Deal extension likely for LSS4 winners

“The internal rate of return (IRR) will improve but not significantly,” Solarvest Holdings Bhd executive director and group CEO Davis Chong told StarBiz.

KUALA LUMPUR: A possible but as yet unconfirmed four-year extension of the power purchase agreements (PPAs) to 25 years, from 21 previously, for project winners of the fourth round of large-scale solar awards (LSS4) may not see significant improvement in the projects’ viability.

“The internal rate of return (IRR) will improve but not significantly,” Solarvest Holdings Bhd executive director and group CEO Davis Chong told StarBiz.

A recent news report, quoting sources, said the PPAs would be extended by the Energy Commission (EC), which had made the concession in view of how the viability of certain projects have been affected following a 30% to 50% jump in solar panel prices – compared to when the LSS4 bids were submitted in 2020.

As at press time, the EC has yet to respond to queries from StarBiz on the matter.

Chong told StarBiz that for the second half of 2022, he expects solar panel prices to remain elevated.

“There are no signs of prices going down or the shipment and production capacity improving significantly due to lockdowns in China. If the situation (lockdowns) in China eases in the fourth quarter of 2022, perhaps we will see some improvement,” he said.

Regarding news report which said some companies had switched to Malaysia-manufactured solar panels, Chong said he was not aware of this and he understands that “so far, most of them are still sticking with China panel designs.”

Chong pointed out that Solarvest is getting 93 megawatts (MW) of advanced thin film photovoltaic (PV) solar panels from First Solar Inc this year, with deliveries taking place between July and October.

Solarvest is a clean energy specialist and turnkey engineering, procurement, construction and commissioning service provider.

About 75 MW of the total order is expected to be sourced from First Solar’s manufacturing facility in Kulim, Kedah.

Meanwhile, in a recent report on the outlook for the second half of 2022, MIDF Research noted that a potential drag in the renewable energy space is the rising cost of solar modules, which has increased by up to 40% to US$26 cents (RM1.16) to US$28 cents (RM1.24) per watt.

“Given that panels account for around half of solar project cost, this has a significant bearing on earlier projected project returns.

“As such, we expect some delays in the execution of recently awarded solar projects as players attempt to wait out the elevated costs or renegotiate contract terms,” said MIDF Research.

In March 2021, 10 listed companies were among those that won the country’s LSS4 projects, which analysts had predicted would deliver a mid to high-single-digit IRR for the award winners.

Of the overall listed winners, MIDF Research had said Gopeng Bhd, Solarvest, JAKS Resources Bhd and Advancecon Holdings Bhd could see the most earnings impact.

Other LSS4 listed winners are Ranhill Utilities Bhd, Tenaga Nasional Bhd, Uzma Bhd, MK Land Holdings Bhd, KPower Bhd and Tan Chong Motor Holdings Bhd.

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