Power Plant Fire and Flood Risk in Malaysia: What Operators Need to Know

The October 2025 Tanjung Bin power plant fire destroyed 70% of the facility's emissions control system and took the 1,000 MW plant offline for an estimated 10 weeks. Analysts estimate RM100 million in lost capacity payments alone, separate from physical damage repair costs.

This guide covers the specific fire and flood risks Malaysian power plant operators face, with documented incidents, root causes, and the insurance gaps that catch facility managers by surprise.

You'll learn:

• Recent verified power plant fire incidents in Malaysia (2023-2025)
• Where fires actually start in power generation facilities
• How monsoon flooding impacts power infrastructure
• Critical insurance considerations for capacity payment structures
• Key exclusions that may leave you exposed

Recent Power Plant Fire Incidents in Malaysia

Power generation fires in Malaysia have caused significant losses in recent years. These incidents highlight the concentrated risk exposure in generation facilities, where a single event can result in weeks of lost capacity payments.

Sources: The Vibes, Malay Mail, The Star, RAM Ratings, PublicInvest Research (2023-2025)

The Tanjung Bin incident is particularly instructive. RAM Ratings noted they would assess "the extent of revenue loss, the proposed restoration plan, capital expenditure required for repairs and the potential reprieve from insurance claims" for the facility's RM4.5 billion sukuk programme.

Key Fire Risk Areas in Power Generation

Power plants have different fire risk profiles than typical manufacturing facilities. The concentration of high-value equipment, flammable materials, and continuous operations creates specific vulnerabilities.

Transformer Fires

Power transformers contain large volumes of mineral oil for cooling and insulation. This oil becomes a significant fire hazard when electrical faults occur.

When a transformer explodes, peak overpressure can cause severe damage within 20 metres. The resulting oil fire spreads rapidly and can affect adjacent equipment if fire barriers aren't in place.

Coal Stockpile Spontaneous Combustion

Coal-fired plants face a unique risk: coal naturally oxidises when exposed to air, generating heat. If this heat accumulates within a stockpile, temperatures can reach ignition point without any external ignition source.

Hot spots typically form 1.0-1.5 metres from the stockpile base. Once ignited, stockpile fires are extremely difficult to extinguish and typically require spreading the coal thinly over a wide area to cool.

Emissions Control Systems

The Tanjung Bin incident demonstrated that Flue Gas Desulfurisation (FGD) systems represent significant fire exposure. These systems handle hot exhaust gases and contain combustible materials in ductwork linings.

What makes FGD fires particularly costly: damage to emissions control equipment can force extended plant shutdowns even when generation equipment is undamaged. You can't operate without emissions compliance.

Boiler and Steam System Fires

Boiler fires have caused several Malaysian incidents. The January 2025 Prai tape factory fire and May 2025 Bestari Jaya palm oil factory explosion both involved boiler or steam systems.

Flood Risk: The Monsoon Reality

Malaysia experiences two monsoon seasons annually. The Northeast Monsoon (November-March) brings the heaviest rainfall to the east coast and regularly causes widespread flooding affecting power infrastructure.

The 2024-2025 flooding was described as the worst since 2014, affecting over 137,000 people across nine states. Infrastructure repair costs were estimated at RM1 billion (US$224 million).

Documented Flood Impacts on Power Infrastructure

Sources: Business Today, The Star, The Vibes, World Bank/BNM Report 2024

Research by Universiti Teknologi Malaysia identified Kelantan as the highest flood-prone region for TNB transmission infrastructure, followed by Terengganu and Perlis.

Power Plant Areas Most Vulnerable to Flooding

Not all areas of a power plant face equal flood exposure. Ground-level electrical equipment and below-grade installations face the highest risk.

TNB Melaka has implemented flood barriers at substations in flood-prone areas including Taman Merdeka and Sungai Putat, recognising that prevention is more cost-effective than repeated restoration.

Insurance Considerations for Power Generation

Power generation facilities require insurance structures that differ from typical manufacturing. The key differences: capacity payment revenue structures, specialised equipment with long lead times, and regulatory shutdown exposures.

Business Interruption Under Capacity Payment Agreements

Most Malaysian power plants operate under Power Purchase Agreements (PPAs) with capacity payment structures. Revenue depends on availability, not just actual generation. This creates specific BI calculation requirements.

The Tanjung Bin example illustrates the scale: a 10-week outage translates to approximately RM100 million in lost capacity payments. This is separate from the cost to repair the FGD system and chimney.

Key question: Does your BI sum insured reflect realistic capacity payment losses based on your PPA terms, or just historical revenue figures?

Sum Insured Adequacy for Specialised Equipment

Power generation equipment has characteristics that make underinsurance particularly likely. Turbines, generators, transformers, and emissions control systems have high replacement costs and long procurement lead times.

An FGD system like the one damaged at Tanjung Bin can cost tens of millions of ringgit. Replacement typically requires:

• Engineering and design: 2-4 months
• Equipment fabrication and shipping: 6-12 months for major components
• Installation and commissioning: 3-6 months
• Regulatory approvals and testing: 1-3 months

If your sum insured is based on depreciated book values rather than current replacement costs, you'll face average clause penalties on any claim. Even a partial loss well within your coverage limit will be reduced proportionally. Our sum insured guide explains how the average clause works.

Exclusions That May Leave You Exposed

Standard industrial property policies contain exclusions that can significantly impact power generation claims.

Machinery Breakdown Coverage

Standard fire policies typically exclude mechanical and electrical breakdown. For power generation equipment, this is a critical gap. A turbine bearing failure, generator winding fault, or transformer internal failure won't be covered under fire insurance.

You need separate Machinery Breakdown insurance to cover these exposures. This coverage responds to sudden and unforeseen damage from mechanical or electrical causes.

Fire Prevention Priorities for Power Plants

Based on incident patterns, these prevention measures address the highest-frequency and highest-consequence fire risks.

Flood Mitigation for Power Facilities

TNB's approach to flood mitigation at vulnerable substations provides a model. They've implemented flood barriers at substations in flood-prone areas, recognising that the RM50,000+ cost of flood damage per substation justifies prevention investment.

Key flood mitigation measures:

• Elevate critical electrical equipment above historical flood levels
• Install flood barriers around substations and switchyards
• Ensure drainage systems can handle monsoon rainfall intensity
• Maintain emergency generators for control systems
• Develop flood response procedures including safe shutdown sequences
• Pre-position portable pumps and barriers before monsoon season

Insurance Coverage Checklist for Power Plants

Use this checklist to review your current coverage against power generation-specific exposures.

FAQ

What caused the Tanjung Bin power plant fire in October 2025?

The cause is still under investigation. The fire affected the Flue Gas Desulfurisation (FGD) system and chimney, destroying approximately 70% of the FGD infrastructure. The fire lasted approximately 7 hours before being extinguished.

How much did the Tanjung Bin fire cost?

Analysts estimate approximately RM100 million in lost capacity payments during the 10+ week shutdown period. This is separate from physical repair costs, which haven't been publicly disclosed. RAM Ratings noted they would assess insurance claim potential as part of their credit review.

Why do transformers catch fire?

Most transformer fires result from electrical faults that ignite the mineral oil used for cooling and insulation. Oil-impregnated paper bushing failures account for 70-80% of transformer fires at voltage levels below 300 kV. When arcing occurs, it can cause explosive failure.

How does flooding affect power plants in Malaysia?

Flooding primarily affects ground-level electrical equipment including substations, switchgear, and control systems. During the December 2021 floods, TNB shut down 333 substations across six states and allocated RM44 million for restoration.

Does standard fire insurance cover power plant equipment breakdown?

No. Standard fire insurance covers fire damage but typically excludes mechanical and electrical breakdown. A turbine failure, generator fault, or transformer internal breakdown requires separate Machinery Breakdown coverage.

What is the average clause penalty in insurance?

If you're underinsured, the average clause reduces your claim payment proportionally. If your property is worth RM18 million but you're insured for RM8 million, any claim will be paid at 44% (8/18), even for losses within your coverage limit.

How long does it take to replace power plant equipment after a fire?

Major equipment like FGD systems, transformers, or turbines can take 12-24 months to replace. This includes engineering (2-4 months), fabrication and shipping (6-12 months), installation (3-6 months), and regulatory approvals (1-3 months).

Which areas of Malaysia have the highest flood risk for power infrastructure?

Research identifies Kelantan as the highest flood-prone region for TNB transmission infrastructure, followed by Terengganu and Perlis. The east coast states face the greatest exposure during the Northeast Monsoon (November-March).

Can coal stockpiles catch fire without an ignition source?

Yes. Coal naturally oxidises when exposed to air, generating heat. If this heat accumulates within a stockpile, temperatures can reach ignition point through spontaneous combustion. Hot spots typically form 1.0-1.5 metres from the stockpile base.

What insurance extensions should power plants consider?

Key extensions include: Machinery Breakdown for electrical and mechanical failure; adequate flood sublimits; contingent BI for supplier interruption; utility extension for external power failures; and sufficient BI indemnity periods (24+ months for major equipment).

Foundation Conclusion

Power generation facilities face fire and flood exposures that require specialised insurance structures. The October 2025 Tanjung Bin incident, with its RM100 million capacity payment impact, demonstrates how quickly losses accumulate when a power plant goes offline.

Standard industrial policies often contain gaps that leave power plant operators exposed: inadequate BI calculations for capacity payment structures, sum insured based on depreciated values rather than replacement cost, flood sublimits that can't handle monsoon events, and missing machinery breakdown coverage. A policy review before your next renewal can identify these gaps while you still have time to address them.

Talk to our risk specialists about your power plant coverage