KUALA LUMPUR: The winners of Malaysia's newest batch of "green" power projects such as Tenaga Nasional Bhd (TNB) and Solarvest Holdings Bhd seem poised to get better returns than the recipients of the previous large-scale solar (LSS4) contracts.

Analysts pointed out that under the latest Corporate Green Power Programme (CGPP), the players are free to secure their own off-takers, giving them better pricing power.

This is in contrast to the stiff competition to supply a single off-taker under the LSS4 auction mechanism.

"We reckon the CGPP projects could yield better returns compared to LSS4, considering that under CGPP, players are free to secure their own off-takers, granting better pricing power, as opposed to the stiff competition to supply a single off-taker under the LSS auction mechanism," MIDF Research said.

Additionally, the firm noted that CGPP tariffs are likely to include a premium for environmental attributes, such as recognised environmental conditions.

Citing an example, MIDF Research said TNB's green electricity tariff had recently been increased to 21.8 sen per kilowatt-hour (kWh) effective from August 2023. 

Another instance is the system marginal price under the New Enhanced Dispatch Arrangement (NEDA) which offers wholesale market at an average 25 sen per kWh as of June 2023, a decently large premium compared to LSS4 winning bids of 18-20 sen per kWh for 30 megawatts (MW) to 50MW packages. 

"Based on initial ballpark estimates, we believe it is possible for (CGPP) project internal rates of return (IRR) to reach a high single-digit level," MIDF Resesarch noted.

RHB Research expects some CGPP projects to potentially fetch an IRR in the low mid-teens, given solar panel prices have retraced to about US$0.18 to US$0.22 per watt.

The firm said TNB appears to be the biggest winner of the CGPP, adding that overall, the latest scheme encourages more new players to share a piece of the pie.

The firm continues to favour engineering, procurement, construction, and commissioning (EPCC)-related players, as it expects the contract flows to sustain in 2024.

RHB Research maintained an "Overweight" call on the power sector, with its top picks including TNB, YTL Power International Bhd and Solarvest.

It believes that experienced EPCC contractors such as Solarvest, Samaiden Group Bhd, Sunview Group Bhd, Pekat Group Bhd, as well as mounting structure provider Reservoir Link Energy Bhd (RLEB), are likely to secure more jobs from the shortlisted bidders.

The bank said, for instance, Solarvest has the first right of refusal to a total of 175MW (31 per cent of the announced 563.42MW capacity) of EPCC jobs (including its assets), given the company previously undertook the CGPP design and consultation works for these clients.

"We believe the EPCC tender would probably kick in soonest by the end of 2023, as the NEDA approval could take three to six months.

"The shortlisted power producers are required to apply to a single buyer for participation in the NEDA programme within three months after the date of notification of the application status. A tripartite power purchase agreement (likely to be 21 years) is expected to be signed between TNB, selected power producers, and their respective off-takers," it added.

Affin Hwang Capital said there were a number of listed companies involved in renewable energy (RE) and solar power generation that are part of the winning consortiums.

The firm added that TNB is involved solely in one 30 megawatts alternating current (MWac) CGPP project and is part of two consortiums with a total generation capacity of 60 MWac.

"We expect more RE projects to be implemented under the National Energy Transition Roadmap with a virtual power purchase agreement structure, and the CGPP is just a start.

"We remain 'Overweight' on the utilities and construction sectors that are the prime beneficiaries," it noted.

https://www.nst.com.my/business/2023/08/940470/tnb-solarvest-among-big-winners