UOBKayhian has expected upcoming large scale solar projects in Malaysia, such as the Corporate Renewable Energy Supply Scheme (CRESS) and Large Scale Solar 6 (LSS6) program, to face delays in the signing of power purchase agreements (PPAs) as project costs are expected to rise substantially.

The research house said in a note on Friday that a $0.01 price hike reflects an additional MYR 4 million ($1 million) cost increase for a 100MW project.

“That said, there is a fair chance that LSS5 and LSS5+ are expected to proceed without substantial adverse impact, as we understand that tender pricing had incorporated higher module cost assumptions of around $0.12-0.13/W,

“Further, a strong ringgit will partly cushion the impact of the 9 percent value added tax (VAT) rebate removal from China,” it added.

It is noted that the Ministry of Finance and the State Taxation Administration of China recently announced that VAT export tax rebates for photovoltaic (PV) products will be cancelled (from 9 percent), while rebates for battery products will also be reduced from 9 percent to 6 percent, effective April 1.

Additionally, the VAT tax export rebates for battery products will be completely abolished effective 1 January 27.

Besides, solar module prices are expected to trend higher to around $0.13/W by the second quarter, though persistent supply overcapacity and subdued domestic demand plaguing China’s solar industry may offer some relief from the momentum, according to the note.

A previous rebate cut in December 2024 (from 13 percent to 9 percent) did not reflect any sustained uplift in solar module prices, with excess capacity and aggressive tendering continuing to dominate pricing dynamics.

However, the current rebate removal (9 percent cut) strengthens suppliers’ incentives to reprice contracts and lift pricing, said the research house.

“Our channel checks indicate that engineering, procurement, construction and commissioning (EPCC) players have been proactive in managing solar module price volatility through strategic contract and tendering frameworks, as well as cost pass-through agreements,

“Most industry participants hold sufficient inventory for ongoing projects. This allows them to mitigate the impact of any price uplift without compressing margins, should module prices trade within a manageable range ($0.08-$0.12/W),” said UOBKayhian.

Meanwhile, beyond the 3 percent reduction in battery energy storage system (BESS) VAT export tax rebate, rising upstream material costs (lithium) serve as a catalyst for BESS suppliers to seek higher average selling prices (ASPs) in the market, according to the note.

However, UOBKayhian opined that intense competition across the BESS supply chain is likely to keep prices under pressure in the near term, with a gradual uplift likely only from the second half onwards.

Overall, the research house expects total solar PV capacity to exceed 6.5GW over 2026-27 as the government calls for tenders for the LSS6 and awards the inaugural Malaysia Battery Energy Storage System (MyBeST) program.

“Assuming a construction cost of MYR 2 million ($500,000) to MYR 3.5 million ($880,000) per MW, total EPCC replenishment opportunities are estimated at a staggering MYR 13 billion ($3.25 billion) to MYR 23 billion ($5.75 billion) in the next five years,” it said.

Meanwhile, it is noted that effective Jan 1, under the self-consumption (SELCO) scheme, only solar PV installations with capacities of exceeding 1MWac (previously 1MWp) will be required to install a mandatory BESS and will be subject to a monthly standby charge of MYR 12 ($3)/kWp.

The BESS is required to carry a minimum of one hour full-load output of the solar PV system.

UOBKayhian maintained a neutral view on this revision, as industry players continue to flag concerns regarding the high upfront cost of BESS coupled with the burdening monthly standby charges, which would still result in the payback period exceeding five years.

The research house also believes Energy Commission (EC) would initiate the tender exercise for the LSS6 program by the first quarter of 2026, with an estimated allocation of 2GW.

“Solar installations under the flagship program are likely to be coupled with a mandatory inclusion of BESS,

“Assuming a construction cost of MYR 3 million ($750,000) to MYR 3.5 million ($880,000) per MW (including BESS), total EPCC contract value is estimated at MYR 6 billion ($1.5 billion) to MYR 7 billion ($1.75 billion) for LSS6,” it added.

For the research house, the sector’s fourth quarter (2025) results will remain robust on the back of elevated orderbook and healthy margins.

However, beyond that, it foresees rising solar PV prices (11 cents/kwh versus 9 cents/kwh a year ago) and slower than-expected residential rooftop take up under the Solar Accelerated Transition Action Program (ATAP) program.

“In the longer run, positive regulatory outlook – under Malaysia’s National Energy Transition Roadmap (NeTR) – will continue to drive sector performance,” UOBKayhian said.

In the near term, the research house opined that the industry players’ top-line will be supported by healthy contracts for LSS5 and LSS5+ EPCC works.

“However, rising solar PV and battery prices will have an adverse impact on near term margins, despite growing profitability,” it said.

Analysts foresee Malaysia’s energy transition to sustain momentum moving into 2026