• Solar capacity in Malaysia has grown at an impressive rate of 54% CAGR to more than 2GW over the period of from 2011 to 2023, driven by (i) abundant solar resources, (ii) lower solar PV costs, and (iii) government initiatives. This makes up circa 20-25% of total RE capacity in Malaysia of 11.3GW.

• We are optimistic that Malaysia will achieve its RE ambition as it steps up its effort in investment in smart grid and deployment of battery energy storage system which will help to address the intermittency issue of RE.

• Under our stock coverage, TENAGA and Malakoff owned about 761MW and 67MW of solar energy installed capacity under portfolio respectively. We believe these companies will be able to expand its capacity, leveraging on various government policies as well as taking advantage of prevailing downtrend in solar PV module cost.

• We maintain a NEUTRAL call for the Utilities Sector, with a BUY recommendation for TENAGA (TP: RM12.12) and HOLD call for Malakoff (TP: RM0.62), Gas Malaysia (TP: RM3.40), and Petronas Gas (TP: RM15.98).

Malaysia Renewable Energy Ambition

Internationally, during the 26th UN Climate Change Conference of the Parties (COP26), the world has set a target to limit temperature rise to 1.5°C, with over 100 countries making net-zero 2050 commitments including Malaysia, alongside the USA, and Europe. According to Minister Nik Nazmi Nik Ahmad in March 2023, Malaysia’s current RE capacity stood at 11.3GW or 25% of the national installed capacity. The country has a target of 31% of RE share in the capacity mix by 2025 before rising further to 40% and 70% by 2035 and 2050 respectively. Hence, it is expected that RE capacity to rise to 18GW by 2035.

Key Driver for Solar Energy Adoption in Malaysia

It is widely expected that solar energy will be the most favourable form of RE in Malaysia, alongside other options such as hydro and wind. Indeed, solar PV has grown rapidly at a compound annual growth rate (CAGR) of 56.4% to more than 2GW since 2011 (Chart 3). The key driver for solar energy adoptions is discussed as below:

• Abundant resources. Malaysia is one of the ASEAN countries that is located nearer to the equator, which provides a consistent and abundant sunlight throughout the year. According to the Global Solar Atlas, the average annual global horizontal irradiance (GHI) in Malaysia is about 1,600 kWh/m2. This indicate that Malaysia receives an average of 1,600 kilowatt-hours of solar energy per square meter per year which is higher than global average of 1,400kWh/m2.

• Lower solar PV production cost. A decade decline in solar PV cost was driven by the cost decline in PV module. According to International Energy Agency (IEA), photovoltaic (PV) module comprised 34% of utility scale PV project cost and the most expensive component (see Chart 2). One of the key raw materials for production of solar cells and modules that convert sunlight into electricity is polysilicon. The global polysilicon prices almost quadrupled to c. USD40/kg in 2021 (Chart 1) which led to rising PV module cost and affected LSS4 project implementation. However, it has reverted to its historical low recently due to the large-scale capacity expansion in China, resulted to oversupply in market.

Source: BIMB Securities Research - 13 Nov 2023