_cop26cmp16cma3_HLS_EN.pdf Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
30 Cases of extreme weather events in Malaysia Key measure in limiting climate change as announced in RMK-12 Selangor and KL recorded unprecedented rainfall amount, exceeded its average monthly figure that resulted in flash floods and 59 landslide incidents1 – Dec 21 The environmental measures are in line with the Advancing Sustainability theme under RMK-12, where government pledged to be carbon-neutral nation by 2050 to limit the climate change in the long term Selangor and KL recorded unprecedented rainfall amount, exceeded its average monthly figure that resulted in flash floods and 59 landslide incidents1 – Dec 21 2022 ended with yet another tragedy: a massive landslide in Batang Kali, Selangor brought on by even more rain. This really was the year that climate change entered our national conversation 1 As of 30 Dec 21, Source: The Star Online Note: RMK-12 = Rancangan Malaysia Ke-12 (Period: 2021 – 2025) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
31 Malaysia’s has set a Net Zero target commitment inline with the continuous rise of climate change issues globally COP21 RM12 Source: SVD Chapter 3 Market Outlook
32 CHAPTER 8: Advancing Green Growth for Sustainability and Resilience Priority Area A Implement a Low Carbon, Clean & Resilient Development Strategy A1: Moving towards a Low Carbon Nation • Develop enabling instrument for Climate Action • Promote green & resilient cities & township • Advance Green Mobility • Augment low carbon energy Priority Area B Manage Natural Resources Efficiently to Safeguard Natural Capital Priority Area C Strengthen the Enabling Environment for Effective Governance • 31% RE target • Implement floating solar and waste-to energy projects • Increase other REs (biomass, biogas) • Promote low carbon tech. i.e. cogeneration, fuel cell & hydrogen • Promote RE certificate CHAPTER 9: Enhancing Energy Sustainability and Transforming the Water Sector Priority Area A Ensure Sustainable Energy for All Strategy A1: Enhancing the Energy Sector • Formulate a comprehensive National Energy Policy Priority Area B Transform the Water Sector Strategy A3: Enhancing the Electricity Subsector • Create a resilient electricity supply industry • Strengthening the electricity in Sabah • Enhance the Grid system • Expand rural electricity coverage • Increase RE installed capacity • Enhance energy efficiency RMK-12 lays out specific Priorities and Strategies that will impact future energy landscape in Malaysia Source: RMK-12 (2021-2025) Note: RE= Renewable Energy Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
33 To spark the sustainability agenda, Low Carbon Mobility Blueprint (LCMB 2021-2030) was approved by cabinet in Oct 21 and new incentives to own Electric Vehicle (EV) introduced under Budget 2022 that will further boost the EV sector in Malaysia 13 October 2023 Budget 2024 : Major incentives for EV Users 22 December 2022 EV Demand seen to soar in 2023 – MAA Demand for EVs is expected to grow sharply in 2023, due to tax incentives as well as potential launches of more accessibly priced EVs 20 February 2023 MGTC drafting strategic framework to develop EV charging infrastructure – MITI 8 Dec 2022 Malaysia commits to attracting investments in EVs – Tengku Zafrul International Trade and Industry Minister Tengku Datuk Seri Zafrul said the country is set to achieve the national target of xEVs 15 per cent of the total industry volume (TIV) by 2030 and 38 per cent by 2040 14 February 2023 Malaysia aims to have 4,000 EV charging points this year – MITI Key Targets • 10,000 EV charging points by 2025 (9,000 AC & 1000 DC) • 15% EVs and hybrid vehicles of the total industry volume (TIV) by 2030 Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
34 Securing Our Future: Net Zero Pathways for Malaysia Report Takeaways ▪ 3 key levers for the decarbonisation of the energy sector: 1. Decarbonisation of the power mix 2. Energy efficiency and demand-side management 3. Electrification of the light vehicle fleet • Key recommendation that may impact DN under Key Lever No. 1 & 2: - Timely development of energy system enablers: ▪ Recommends 10 key priorities to unite stakeholders across Malaysia on the climate agenda ▪ Anchored on equitable transition for Malaysia in which careful balance was made between the green agenda, financial wellbeing for business and society, and a mitigation of socioeconomic impacts • Acknowledges progressive efforts and announcements already made by Government and various institutions across Corporate Malaysia i. Investments will need to be made into energy storage and demand response solutions to safeguard system stability with increased penetration of intermittent renewables ii. Supporting domestic market regulation to accommodate the equitable scale-up of renewables. For example, ensuring energy equity by optimising the tariff structure to ensure equitable distribution of system costs associated with growing prosumers and distributed energy resources iii. Optimisation of regulation and market structures to accommodate new business models such as virtual PPAs (vPPAs) or peer-to-peer (P2P) electricity trading which can further incentivise the growth of renewable energy resources iv. Continuing programs such as Feed-in-Tariffs (FiTs) and Net Energy Metering (NEM) will be critical to encourage further renewable energy penetration in the grid mix WWF Malaysia and BCG have also established an independent report on 21 Nov 2021 which provides insights into practical pathways in achieving net zero emissions for Malaysia by 2050 Note: WWF: World Wildlife Fund BCG: Boston Consulting Group Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
35 ‘MyRER Strategic Framework’ On 30 Dec 2021, Malaysia Renewable Energy Roadmap (MyRER) is commissioned to further support decarbonization of the electricity sector in Malaysia through the 2035 milestone by maintaining affordability and system stability RE Target 40% (17,996 MW) by 2035 31% (12,916 MW) by 2025 “ Prioritize and roll-out cost-effective energy storage solutions ” “ Exploring feasible framework for Demand-Side Management, smart grids including battery energy storage integration ” Source: SEDA Malaysia Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
36 The National Energy Policy 2022-2040 (DTN) launched on 19 Sep 2022 outlines Malaysia's strategic direction to navigate challenges and capture opportunities related to energy transition and global megatrends. The goal is to achieve the Low Carbon Nation Aspiration 2040 TPSE: Total Primary Energy Supply Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
37 The implementation of Low Carbon Nation Aspiration 2040 shall be from RMK-12 until RMK-15 that will see 17% Renewable Energy (RE) from the total primary energy supply (TPES) 17% RE from total primary energy supply (TPES) Direct and indirect impact to DN OGSE: Oil & Gas, Services and Equipment Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
38 There have been also several key announcements made by the Ministers recently to further accelerate the energy transition in Malaysia Renewable Energy capacity targeted at 70% by 2050 National Energy Transition Roadmap (NETR) to be launched by June 30 - Rafizi Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
39 The National Energy Transition Roadmap (NETR) launched in August 2023 sets the goal to accelerate energy transition and change the way energy is generated to improve climate resilience which comprises six energy transition levers Source: National Energy Transition Roadmap (NETR) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
40 Distribution Network plays a vital role in renewable energy and green mobility with the main emphasis in RE share of installed capacity and EV transports Related to DN Source: National Energy Transition Roadmap (NETR) Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
41 Malaysia regulatory developments to look forward in 2024 with some may have consequences to TNB Politics Economy Social Technology Environment Legal Strategic Position EC to advise Minister on all matters relating to EE&C and is granted wide investigative and enforcement powers to ensure compliance with EECA provisions Companies with an energy consumption >21.6GJ are required to implement energy-saving measures and are subject to periodic energy audits Office buildings >8,000 sqm must ensure energy intensity performance conform to prescribed EE ratings Energy-using products must adhere to energy performance standards to obtain the requisite EE certificates and labels Energy Efficiency and Conservation Bill 2023- Passed Environmental Quality (Amendment) Bill 2023- 1 st Reading at Dewan Rakyat The maximum imposable fine has significantly increased in many instances, with the maximum in 4 instances being increased to RM10 mil, namely: • Pollution of inland waters • Discharge of oil into Malaysian waters • Discharge of environmentally hazardous substances, pollutants or wastes into Malaysian waters • Dealing with scheduled wastes without approval Also introduces a minimum fine for each offence and mandatory imprisonment for certain offences Key Considerations An Act to regulate the efficient consumption of energy and conservation of energy with the aim to improve and increase energy efficiency and to avoid waste of energy, and to provide for related matters. Introduces amendments to the Environmental Quality Act 1974, which covers the prevention, abatement, control of pollution and enhancement of the environment Key Considerations Source: SVD Chapter 3 Market Outlook
42 TNB has enhanced the new Reimagining TNB 2.0 (RT2.0) strategy framework to guide TNB in growing a sustainable business leveraging on Energy Transition Politics Economy Social Technology Environment Legal Strategic Position Talent, Capabilities and Culture Corporate Structure, Governance and Partnership Digitalization Capital Allocation and Value Creation Deliver Clean Generation Dynamic Energy Solutions Develop Energy Transition Network TO BE A LEADING PROVIDER OF SUSTAINABLE ENERGY SOLUTIONS IN MALAYSIA AND INTERNATIONALLY Communication and Stakeholder Engagement Drive Regulatory Evolution • Fix the operation for EBIT recovery and uplift • Grow clean energy and RE domestically and phase global footprint • Invest into grid flexibility for domestic energy transition and regional interconnection • Maintain security of supply • Meet demand growth • Enhance customer service delivery • Enable customer participation in the green energy space • Drive regulatory policies focusing on energy mix, third party access and tariff design • Promote customer participation in green initiatives 4 Main Business Pillars 1 2 3 4 Source: SVD Pending BOD’s approval Chapter 3 Market Outlook
43 TNB Energy Transition Plan cuts across the electricity supply value chain, anchoring on three (3) key levers: Decarbonisation, Digitalisation & Electrification . . . Applicable to DN Source: Sustainability Division Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
44 . . . and aligns with the National Energy Transition Roadmap (NETR), emphasizes Three (3) Strategic Focus Areas that consider both cross-sector and cross-border solutions Decarbonise coal plants while ensuring security of supply Deploy RE at scale (e.g., hydropower plants, floating solar) – Development of 2,500 MW floating solar on hydro dams Invest in clean tech at scale (e.g., hydrogen, ammonia co-firing, CCUS) – Partnerships with Petronas (hydrogen) and Mitsui & Chugoku (ammonia/biomass) Expand RE generation focus markets (e.g., APAC region, asset development) Enhance Smart & Autonomous Grid & Distribution Network (e.g., DER integration, self-healing grid) Launch flexible solutions (e.g., grid-scale storage, community storage) Catalyse ASEAN Power Grid build (e.g., 6 MoUs signed, 2 feasibility studies planned) Electrify mobility through grid upgrades, charging station build – Supporting connection of 10,000 EV Charge points by 2025 Scale industrial electrification solutions Power rapid data centre growth – 63 Hyperscale Data Centres in pipeline ~7,300 MW by 2030 Support power-intensive hydrogen economy Unlock energy management solutions for prosumers (e.g., rooftop PV, EE) – GPSARX provides 318 MW rooftop solar to date, with > 500 MW by 2025 1 2 Deliver Renewable Energy Zones – Solar Park of 5 x 100 MW 3 4 1 2 3 4 1 2 4 5 TNB’s flagship projects under NETR Part 1: (i) Solar parks, (ii) Hybrid Hydro-Floating Solar PV (HHFS) and (iii) Co-firing with Hydrogen and Ammonia. Accelerate generation decarbonisation Develop flexible and cross-border grid Empower cross-sector A B C electrification and prosumers 3 Applicable to DN Source: Sustainability Division Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
45 TNB has also established TNB Sustainability Framework to streamline the TNB ESG focus areas in ensuring the effective implementation of sustainability agenda Source: Sustainability Division Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
46 From the Sustainability Framework, 14 ESG Key Focus Areas (KFAs) have been identified to support the ESG Pillar, therefore all deployment strategies will be tagged to these KFAs for streamlining across TNB divisions Source: Sustainability Division Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
47 TNB also aspires to enhance its Environment, Social and Governance (ESG) perception and rating, reap the benefits & expects to be rated as an ESG leader among industry peer, leading towards an ambitious “AAA” rating by 2026 Source: Sustainability Division Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
48 ▪ Future energy system in Malaysia will require DN to take on additional roles ▪ Growth of network investment to accommodate bi-directional flows, higher EV and intermittent solar penetration, and new technologies (e.g. smart meters, EV infra, energy storage, advanced analytics etc.) ▪ Tightening IBR regime, greater scrutiny on CAPEX and OPEX productivity DN’s 3 Key Roles Outlook for DN In view of energy transition, DN’s role is changing from being a traditional electricity service provider, to being a facilitator of energy transition and enabler of customer empowerment 1. Operator of Network ▪ Provide efficient network management which includes designing, building, maintaining and operating the networks in a dynamic distribution system ▪ Strengthen network security ▪ Increase supply reliability 2. Facilitator of Energy Transition ▪ Enable sustainable bi-directional network ▪ Integrate Distributed Energy Resources (DERs) to the network ▪ Facilitate EV industry growth through network infrastructure readiness 3. Enabler of Customer Empowerment ▪ Provide customer with choices in energy sources, Time of Use and tariff ▪ Enable customer to manage energy consumptions ▪ Leverage on digitalization to deliver better customer experience Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
49 Energy Transition: Journey to the Distributed Grid 1. Connect 2. Fortify 3. Control 4. Steer 5. Integrate Connect load and energy resources to the network Ensure the network can support load and energy resources Flexible connections Control of individual DER (Generation & Load) based on business (non-market) rules Discrete flexibility platforms DN operated platform manages DER based on market rules and constraints Integrated flexibility platforms DN & Grid integrated platform to manage DER allows optimisation across System Operators Advanced capabilities required: ✓ Capturing data from DER ✓ Forecast Optimization ✓ Distribution of near-real-time forecast and dispatch request ✓ Sharing of dispatch objectives across the area level ✓ Transaction logging into a blockchain for settlement Network maintenance through reinforcement and load management Network development by procuring flexible services: operational & planning decisions in coordination with GSO Active management of complex systems in a self-healing, intelligent and distributed grid will necessitate advanced capabilities in addition to the core capabilities of today Research by EY highlighted the Distributed Grid Journey that DN must undertake from a being basic utility to becoming an integrated utility and . . . Source: Ernst & Young (EY) study Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position
50 ▪ DN will be the central player operating active networks, facilitating energy transition and enabling customer empowerment ▪ DN will need new capabilities to prepare for future energy markets DN in the future electricity sector ecosystem Implications Operations & Maintenance Flexibility Platform Monitoring DN Connections System operations Balancing Services Grid Flexible DER Storage Independent flexibility providers VPP Aggregators Prosumers Industry EVs Transmission connected generator Renewable DERs Weather forecasts Economic projections Information providers Customers Offer energy flexibility Offer energy flexibility Network connection request Demand and solar/wind generation forecasts Bids/ reservations and capacity allocations Demand / offer energy flexibility DN - Grid Cooperation Demand / offer energy flexibility Market Information Demand / offer energy flexibility Demand / offer energy flexibility Offer energy flexibility Network connection request . . . see DN playing a more central role in Malaysia’s transformed electricity industry Chapter 3 Market Outlook Politics Economy Social Technology Environment Legal Strategic Position