Performance Assessment of Malaysian Fossil Fuel Power Plants: A Data Envelopment Analysis (DEA) Approach

Abstract

This paper investigated the performance of Malaysian power plants from the year 2015 to 2017 using Malmquist Total Factor Productivity (TFP) index, which is based on Data Envelopment Analysis (DEA). This approach offers substantial advantages as compared to other existing methods as it can measure productivity changes over time for a variety of inputs and outputs. Moreover, it comprises two primary components: the technical efficiency change and the technological change indexes that provide clearer insight into the factors that are responsible for shifts in total factor productivity. This study uses a single input, installed generation capacity (MW), and two outputs, average thermal efficiency (%) and average equivalent availability factor (%). These output-input data included ten main power plants: TNB Natural Gas, SESB Natural Gas, SESB Diesel, SEB Natural Gas, SEB Coal, SEB Diesel, IPP Semenanjung Natural Gas, IPP Semenanjung Coal, IPP Sabah Natural Gas, and IPP Sabah Diesel. The results have two significant implications for fossil fuel power plants in Malaysia. First, technological change was the primary factor in boosting the TFP performance of the fossil fuel power plants in Malaysia. Meanwhile, the decline in TFP performance in Malaysian fossil fuel power plants may be attributed, in part, to a lack of innovation in technical components as the results found that the average technical efficiency changes in 2015 – 2016 were at 146% and then dropped significantly to 2% in 2016 – 2017. Second, the average scale efficiency changes rose dramatically from -53% to 3% providing a significant contribution to the improvement of technical efficiency changes. The fossil fuel power plants become efficient as the power plants’ size increases. This indicates that the size of a power plant positively impacts the performance of the TFP.