Hong Leong Investment Bank is positive on Malaysia’s renewable energy (RE) sector, underpinned by the country’s early-stage energy transition and an accelerating RE demand curve driven by the data center boom (7.1GW).

The research house said in a note on Wednesday that it expects 2026 opportunities to be led by 2GW Large Scale Solar 5+ (LSS5+) engineering, procurement, construction, and commissioning (EPCC), 2GW LSS6, Corporate Renewable Energy Supply Scheme (CRESS), 300MW Feed-in Tariff (FiT 2.0) and more standalone Battery Energy Storage System (BESS), translating to more than MYR 20 billion ($4.94 billion) engineering, procurement, construction, and commissioning (EPCC) potential,

CRESS adoption should strengthen as hyperscalers chase both cost savings and green attributes, it added.

Despite strong solar (4GW from LSS5 and LSS5+), biomass and biogas quota award cycle in the last 12 months, in the grand scheme of things, Hong Leong believes that Malaysia’s energy transition remains in the early innings.

For context, as of July 2025, Malaysia’s installed solar capacity (93 percent of total installed RE) at 4.2GW still lags far behind its 2050 57GW target outlined in National Energy Transition Roadmap (NETR) (published in 2023).

“Since then, we further believe the growth curve has been accelerated by Malaysia’s data center boom (7.1GW), spurring a major upshift in RE demand driven by multinational technology (MNT) companies,

“To note, engineering, procurement, construction, and commissioning (EPCC) players have only started to convert on Large Scale Solar 5+ (LSS5+) contracts and plenty of quotas remain in the EPCC pipeline,” said the research house.

Meanwhile, in many studies globally, the grid typically tolerates up to 40 percent peak RE generation share before intermittency causes excess volatility.

A key strategy towards raising RE share beyond the threshold studies is BESS integration – which has shown to raise tolerable thresholds to about 70 percent.

Cognizant of this, the government has integrated BESS requirements into majority of RE programs such as Community Renewable Energy Aggregation Mechanism (CREAM), SELCO, CRESS and LSS6.

“As we have highlighted in our report earlier, this marks a sizable uplift to the total addressable market (TAM) for EPCC contractors, potentially lifting contract values/MW upwards of 50 percent to 100 percent,

“Longer term, we view this as structurally lifting to orderbook/earnings growth potential,” said Hong Leong.

In 2026, the research house foresees utility scale opportunities picking up driven by LSS5+ EPCC (2GW), LSS6 (2GW), 300MW FiT 2.0 program and also more standalone BESS programs.

The former three it estimates could generate about MYR 20 billion ($4.94 billion) in EPCC opportunities.

“Additionally, we reckon 2026 could translate into tangible developments in CRESS program as data center players can reduce electricity costs per unit by 5 percent,

“In our view, the capital intensive artificial intelligence (AI) race will incentive robust CRESS adoption with more data centers approaching completion in 2026,” said the research house.

For context, Google has also emerged as an off-taker across multiple Corporate Green Power Program (CGPP) projects, underscoring the step-up in corporate RE demand by hyperscalers/MNCs.

“However, we see CRESS demand to be potentially even stronger, as it offers a clearer ‘double benefit’ of lowering delivered electricity costs while simultaneously delivering green attributes (RECs), which should be increasingly relevant as operators scale capacity and face tighter sustainability requirements from global customers,” Hong Leong added.

Having slowed down dramatically in the second half of 2025 due to the absence of replacement quota for Net Energy Metering 3.0 (expired in June 30, 2025), Hong Leong expects installation rebound in 2026.

“In our view, implementation of Solar Accelerated Transition Action Program (Solar ATAP) from Jan 1, 2026 restores pipeline clarity with the key differentiator being the absence of quota limitations (versus quota-gated Net Energy Metering [NEM] rollouts previously),

“This alleviates stop-start installation cycles, improves conversion visibility, while ATAP’s larger system sizing allowance (up to 100 percent of maximum demand) should support higher C&I uptake and incrementally larger project sizes,” it said.

Additionally, it noted since Regulatory Period 4 (RP4) tariff restructuring, maximum demand charges have given rise to surge in BESS installations.

Taken together, it sees a more durable rooftop recovery in 2026, with incremental upside from higher-value set-ups.

“We view the growth in this segment as complementary to stronger growth prospects seen on the utility scale side,” said the research house.

While prices did firm up in 2025, Hong Leong viewed the move as contained and quoted module pricing has since anchored around the USD 10-11 cents/watt level (from USD 8-10 cents/watt prior).

Export pricing into Asia-Pacific has not seen renewed pressure, it added.

“Overall in 2026, while we anticipate upward bias in module pricing, cost pressures remain manageable given sizable supply-demand mismatch across the entire module production chain while solar EPCC players have also pre-emptively lock-in procurement arrangements with module manufacturers,

“Nevertheless, we think the recent price spike in silver – which forms 10 percent to 15 percent of module cost – warrants closer monitoring as precious metals volatility can still feed into module price revisions,” said Hong Leong.

Malaysia approves 181.25MW RE projects valued $440M under FiT program