RHB Investment Bank (RHB IB) maintained OVERWEIGHT on the Power sector, with six stocks with BUY rating, and two stocks with NEUTRAL rating under its coverage.
“We are positive on the Integrated Clean Energy (TBB) programme 2024 as it continues to anchor the domestic renewable energy (RE) ramp up while providing sustainable job flows to contractors amidst rising competition.
“However, we note that developers will need to address initial capex requirements,” it said in Malaysia Sector Update today (Jan 29).
The research house said large scale solar (LSS) is back – and the government has unveiled its largest ever largescale solar (LSS) photovoltaic (PV) programme with 2GW of capacity.
“This round introduces a 500 megawatt (MW) quota on floating solar. Notably, individual developers will also be permitted to bid for projects with a maximum capacity of 500 MW, a tenfold increase from the previous 50MW limit.
“Assuming a contract value of RM2.5 million per MW, solar projects under the fifth LSS (LSS 5) could be worth RM5 billion. The increased quota, higher capacity limits, and focus on floating solar create a lucrative and dynamic landscape for solar energy developers.
“By fostering competition and stimulating investment, the LSS programme is poised to accelerate Malaysia’s journey towards solar leadership,” it said.
Additionally, RHB IB said net energy metering (NEM) initiative has been extended until December 2024, with the additional 100MW and 300MW quotas for NEM Rakyat, for residential and NEM NOVA, for commercial and industrial (C&I) categories.
“We believe this is a positive for the solar contractors as the continuation of NEM will provide residential and C&I orders.”
The research house said a low-carbon energy generation programme was also introduced with a total quota of 400MW, under the New Enhanced Dispatched Arrangement (NEDA) mechanism.
“Starting 5 Feb, applications will be accepted on a first-come, first-served basis through the Single Buyer website. This initiative is expected to boost electricity reliability by adding new non-solar RE and creating economic opportunities for developers in these alternative sectors.
“Given Samaiden Group Bhd’s recent hydro win, as well as its involvement in biogas and biomass plants, we believe the company is well positioned to leverage on this programme.”
Meanwhile, it said while battery energy storage system (BESS) pilot project’s rollout is essential for better RE integration, the project returns remain unknown.
RHB IB’s top picks for the sector is TNB, YTL Power and Solarvest.
“The programme will be a boon for TNB. Having participated in three LSS rounds and emerging as the biggest winner for CGPP, we believe TNB will be able to capitalise on the 2GW capacity offered for LSS 5.
“This is especially as a single developer can own up to 500MW, which we believe TNB would stand a good chance to increase its domestic RE presence.
“Together with the minimum 3GW NETR projects, such as 500MW solar parks and 2.5GW hybrid hydro-floating solar PV or HHFS – we anticipate a significant ramp-up in the group’s total RE gross capacity, projecting an increase from 4.1GW as of 3Q23 to potentially reaching the set target of 8.3GW by 2025.
“Furthermore – although we are yet to know how the BESS pilot project will pan out – TNB stands to gain from the project as it will increase grid stability and reliability as well as improve the integration of RE.
“We may see a steady return if such capex is being tabulated as part of the regulatory asset base in the upcoming RP4.”
RHB IB identified solar contractors especially the for engineering, procurement, construction and comissioning (EPCC) players are direct beneficiaries.
“Solarvest Holdings Bhd (Solarvest), Samaiden, Sunview Group Berhad (SUNVIEW MK, NR) and Pekat Group Bhd (PEKAT MK, NR) stand to gain the most, as this programme will inject a potential RM5 billion worth of contract opportunities.
“This is assuming the EPCC contract is valued at MYR2.5m per MW, a 2GW solar capacity investments. We believe this will provide utility scale job replenishments up to 2027,” it said.
The NEM additional quota could also trigger more residential rooftop PV installations, it added.
The research house said indirect beneficiary will be Reservoir Link Energy Bhd (RLEB MK, NR) being a sub-contractor and mounting structure provider.
“With the allocation to a single developer up to 500MW, we believe this will attract more established players with strong war chests such as Tenaga Nasional Bhd (TNB) and Petroliam Nasional Berhad (Petronas) and Gentari Renewables Sdn Bhd to participate more aggressively.
“Other potential winners will be asset owners of past LSS rounds, given their track records. Previous winners include Advancecon Holdings Bhd, Ranhill Utilities Bhd, Uzma Bhd (UZMA MK), JAKS Resources Bhd (JAKS MK, NR), Gopeng Bhd (GOP MK, NR) and Tenaga Nasional Bhd (TNB),” it added.
The downside risks of RHB IB’s call are lower-than-expected new RE capacity rollout and higher-than-expected operating costs.
