---
endpoint: analytics
pattern: Power
status: done
latency_ms: 140306
conversation_id: 52087ae0-4b31-4388-a4a0-e785325eae00
citations: 12
created: 2026-05-31 22:22:35Z
---

# What is Tenaga’s core business franchise and the key components of its operating model?

## Tenaga Nasional Berhad (TNB MK / 5347) — Core Business Franchise and Operating Model

### 1. Core Business Franchise

Tenaga Nasional Berhad ("Tenaga" / TNB) is Malaysia's vertically-integrated national electric utility and the sole owner-operator of the national power grid. It is the country's monopoly Single Buyer and Grid System Operator, while also owning and operating the bulk of generation, transmission, and distribution assets across Peninsular Malaysia, Sabah and Labuan [5][7].

The franchise rests on three reinforcing pillars:

| Pillar | Description |
|---|---|
| **Generation** | TNB-owned thermal (gas/coal) and growing renewable fleet, plus power purchased from Independent Power Producers (IPPs) under long-term Power Purchase Agreements (PPAs). Fuel is centrally procured — gas from PETRONAS, coal aggregated through TNB Fuel as the cabinet-mandated single buyer [5]. |
| **Transmission & Distribution (the "wires" franchise)** | National monopoly. The network spans approximately 26,594 circuit-km of transmission lines and 708,763 circuit-km of distribution lines in Peninsular Malaysia (plus 3,150 / 27,252 circuit-km in Sabah), 497 transmission substations, and ~90,142 distribution substations [7]. Cross-border interconnections with Thailand and Singapore turn the network into a regional platform under the ASEAN Power Grid framework [7]. |
| **Retail / Single Buyer** | TNB is the Single Buyer of all electricity dispatched in Peninsular Malaysia and the regulated retailer to ~10m+ end customers across residential, commercial and industrial segments [5]. |

The wires/regulated business has historically generated the vast bulk of group EBIT — RM3.3bn of TNB's RM3.4bn EBIT in 9M24 came from the regulated segment, with the non-regulated (merchant generation + overseas) portion volatile and even loss-making in some years (e.g., -RM1.5bn in 2023) [4].

### 2. Operating Model — Incentive-Based Regulation (IBR)

TNB has operated under Malaysia's **Incentive-Based Regulation (IBR) framework since 2014** [6]. IBR is the structural backbone of the operating model and the single most important determinant of cash earnings.

**Key mechanics:**

- **Regulated asset base (RAB) × allowed WACC = regulated returns.** Tenaga is currently guaranteed a **7.3% net regulatory return on its regulated asset base** under Regulatory Period 4 (RP4, 2025–2027) [2]. RP4 also introduced a *differentiated WACC* across asset classes — a key part of CLSA's bullish thesis — which paves the way for energy-export upside [3].
- **Revenue cap, not volume risk.** Under the IBR revenue cap mechanism, **"TNB remains neutral, ensuring stable earnings"** regardless of short-term electricity demand fluctuations [8]. Earnings are decoupled from sales volumes; over- or under-recovery is reconciled through the Imbalance Cost Pass-Through (ICPT).
- **Cost-reflective tariffs.** RP4 introduced a new cost-reflective tariff structure effective 2025 that "continues to support revenue, as well as affirming that it will continue to support the stability of our regulated business," driving 18.3% YoY revenue growth in 9M25 [12].
- **Fuel cost pass-through.** Coal and gas costs are passed through to customers, insulating TNB from fuel-price volatility — only efficiency gains/losses vs benchmarks are retained.
- **Three regulatory layers**:
  - *Government / PETRA* (Ministry of Energy Transition and Water Transformation) — policy.
  - *Energy Commission (EC)* — economic regulator, sets allowed CAPEX, WACC, tariffs.
  - *TNB Regulatory Committee* — internal governance chaired by the President/CEO, ensures alignment with the IBR framework [6].

### 3. Capital-Investment Engine — RP4 CAPEX

RP4 is materially larger than prior regulatory periods, and is the principal earnings growth lever:

| RP4 (2025–27) CAPEX envelope | RMbn |
|---|---|
| Base CAPEX | 26.55 |
| Contingent CAPEX | 16.27 |
| **Total approved** | **~42.82** [9] |

Management has guided to utilising "approximately 70% of the contingent allocation by the end of RP4," meaning a meaningful pipeline of grid-strengthening projects sits on top of the base envelope [9]. In 1Q25 alone, TNB deployed RM2.79bn of regulated CAPEX (10.5% of base) [1]. Since RAB grows with CAPEX deployed and regulated returns scale with RAB × WACC, every incremental ringgit of approved CAPEX is, in effect, an earnings accretive lever.

### 4. The New Growth Layer — Data Centres and TPA

The traditional volume-driven utility franchise has been re-rated by a structural demand catalyst:

- **Data-centre load**: As of December 2025, **850 MW of actual data-centre load was on TNB's grid**, with 35 projects (~4.5 GW capacity) connected and a pipeline of 56 projects (~7.5 GW), of which 14 (1.8 GW) are under construction [10].
- **Third-Party Access (TPA)**: The government's new TPA framework allows green generators to sell directly to end-customers through TNB's transmission and distribution network. Because TNB **"owns and operates the distribution and the grid"**, TPA generates incremental wheeling/use-of-system income and justifies further grid upgrades [11].
- **Commercial-segment demand growth**: Commercial electricity demand grew 5.1% YoY in 1Q25 (offsetting -5.5% industrial), reflecting data-centre and digital-economy ramp [1].

### 5. Summary — How the Pieces Fit Together

The TNB operating model can be reduced to a simple loop:

> **Approved CAPEX → expanded Regulated Asset Base → regulated returns at allowed WACC (7.3% net) → stable, volume-neutral cash flows → funding for next CAPEX cycle**, with optionality from contingent CAPEX, RE export, TPA wheeling, and data-centre connections sitting on top [2][3][8][9].

The IBR revenue cap converts what would otherwise be a cyclical utility into a regulated infrastructure compounder, while data centres, TPA, ASEAN cross-border grid build-out, and RP4's enlarged CAPEX envelope provide the structural growth layer over the regulated base.

---
**Sources**
[1] Tenaga – O-PF (Fresh start) — CLSA (27 May 2025) — 607960696LinqAlpha.PDF
[2] Tenaga – O-PF (Fresh start) — CLSA (27 May 2025) — 607960696LinqAlpha.PDF
[3] Tenaga – O-PF (Fresh start) — CLSA (27 May 2025) — 607960696LinqAlpha.PDF
[4] Tenaga – O-PF (Fresh start) — CLSA (27 May 2025) — 607960696LinqAlpha.PDF (Figure 7: Regulated vs Non-Regulated EBIT)
[5] Tenaga Nasional Bhd. — Annual Report FY2025 (Regulatory framework / Core Operations table)
[6] Tenaga Nasional Bhd. — Annual Report FY2025 (IBR governance section)
[7] Tenaga Nasional Bhd. — Annual Report FY2025 (Network footprint, Peninsular Malaysia + Sabah + cross-border)
[8] Tenaga Nasional Berhad — Q1 2025 earnings call
[9] Tenaga Nasional Berhad — Q1 2025 earnings call (RP4 CAPEX mobilisation)
[10] Tenaga Nasional Bhd. — Annual Report FY2025 (Data Centre growth)
[11] Tenaga Nasional Berhad — Q1 2024 earnings call (TPA framework)
[12] Tenaga Nasional Berhad — Q3 2025 earnings call (Cost-reflective RP4 tariffs)

## Citations

- [1] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [2] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [3] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [4] **607960696LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607960696LinqAlpha.PDF>
- [5] **Tenaga Nasional Bhd. (5347-MY) - Annual Report for period end 31-Dec-2025 (English) - PDF - 4 / 5** · external
- [6] **Tenaga Nasional Bhd. (5347-MY) - Annual Report for period end 31-Dec-2025 (English) - PDF - 4 / 5** · external
- [7] **Tenaga Nasional Bhd. (5347-MY) - Annual Report for period end 31-Dec-2025 (English) - PDF - 5 / 5** · external
- [8] **Tenaga Nasional Berhad, Q1 2025** · external
- [9] **Tenaga Nasional Berhad, Q1 2025** · external
- [10] **Tenaga Nasional Bhd. (5347-MY) - Annual Report for period end 31-Dec-2025 (English) - PDF - 5 / 5** · external
- [11] **Tenaga Nasional Berhad, Q1 2024** · external
- [12] **Tenaga Nasional Berhad, Q3 2025** · external

