International markets may be more profitable for local solar players

KUALA LUMPUR: Local solar players may see increased overseas contribution, analysts opine, given the limited barriers to entry to penetrate international markets and a competitive local environment.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), in order for Malaysia to meet its 20 per cent renewable energy (RE) capacity mix target by 2025, it would have to develop 2,758 megawatts (MW) of new RE capacities.

“The bulk of these new RE capacities will consist of solar of 2,172MW and 1,586MW of non-solar which is a sizeable amount for growth,” Kenanga Research said in its environmental, social and governance (ESG) report.

“However, local bids such as the recent Large Scale Solar (LSS) bids have been highly competitive, going as low as RM0.177 per kilowatt hour (pkWH) which is lower than gas-based power generation cost of RM0.23 per kWH and the reference price of LSS2 of RM0.32 per kWH.

“Given that Malaysia is not facing an acute shortage of electricity supply and RE demand is mostly based on local government targets, international markets may prove to be more profitable given the necessitated commitment for increased energy supply.”

The research arm gathered that recent channel checks suggested that engineering, procurement, construction and commissioning (EPCC) rates are higher in Taiwan at 12 to 15 per cent versus Malaysia’s LSS of 10 to 12 per cent.

Kenanga Research noted that based on the Malaysian Generation Development Plan 2019, the electricity demand is expected to grow at 1.8 per cent per annum over the next 11 years with 9,321MW of new capacity required to meet demand growth.

“As such, the increasing demand will be led by rising supply of RE to 23 per cent (from circa two per cent in 2020) by 2025, while thermal capacity share will reduce to 70 per cent (from 82 per cent), which would result in an estimated annual system cost of RM35.2 billion in 2020 to RM45.4 billion in 2030.”