Championing renewable energy
Maturing market proves a good time for solutions provider
MATT Tan, a chartered accountant, and his friend and colleague Levin Tan, an engineer by training, share more than just a common surname. They have a common interest in sustainability issues and came together to form Mattan Engineering Sdn Bhd back in 2012.
The visionary duo combined their expertise in finance and engineering to be at the forefront of Malaysia’s renewable energy (RE) push.
The six-year-old company is currently one of the leading players in driving the burgeoning RE industry forward. It offers engineering, procurement, construction and commissioning (EPCC) solutions for multidisciplinary RE projects.
Creativity and innovation form the core of Mattan’s approach to RE.
The company has pioneered several unconventional practices that maximise the use of resources such as growing mushrooms on solar farms. By making better use of the large track of land needed for solar panels, Matt says the country will be able to generate additional revenue alongside its increasingly bold RE initiatives.
This will also help draw more investors to the sector.
“Malaysia has a huge source of green energy, but more investments need to be pumped in. With our abundance of sun and water, we should put our money into solar and hydroelectric power for the greatest return on investments.
“The hardware for solar photovoltaic (PV) system used to be expensive but they are now more affordable due to economies of scale and higher adoption rates. In fact, it has reached parity with fos- sil fuel in terms of cost,” says Matt.
At the moment, solar makes up the largest segment of Mattan’s business, contributing up to 70% of its total orderbook of RM300mil for the financial period 2017-2018.
Matt notes that the outlook for solar technology is still favourable considering solar capture modules are relatively easy to maintain and the cost of PV cells continues to decline sharply.
The company’s largest project to-date is a RM285mil turnkey EPCC contract for a 50MW (megawatt) solar farm project in Rembau, Negri Sembilan. The project has a 21-year power purchasing agreement with Tenaga Nasional Bhd, which has the monopoly for power distribution in West Malaysia.
Mattan also has an existing partnership with China Machinery Engineering Corp for the supply of materials and equipment.
However, the company is not stopping at merely familiar renewable sources such as water and sun.
To be able to fully capture the growth potential in RE, turning waste to energy with biogas and biomass is key, says Matt.
This is another expertise that Mattan has mastered over the years to offer different energy supply solutions and help tackle sustainability problems.
Matt highlights that biogas-based RE has viable potential given that there are over 400 palm oil mills in Malaysia, 300 of which are in Peninsular Malaysia alone.
Besides helping the palm oil industry to reduce waste and pollution, Matt says biomass could work in regions that are remote from existing generation sources, load centres or power transmission infrastructure.
Riding on potential
In September, Energy, Science, Technology, Environment and Climate Change Minister Yeo Bee Yin said that she was confident of meeting a 20% renewable energy target by 2030, from 2% currently.
Based on recent statistics by the Energy Commission, Malaysia’s electricity generation for 2016 mostly derived from gas (43.5%),
followed closely by coal (42.5%). Meanwhile, hydro made up 13% of the power generation mix.
Research firm Protege Associates notes that Malaysia had a renewable capacity of 7.3GW (gigawatt) in 2017, of which 82% was contributed by hydropower.
“If the Malaysian government’s stated RE ambition of 20% RE mix by 2025 is to be met, it will require a mind boggling 6.7GW in additional power generation capacity. The expected annual installed capacity would be close to 1GW for all forms of RE sources, including from solar, mini hydro, biogas and biomass,” says Tan.
According to Tan, the Sustainable Energy Development Authority (SEDA) has been closely monitoring development in the country’s green technology scene, particularly with regards to the recent announcement by the government on awarding a contract related to building large-scale solar power plants.
The private sector is increasingly turning to renewable energy to achieve corporate sustainability goals. In order to accomplish this successfully, these companies depend on a clear corporate renewable energy programme.
“Solar energy may have had great potential, but it was left on the backburner whenever fossil fuels were more affordable and available. Only in the last few decades – when growing energy demands, increasing environmental problems and declining fossil fuel resources made us look to alternative energy options – have we focused our attention on truly exploiting this tremendous resource,” says Tan.
As at September this year, Mattan’s total order book stood at RM254.9mil.
Mattan turned in revenue of RM70.7mil for 2017.
The company is looking to expand its portfolio as the industry is expected to grow. It currently has around 60 employees, a majority of them skilled engineers and technicians.
Mattan also intends to invest in RE assets in the near future as part of its strategy to add another revenue stream and reduce its reliance on project-based income.
“We intend to acquire stakes in RE assets and are currently in the midst of identifying suitable assets for investment,” the company notes.
Going public
The term “banks will follow where the money goes” rings true with renewables.
Most RE projects would have struggled to compete for investments or found it extremely difficult to obtain loans decades ago. These projects were seen as risky and many relied on support from the government in the form of incentives and subsidies.
But RE projects have gotten sexier over the years, thanks, in part, to the reduced cost of RE equipment and the increasing awareness on sustainability.
However, a project would still require intensive capital undertaking, more so if it is a large-scale RE project.
Although financial institutions are now more open to financing RE projects, Matt points out that exposure for the industry is still relatively new and as such, financing for these projects usually carries a higher risk premium.
Mattan is looking to raise funds through an initial public offering (IPO) to help fund its projects for expansion. And Matt thinks there is no time like the present for such an exercise given the growing attention that the RE sector is getting.
“While we have had some successes in winning large tenders, the fixed price for EPCC works means the company is still exposed to risks. Being a privately-held company makes the access to financing that much more challenging.
“A more mature solar ecosystem in Malaysia makes it more ideal to raise growth funds for clean energy,” he says.
Ace Market-bound Mattan filed its draft prospectus with the Securities Commission Malaysia last month.
Under the IPO, Mattan is offering 97.2 million new shares, representing 27% of the enlarged issued share capital, at an issue price to be determined later. Of these, 17.52 million shares (4.9%) will be offered to the public while 11.75 million shares (3.3%) will be made available for its directors and employees. Another 67.93 million shares or 18.9% of the enlarged issued share capital will be allotted for private placement.
A listing exercise can be tedious, and while it dilutes the Tans’ shareholdings, Matt says the stake sales will help the company fund its overseas projects and local expansion. A listing status would also help raise its profile and improve its access to financing.
Tan is expecting a valuation of at least RM40mil for up to 25% stake in the company.
Proceeds from the listing exercise will also be used to finance its expansion into underserved markets such as Cambodia, Indonesia, Laos, Myanmar, the Philippines and Vietnam.
With the government committed to adopt only open tender approach to new energy projects – where bidders will have to compete on different fronts – Tan says the company will eventually bid for projects and become the operator of a RE plant.
In essence, it seems as if the Tanand-Tan combo is riding the RE wave to help transform the power industry in the long run. With their eyes fixed on the growing convergence of regulatory framework, maturing technologies and more accessible financing options, they are optimistic of their tracks on the green path.