While the announcement that potentially pivotal state elections will be held on Aug 12th has rekindled discussion and concerns around the strength and longevity of the political “green wave” per Islamist party PAS’ huge gains in the 15th General Elections (GE15; Nov 2022), Maybank Investment Bank’s (Maybank IB) focus this week is on that other, less controversial green wave i.e. Malaysia’s steadily growing renewable energy (RE) sector.
With most of the LSS4 (Large Scale Solar) projects expected to come onstream by end-2023, investors are moving on to the 800MW Corporate Green Power Programme (CGPP).
To recap, the Ministry of Energy and Natural Resources had, in Nov 2022, released 600MW of solar quota under CGPP (subsequently raised to 800MW in Mar).
CGPP is essentially a mechanism for virtual power purchase agreements, implemented using the existing New Enhanced Dispatch Arrangement (NEDA) framework.
The agreement is a commercial contract between the Solar Power Producer and the Corporate Consumer.
A solar power generator that has successfully subscribed to the quota can then apply via the NEDA system to bid on selling energy to the grid.
The Energy Commission (EC) has set the maximum capacity limit of applicants at between 5MW and 30MW each under the CGPP, with the solar power assets expected to be operational by end-2025.
The application date started from May 9 and will continue until end-2023 or until all quotas have been fully taken up.
This programme provides opportunities for solar power producers to own new solar assets or replenish their solar EPCC order books.
Maybank IB Malaysia and Regional Head of Equity Research Anand Pathmakanthan (pic) said: “We understand that the contracts are expected to be awarded from Jul/Aug 2023 onwards. The other catalytic development is the Government announcing the lifting of the ban on export of RE in May, as part of a policy review to accelerate the growth of Malaysia’s green economy.
“Nevertheless, details on the mechanism are yet to be announced i.e. only expected in Aug/Sep. Currently, Singapore has a target of 4GW of RE import capacity by 2035.”
He added noting Singapore has a higher average regulated household electricity tariff than Malaysia, Maybank IB believes this could translate to a better gross profit margin for local RE players.
In addition, this in turn will also incentivise RE players to explore battery energy storage system (BESS) projects, which are not viable at local tariffs. We have HOLD ratings on Solarvest and Cypark, and a BUY rating for YTL Power which is well-positioned for RE exports.
In relation to the Renewables sector, Maybank IB said as LSS4 is expected to start commercial operation by end-2023, most RE players’ EPCC orderbook are expected to exhaust, pending tender award from the 800MW CGPP.
Earnings growth is expected to peak in 2H23, mainly supported by the remaining LSS4 projects.
Valuation for RE players under our coverage seems fair at current level. Maybank IB, on this, maintains a HOLD call for both Solarvest and Cypark, while downgrading the sector to NEUTRAL.
