What factors influence the monthly fluctuations in the AFA rate?

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Monthly Fluctuations in the Automatic Fuel Adjustment (AFA) Rate Are Driven by Fuel Costs and Exchange Rates

The Automatic Fuel Adjustment (AFA) rate, a component of Tenaga Nasional Berhad (TNB) electricity bills, experiences monthly variations primarily due to shifts in the cost of fuel and related generation expenses. These fluctuations are directly influenced by the volatile global prices of commodities such as oil and liquefied natural gas (LNG), as well as the prevailing exchange rate between the Malaysian ringgit and the US dollar. The AFA mechanism is designed to reflect these real-world cost changes, ensuring that the fuel portion of electricity pricing remains aligned with market conditions.
Changes in Global Fuel Prices and Supply Dynamics

The cost of fuel, which is a significant input for power generation, is subject to considerable volatility in international markets. Events such as geopolitical tensions, exemplified by the US-Iran situation, can directly impact the global supply of oil and LNG. A constrained supply typically leads to price surges. For instance, higher commodity prices increase the expenses incurred by power generators for purchasing essential fuels, a cost that is subsequently passed on to consumers through the AFA.
Exchange Rate Volatility Affects Import Costs

A substantial portion of fuel for power generation in Malaysia is imported, and many procurement contracts are denominated in foreign currencies, particularly the US dollar. Consequently, the exchange rate plays a critical role in determining the final cost of these fuels. A weaker Malaysian ringgit against the US dollar means that more ringgit are required to purchase the same amount of foreign currency, thereby increasing the cost of imported fuel for generators. This amplified expense is then incorporated into the AFA calculation.
Forward Projections and Reconciliation Processes

TNB operates by projecting anticipated fuel and foreign exchange costs to establish a projected AFA rate for billing purposes. However, since actual generation costs can differ from these projections, a reconciliation process is undertaken in subsequent months. This involves adjusting the AFA rate to account for any discrepancies between the projected and actual expenses. This iterative process means that the published AFA rate is an evolving figure, subject to adjustments as more precise cost data becomes available.
Specific Rate Adjustments and Subsidies

Recent trends indicate a consistent upward pressure on AFA rates. For example, the AFA rate saw an increase of +2.59 sen/kWh in June 2026, followed by a +3.59 sen/kWh increase in July 2026, with a portion of this latter rise being subsidised by the Electricity Industry Fund. Forward projections have also indicated further anticipated increases, with August, September, and October 2026 forecasted to see rates of +8.33 sen/kWh, +8.94 sen/kWh, and +8.04 sen/kWh respectively, signalling ongoing pressures on generation costs.

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What factors influence the monthly fluctuations in the AFA rate?

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