APG is expected to enhance electricity trade across borders that would provide benefits to meet the rising electricity demand
by MIDF RESEARCH / pic TMR
A FEW updates to the renewable energy (RE) policy were announced by the Ministry of Natural Resources, Environment and Climate Change (NRECC) together with the Ministry of Economy on May 9, 2023.
RE target lifted. The first involves a new RE capacity mix target of 70% by 2050. The current targets under the Malaysia Renewable Energy Roadmap (MyRER) are 31% RE capacity mix by 2025 and 40% by 2035 against an RE capacity mix of 25% as of end-2022. While no further details were released, the new 2050 target signals a significant jump from the 40% mix targeted in 2035, which we believe is expected to be enabled by the much larger adoption of grid-scale energy storage systems in the future to accommodate variable RE sources. Pilot deployment of the battery energy storage system (BESS) is scheduled from 2030 onwards under the current generation development plan.
RE export ban lifted. Another key announcement was the lifting of the current RE export ban and the development of an electricity exchange system to enable cross-border RE trading. This is expected to allow domestic RE capacity to grow at a faster and larger scale capitalising on rising regional RE demand. A low-hanging fruit is Singapore which lacks land size to accommodate RE generation and houses a lot of the region’s RE100 MNCs (RE100 is a global initiative involving companies that are committed to 100% RE across its operations).
Malaysia has an advantage here given its proximity to Singapore and an existing interconnection. As RE-sourced electricity in Singapore commands much higher tariffs, this could also drive investments into solar+BESS projects which may have not been feasible previously at local tariffs. Retail “green electricity plans” range from S$0.32-0.45/kwh (RM1.07-RM1.50/kwh) relative to Malaysia’s base tariff of RM0.40/kwh (RM0.60 including ICPT surcharge for high-voltage non-domestic customers).
Positioning for regional power trading. In the long run, the new policy on RE trade aims to position Malaysia at the centre of the regional electricity trade, riding on the Asean grid interconnection initiative. The move aims to capitalise on the ample RE resource in the country and its strategic geographical location at the centre of the region. To give perspective on Malaysia’s RE potential, the 18GW of RE capacity required to achieve the country’s mid-term target of 40% RE capacity mix by 2035, accounts for just 6.2% of the total 289GW RE resource identified in the country.
The Asean Power Grid (APG) is an initiative to construct a regional power interconnection to connect the region, first on cross-border bilateral terms and to gradually
expand to a sub-regional basis and subsequently leading to a total integrated South-East Asia power grid system. As one of the physical energy infrastructure projects in the Master Plan of the Asean Connectivity, the APG project is expected to enhance electricity trade across borders that would provide benefits to meet the rising electricity demand and improve access to energy services in the region. Seven of the 16 power interconnection projects have been completed thus far.
Recommendation. The updated RE target is expected to involve investments of up to RM637 billion up till 2050 involving power generation sources, grid infrastructure and energy storage capacity.
Broadly, the latest policy decisions also signal potential third-party access to the grid to allow transmission of power from RE generators to its end customers, and is a step towards market liberalisation, in our opinion.
We believe YTL Power International Bhd (Buy, Target Price (TP): RM1.12 ‘Under Review’) and indirectly, YTL Corp Bhd (‘Buy’, TP: 83 sen owns 54% of YTL Power) stand to benefit in the immediate term given its advantage in having existing power generation and power retail operations in Singapore. Its 2000-acre land in Johor can accommodate up to 500MW solar capacity, though we believe part of this will be utilised to power its own planned data centres.
We believe Tenaga Nasional Bhd (TNB) (Neutral, TP: RM10) stands to benefit from wheeling charges given its monopoly of the national transmission grid. We also believe TNB will benefit from higher capex into grid infrastructure to accommodate the envisioned regional RE trade, which will be positive for its regulated earnings.
Having said that, we believe the potential increased demand for RE exports will drive more requirements for RE capacity and do not rule out other existing RE owners and developers such as Ranhill Utilities Bhd (‘Buy’, TP: 70 sen), Jentayu Sustainables Bhd (non-rated) and Cypark Resources Bhd (non-rated) to tap on this potential.
EPCC players such as Solarvest Holdings Bhd (non-rated) and Samaiden Group Bhd (non-rated) are also obvious potential beneficiaries.
- The views expressed are of the writer and do not necessarily reflect the stand of the newspaper’s owners and editorial board
- This article first appeared in The Malaysian Reserve weekly print edition