RE adoption by O&G companies to slow amid low oil price


RENEWABLE energy (RE) projects in Malaysia led by oil and gas (O&G) players are expected to decelerate due to high gearing amid low oil price environment.

AmInvestment Bank Bhd (AmInvest) analyst Alex Goh said Yinson Holdings Bhd is the only party — among local service providers — that has taken the plunge by investing US$30 million (RM124.8 million) for a 95% equity stake in Rising Sun Energy Pte Ltd, which has a 160MW solar farm in Bhadla Solar Park Phase II in Rajasthan, India.

“Nevertheless, we envisage a slow adoption of renewable projects by local O&G providers given that a large segment is currently burdened by high gearing amid a low oil price environment,” Goh said in a report yesterday.

He said the shift towards RE in Malaysia has been underway over the past three years with Petroliam Nasional Bhd (Petronas) operating 448MW of solar capacity in India and South-East Asia.

Petronas is developing another 212MW at present.

In Malaysia, Goh said Petronas is operating and developing 50MW of solar capacity, part of that to supply to 15 Tesco stores.

With Brent crude spot prices stabilising above US$40 per barrel, Goh said the bank believes that the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices fell to a low of US$14 a barrel, while futures inverted to an abnormal negative price due to lack of storage capacity.

AmInvest maintained an ‘Overweight’ call with six ‘Buy’ calls on Bumi Armada Bhd, Dialog Group Bhd, Petronas Chemicals Group Bhd, Petronas Gas Bhd, Serba Dinamik Holdings Bhd and Yinson.

It has ‘Sell’ calls on Sapura Energy Bhd and Velesto Energy Bhd, and a ‘Hold’ call on MISC Bhd.

Goh noted that based on Rystad Energy AS Deep Dive Renewables webinar, renewables installations in solar, wind and storage facilities are set to rise by 40% year-on-year to a record 140GW globally after experiencing a dip in the second quarter of 2020 (2Q20) due to Covid-19-induced project delays.

The growth is predominantly driven by solar photovoltaic solutions, followed by onshore wind installations.

He said China is expected to be the main driver for renewable capacity increase with an addition of 50GW this year, followed by the US at 30GW, while Europe is relatively flattish in new capacity additions.

However, Goh said 55% of 2020 global capacity additions are still under construction with completion expected by 4Q20.

The analyst said the increasing interest in RE projects has driven up the scale and capacity of the facilities.

In 2020, he noted that only 16% of the 140GW global additions comprise projects below 50MW, versus 59% in 2017. Projects above 500MW account for 7% of 2020 additions compared to almost nil in 2017.

Goh said the transition of O&G companies from fossil fuels has spurred joint-venture partnerships, as well as mergers and acquisitions activities in the renewable sector, with total tripling its capacity this year.

He added that shareholder and green agenda activism has accelerated plans to spend a capital expenditure of US$200 billion by 2030 with almost all majors committing to achieve net-zero emissions by 2050 with plans to divest their overseas O&G investments.

Europe and Japan have committed to this target by 2050 and China by 2060.