More ‘goodies’ announced

Hot on the heels of improvements to the Net Energy Metering (NEM) program recently, the Ministry of Energy Transition and Water Transformation (PETRA) announced updates to the Solar for Self-Consumption (SelCo) program, which is another key program by the Government to drive solar installations in the country. For context, the NEM program essentially allows excess solar generation to be exported to the grid in return for credits to offset grid power consumption cost, while in contrast, SelCo is strictly for own usage. Like NEM, SelCo is originally targeted towards rooftop solar installations, but the former is limited by quotas issued by the Government.

The latest update by PETRA outlines several key improvements to the SelCo program, effective 1 January 2025:

(1) SelCo application is now expanded to include ground-mounted solar and floating solar configurations within the consumers’ premises as opposed to just rooftops previously

(2) The SelCo program is now expanded to include electricity consumers in the agriculture segment.

(3) The previous SelCo capacity restriction of 85% of maximum demand has been abolished.

(4) Conditions for energy storage will be set by PETRA to ensure stability in the electricity supply system.

(5) The Energy Commission (EC) will be the centralised agency managing participations in the SelCo program

Unlocks new RE opportunities

We view the lates updates to the SelCo program positively, in particular, the decision to expand SelCo to include ground-mounted and floating solar configurations, which could open up vast opportunities beyond just rooftop solar. To give context, based on a prior study by the Sustainable Energy Development Authority (SEDA), rooftop solar accounts for 16% of the country’s total solar resource. The majority is mainly from ground-mounted solar, which accounts for 78% of total solar resource in the country.

Ground mounted solar was previously restricted to utility scale solar programs such as the LSS, Corporate Green Power Program (CGPP) and Corporate Renewable Energy Supply Scheme (CRESS) programs, unless special regulatory approvals are obtained. As such, the opening up of ground-mounted configurations for the SelCo program is likely to be received well by the industry as it unlocks new segments of opportunities for the RE industry, less the quota and auction cycle limitations in the LSS and CGPP programs.

LSS5 winners shortlisted, tariff bids to reflect cheaper module prices

According to a latest statement by the EC, evaluation of LSS5 bids have been completed whereby shortlisted bidders were evaluated based on competitiveness of tariff bids and fulfilment of requirements under the Request for Proposal. However, the shortlisted bidders will be notified directly by the EC from 23 December 2024 onwards. Notwithstanding the less transparent announcement of winning bidders this time around, we believe LSS5 tariff bids will be reflective of the sharp fall in global solar module prices, which have fallen over 60% after peaking in late-2021; solar modules in turn, is estimated to have accounted for up to 50% of EPCC cost (during LSS4 construction). As a result, we estimate overall EPCC cost would have fallen circa 30% since LSS4, which would translate into lower tariff bids of around 14-16sen/kwh for LSS5 compared to mean tariff bid of 20sen/kwh in LSS4. As such, we believe potentially lower tariff bids is by no means a reflection of lower profitability for LSS5 projects.

Recommendation

We view the latest developments positively for the Power & Utilities (P&U) sector, in particular, for the RE EPCC sub-sector. We rei-iterate our view that RE EPCC players are expected to hit record high orderbooks and revenues next year underpinned by rollout of the 800MW CGPP projects and a record 2000MW from the upcoming LSS5 projects, due for commissioning by endCY25 and within CY26/CY27 respectively.

Key potential beneficiaries in the RE EPCC sub-sector include SAMAIDEN (Buy, TP: RM1.43), SLVEST (Non-rated), SUNVIEW (Non-rated) and PEKAT (Non-rated). Meanwhile, key potential beneficiaries in the asset owner space - in regard to LSS5 rollout in particular - include TENAGA (Buy, TP: RM17.30), MALAKOF (Buy, TP: RM1.05), YTLPOWR (Buy, TP: RM6.53) as well as the abovementioned RE EPCC players which are also expanding into RE asset ownership.

All in, we maintain our Overweight rating on the Power & Utilities (P&U) sector premised on: (i) Demand-supply tightness in the generation market (ii) Record-high RE rollout (iii) A potential step-up in grid capex to accommodate the energy transition (iv) Commencement of Malaysia’s RE export. The P&U sector will continue to be driven by the energy transition backed by the National Energy Transition Roadmap’s aggressive 70% RE mix target by 2050, while the influx of data centre capacity is expected to drive strong demand growth, underpinning the requirement for new generation capacity. Key risk to our call is unfavourable changes to the regulatory and policy framework.

Source: TA Research - 27 Dec 2024