New solar power race ignited

For LSS5, the maximum capacity for each bidder is being increased from 50MW to 500MW. And it has been three years since the last LSS competitive bidding process. This is why it will be a highly contested one. - pic courtesy of Next Energy

THE race is on to get a slice of the biggest renewable energy (RE) projects in the offing from the next phase of the large scale solar (LSS) programme.

The bidding process for the fifth round of the LSS or LSS-Energy Transition SuRiA has begun and indications are that interest is very strong.

A few things will determine the winners and losers, at least for the larger parts of LSS5. These include having access to land, waterways and a low cost of capital.

To get a meaningful slice of LSS5 would mean bidding for project sizes of closer to 500 megawatts (MW).

Under Package 3, which has a total allocation of 1,000MW, parties can propose to build anywhere from a 30MW plant up to a 500MW one.

But to have a 500MW plant, would require over 1,000 hectares (using a ratio of around five acres per MW of solar producing panels).

As one industry player puts it, “if you don’t already have the means to such a piece of land by now, you are going to be hard-pressed to get into the game”.

The submission deadline for LSS5 is July 24.

Even if you have the land, there is the cost factor which will determine bidders’ final tariff submission price. Land cost is said to be around 7% to 10% of the total cost of operating a solar farm.

Hence, one theory is that government-linked companies (GLCs) which have vast tracts of land may be in a better position to win LSS5’s big projects.

However, even if the land is owned by the GLC, there is always a cost involved to the owner – in the GLC’s case, it would be an opportunity cost. Would the group be able to create more value out of say property development on the said land than to use it to build a solar farm?

Then there is Package 4 — the biggest of the lot — but requiring floating solar power plants with generation capacities from 10MW to 500MW. The question is, who has access to such waterways?

Tenaga Nasional Bhd (TNB) is the main player in this area. Even before the announcement of LSS5, TNB had announced plans to build up to 2.5GW of floating solar power plants. It is doing so at its hydropower dams.

Other players with floating solar installations include Cypark and Solarvest. Cypark’s 98 MW LSS2 floating solar project in Danau Tok Uban, Kelantan is near completion while Solarvest had completed its in 2019, one of the country’s first floating 13MW solar farms, in Dengkil, Selangor.

Access to waterways will not be easy for bidders who would probably have to team up with state governments or TNB.

Project funding costs will be another determining factor. The larger your balance sheet, the better chance of having a lower funding cost.

Second, an international partner, say a government-funded entity premised on garnering market share abroad, could be valuable. A few countries have bankrolled their renewable energy giants in order for them to gain market share abroad.

However, foreign ownership for LSS5 is limited to only 49% of the bidding party.

The capital requirements for building these large solar farms will be hefty. For example, a 30MW plant costs around RM100mil, what more a 500MW one?

Another element is how cost-effective can the engineering team be? Engineering, procurement, construction and commissioning (EPCC) is a key component of the bid.

Malaysia has a good base of EPCC players for solar farms, including a few listed companies, but there is always the possibility that players from places like China can be more cost-competitive. Hence, there are likely to be consortia with such players bidding for LSS5.

One suggestion is for the green certificates that are attached to the amount of solar energy produced by these plants should lie with the operators. This way, they can earn revenue from selling those certificates to interested parties and lower the operation cost and make their bids more competitive.

Thus far, the green certificates or attributes in previous LSS projects have been going to the off-taker of the solar energy, namely the grid operator which is part of TNB.

Speaking of TNB, what is impressive about LSS5 is that they are making available large capacity entry points into the grid to take in the solar to be produced from LSS5 projects. This is a game-changer as previously, there were limitations on how much green energy via solar could be fed into the grid.

There is also the element of battery storage that is optional for bidders. Battery storage is crucial to level out the intermittency of solar power and its ability to be fed into the grid.

Battery storage solutions, however, are not cheap although they are likely to add a lot of merit points to the bidders if included.

For LSS5, the maximum capacity for each bidder is being increased from 50MW to 500MW. And it has been three years since the last LSS competitive bidding process. This is why it will be a highly contested one.

This article first appeared in Star Biz7 weekly edition.

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