Myanmar looks to fund grid investment with huge electricity rate hike

GlobalData Energy 15 July 2019 (Last Updated July 15th, 2019 11:53)

According to the new rates, domestic consumers will be hit with a 72.9% increase based on the previous rates.

Myanmar looks to fund grid investment with huge electricity rate hike

Myanmar has increased its electricity rates this month for both residents and businesses for the first time in five years in a move designed to fund investment in the sector and meet rising demand.

Electricity rates in Myanmar have been the lowest in the ASEAN region, which in the long run appeared to be financially unsustainable. The proposal for the revised rates was put forward by the Ministry of Electricity and Energy (MOEE) and was approved by parliament in April 2019.

Myanmar energy reform

The Electricity Supply Enterprise (ESE), a government regulated entity, is responsible for the distribution of electricity in Myanmar.

According to the country’s Ministry of Planning and Finance, the government incurred a loss of 507 billion Burmese kyat (US$333 million) in supplying the national grid during the fiscal year 2017/18, which rose to 630 billion kyat (US$414 million) in fiscal year 2018/19. These losses are expected to be reduced with the incoming tariff structure.

In Myanmar, domestic consumers include residential homes and religious buildings, whereas non-domestic consumers include companies, industries, embassies and international organisations.

Under the new rates, domestic consumers will continue to pay 35 kyat per unit (US$0.023) for the first 30 units, but beyond this level of consumption different rates will apply, depending on the number of units used. Similarly, a new rate regime will be introduced for non-domestic consumers.

Table 1: Comparison of electricity rates, Myanmar

According to the new rates, domestic consumers who used to pay 3,500 kyat for 100 units (US$2.3) will now have to shell out 6,050 kyat (US$3.97, not including the service fee. This represents a 72.9% increase, based on previous rates.

According to GlobalData, the country’s cumulative capacity has been growing at a compound annual growth rate (CAGR) of 8.9% during 2000-2018.

The country reported a cumulative installed capacity of 5.28 GW at the end of 2018 against 1.12 GW in 2000. The country witnessed growth in its power generation from 5,003 GWh in 2000 to 23,687 GWh at 9.02% CAGR. However, power consumption during the same period saw 9.6% CAGR during the same period. The country reported consumption of 16,716 GWh in 2018.

Myanmar has been a net power exporter since 2008. The country is expected to be net exporter till 2030 with power generation expected to reach 66,962 GWh by 2030, whereas the demand is expected to be around 51,208 GWh.

The earlier rates were applied as part of the Electricity Act of 2014. Since 2014, the nation’s cumulative installation has witnessed an average growth of 2.4% on a year-on-year basis. At the end of 2014, Myanmar reported cumulative installations worth 4.78 GW, which rose to 5.28 GW at the end of 2018.

During the same period, electricity generation witnessed growth from 16,678 GWh to 23,687 GWh at 9.2% CAGR. Power consumption during the same period increased by 11% CAGR. These rates were not helping to achieve investment in the power sector which is why the government had no other option but to revise the rates.

The new tariff structure will reduce the electricity subsidy and will stimulate the off-grid sector, which has been hamstrung by the low price of grid electricity. Projects related to solar panels are expected to become more commercially viable as a result.

The country witnessed rolling blackouts throughout the summer with power delivery lagging behind rising demand. To cater to the increasing demand, investment in the power sector is needed.

Under the new arrangements foreign direct investment (FDI) is expected to increase, which will see more private entities enter the electricity market.

With the revised rates now coming into effect, more electricity projects will become financially sustainable and developers will be more competitive. With greater investment in the nation’s energy infrastructure potentially in the pipeline, the expectation is that Myanmar will begin to bridge its electricity gap.