• Keep OVERWEIGHT; Top Picks: Tenaga Nasional (TNB), YTL Power, and Solarvest. We remain positive on the National Energy Transition Roadmap (NETR) with clearer goals and funding requirements being laid out. Further concrete framework and mechanisms should be announced in the coming months. Key successful elements: Diligent execution, stringent policy implementation, and ability to bridge the funding gap.

• NETR Phase 2 launched. NETR outlines 50 initiatives under the six energy transition levers and five enablers, in addition to the 10 flagship projects and initiatives announced in Phase 1. The successful implementation of the NETR is projected to uplift GDP value at a CAGR of 8.4% from MYR25bn in 2023 to MYR220bn and generate 310,000 jobs in 2050. Apart from the widely mentioned key targets of 70% renewable energy (RE) installed capacity, coal free by 2050, we saw targets revolving carbon capture, usage and storage (CCUS) (3-6 CCUS clusters, 40-80 mtpa CO2 storage capacity), hydrogen (up to 2.5mtpa green hydrogen production, three hydrogen hubs and 100% green hydrogen feedstock phase off) and bioenergy (3.5bn litres biofuel capacity and 1.5GW bioenergy power generation). Furthermore, these targets are being further broken down into several milestones by 2030 and 2040, coupled with potential investment opportunities at different phases.

• Solar to drive RE growth but gas remains relevant. NETR projected the 70% RE capacity will be dominated by solar at 58% of total installed capacity, followed by hydro and bioenergy at 11% and 1%. As such, solar PV capacity is likely to grow aggressively at 14% CAGR to 57GW by 2050. Concurrently, relevant regulators will develop the third party access (TPA) framework with a transparent mechanism for wheeling fee calculation to bridge the demand-supply gap for green electricity. This should allow solar developers under the Corporate Green Power Programme (CGPP) to sell excess power to the Single Buyer in order to generate additional revenue and eventually lift the overall returns of these projects. Also, a RE exchange will be established and launched in 2024 to act as a market aggregator that will enable price discovery and facilitate cross-border RE trading.

• Energy transition financing needs. NETR estimated an investment of MYR1.2-1.3trn by 2050 (Figure 7). In this decade, bulk of the investment is needed for RE-power generation and green mobility (expansion of public transport, EV production and EV charging infrastructures). Total grid investment needed in 2023-2050 is MYR420bn, which is c.MYR15.6bn pa.

• Our take: We continue to reiterate our stance that the local solar EPCC contractors as direct beneficiaries of such structural uplift. As gas will continue to anchor as the dominant source of fuel for baseload power, we believe existing independent power producers (IPPs) such as TNB and Malakoff Corp are likely to see new gas plant expansion in the future following their retirement of existing coal plants. Capex intensive projects ie hydrogen and CCUS should be spearheaded by big corporations such as Petronas and TNB while the battery energy storage system (BESS) market remains largely untapped.

Source: RHB Securities Research - 30 Aug 2023