Green energy for the future: Solar hybrid panels being used at Pos Kemar in Gerik, Perak. The plan is to lower the country's carbon footprint.
KUALA LUMPUR: Interest in renewable-energy (RE) projects has been gaining momentum in Malaysia, fuelled by the push for environmental awareness and sustainable and responsible investing, technological advancements, and a stable local regulatory framework.
In a statement Monday, RAM Ratings said large economies in the international scene have sizeable RE in their installed capacity mix, such as Germany (51%), China (33%), the United Kingdom (29%) and the US (16%) in 2015.
In Malaysia, the RE sector has been dominated by large-scale hydro power plants; the installed capacity of RE stood at 6,083 MW in 2015, constituting 23% of the national capacity mix.
Excluding the large hydro power plants, RE projects – solar photovoltaic, biomass (including waste to energy) and small hydro power plants – only comprised 2% of the portfolio mix.
The rating agency said although the sector was still at a nascent stage in Malaysia, the Government had been encouraging the use of RE through the Sustainable Energy Development Authority (SEDA), which provides strong regulatory support to this sector.
“Price certainty via the implementation of the feed-in tariff mechanism as well as demand assurance through long-term RE power purchase agreements with national utility giant Tenaga Nasional Bhd
help ensure the economic viability of RE investments,” co-head of infrastructure and utilities ratings Chong Van Nee said.
“As such, we expect RE producers to experience encouraging growth and access the bond market, as has been observed globally,” Chong added.
RAM Ratings today published a rating methodology on RE projects as a thought leadership initiative to bring further clarity on the topic to the Malaysian bond and sukuk markets.
It said the methodology outlines its analytical framework on rating debt securities issued by RE producers, with a focus on the risks faced by solar photovoltaic, biomass (including waste to energy), and hydro power plants in Malaysia.
“Similar to conventional thermal-powered projects, RE projects would be rated based on the project-finance methodology, so long as they are limited-purpose entities, with typical risk elements ring-fenced via contracts with key counterparties and debt-protection covenants stipulated in financing documents.
“Specifically for RE projects, resource-supply risk is the most pronounced post-completion risk,” RAM explained.
Meanwhile, solar and hydro resources face intermittency risk as inadequate resources would affect output.
On the other hand, biomass power plants need a secure and consistent supply of feedstock that meets specific calorific-value requirements to ensure optimal plant efficiency and production.
“Generally, pre-completion risk is the highest for large-scale hydro power plants involving the construction of dams. This is because it involves land acquisition and settlement relocation, albeit moderated by relatively lower operational risk compared to thermal-power plants,” it said.
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