The enhancements to the Corporate Renewable Energy Supply Scheme (CRESS) is expected to boost Malaysia’s renewable energy (RE) sector despite challenges remain, Affin Hwang Investment Bank said last Friday.

The research house said in a note that the broadening of the consumer base is positive for RE developers and contractors, battery energy storage systems (BESS) companies.

Last week, the Malaysian government announced enhancements to the CRESS, opening third-party electricity grid access to existing power consumers and maintaining system access charges (SAC) at current rates for three years.

The government anticipates the improved structure to attract significant interest from corporates looking for stable and accessible green energy solutions.

The CRESS was previously only opened up to new consumers, or existing consumers looking for additional electricity.

“We are positively surprised to learn about the opening up of the CRESS program to existing power consumers,” said Affin.

It noted the previous rules, whereby CRESS was limited to new electricity users or existing users looking for additional capacity, were one of the main hindrances for the RE developers to participate in the CRESS.

According to the research house, Peninsular Malaysia’s peak demand was 20,066MW, registered on July 25, 2024, and the average hourly electricity consumption in 9M24 was 15,015MW (+11 percent year on year).

Of which, 35 percent of demand was from industrial users and another 35 percent were from the commercial users, which included the data center (DC) operations.

Affin opined that the relaxation of consumer base restriction opens up a significant market for the RE developers to tap into, and may translate to more CRESS projects.

“This, if materialized, should offer more business opportunities for RE developers, RE contractors, BESS companies,” it said.

While the broadening of the CRESS customer base is a welcomed change, Affin noted a number of challenges remain.

According to the research house, the high SAC may continue to dampen the RE projects’ return on investment and affect the overall take-up.

“We gathered that the tariff for large scale solar (LSS5) ranges between 16-17 sen ($0.036-$0.038)/kWh, materially below the mean bid of 19.99 sen ($0.044)/kWh in LSS 4, due to lower solar panel prices,

“Assuming that RE developers are to charge a similar rate of 16-17 sen ($0.036-$0.038)/kWh for CRESS customers (without BESS), the total electricity cost of about 61-62 sen ($0.14)/kWh is at a notable premium to prevailing electricity prices,” it said.

Meanwhile, it noted that the counterparty risk for the CRESS program is higher than LSS5 which has a single buyer as the off taker.

Also, the contract tenure for LSS5 is 21-years whereas securing off takers from the private sector that would commit to a 21-year power purchase agreement (PPA) is another challenge, and a shorter PPA period may lead to further increase in tariff, it said.

“As such, the RE developers may wish to adjust the project return to compensate the higher risks and shorter PPA, thereby raising the tariff expectations and make it harder to find willing off takers,” it said.

Affin also highlighted that US AI Diffusion Policy, if implemented, may affect future investments in DC and weaken the long-term electricity demand growth.

This may dampen the long term demand for green electricity under the CRESS program, it added.

While Affin is positive on the relaxation in the rules on the CRESS consumer base, it said the relatively high SAC and other challenges may dampen the overall take-up for the CRESS program.

“The DC industry has, in our view, contributed positively to the country’s energy transition agenda,

“A slower growth in the DC industry, if materialized, may have some spillover to the RE and utilities sectors,” it said.

The research house also anticipated Malaysia’s RE capacity expansion to grow at a more moderate pace given the prohibitive SAC rate.

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