RE Transition To Accelerate In The Face Of Fresh Mandates: CLSA

Minister of Natural Resources, Environment and Climate Change Nik Nazmi Nik Ahmad, recently announced that renewable energy (RE) generation mix will be raised to 70% by 2050 compared to 40% from original plan, representing 11 fold increase.

While the details are scarce at this juncture, it is reported that the 70% RE mix by 2050 works out to be 55 gigawatt in total with 25 gigawatt being earmarked for the export market, said CLSA in the recent Malaysia Power Report.

In addition to higher RE target, the government also announced the lift of RE export ban with cross-border RE sale via an electricity exchange system. This will further boost Malaysian energy exports, which is currently dominated by YTL and Tenaga.

Commercial sales of electricity from Malaysia to Singapore is slated to begin this year after Tenaga completed upgrading of electricity interconnector in Oct 22; that essentially will accommodate 1,000 megawatt of bidirectional electricity flows.

Under this agreement, YTL PowerSeraya and TNB Genco will export 100 megawatt of electricity from TNB Pasir Gudang Energy to Singapore. Incremental revenue to Tenaga, for a start, is marginal at RM500 million per annum or 0.9% against its RM53 billion base.

“We view regional interconnection as a bright spot following government’s decision to allow RE exports. In this regard, Tenaga should benefit as a grid and transmission line provider, although continuous upgrades are required for seamless electricity transfer,” said CLSA.

GSPARX (Tenaga’s subsidiary) is identified as key beneficiary in rising solar power penetration. Secured capacity has grown at 113% compounded annual growth rate since 2019. Other beneficiaries include companies with experience in solar projects.

CLSA suggest an OVERWEIGHT stance on the sector for its resilient growth and long term transition plan. Earnings are mostly protected by regulations and dividends are attractive at 5% yield.

Even though CLSA believes Tenaga is a beneficiary, they think that earnings contribution from the rising solar penetration will not be immediate and immaterial to its huge earnings.

Share price has appreciated by 8% in a span of one month, capping further upside. CLSA’s preferred picks are Petronas Gas and Gas Malaysia.

Previous articleMalaysia To Assert Position As Asia’s Shipbuilding, Repair Hub: MIDA
Next articleThompson Hospital Enters Malaysia Book Of Records As First Hospital Alliance With Universities

LEAVE A REPLY

Please enter your comment!
Please enter your name here