Kenanga Research expects Malaysia’s utility-scale solar activity to gradually pick up in the second quarter, supported by moderating solar module prices.

Large-Scale Solar 5+ (LSS5+) engineering, procurement, construction, and commissioning (EPCC) rollout is expected to gradually improve, supported by recent moderation in solar module prices, which have softened to about $0.11-$0.12/W from a peak of about $0.13/W, the research house said in a note on Monday.

According to the report, this has been driven by easing raw material costs, including declines in polysilicon and wafer prices, as well as the normalization in silver prices.

It noted EPCC rollout has been slow to date, mainly due to delays in financial close as developers adopt a wait-and-see approach amid previously elevated panel prices following China’s 9 percent export value-added tax (VAT) removal, which had compressed project internal rate of returns (IRRs).

Based on channel checks, commercial operation date (COD) for LSS5+ projects is expected by end-Feb 2028.

According to the Energy Commission, 13 developers have been awarded LSS5+ quotas totaling 2GWac, implying an EPCC opportunity of about MYR 6 billion ($1.49 billion).

To date, only about 1.5 percent of EPCC value has been publicly announced, pointing to a slower pace of conversion.

“After adjusting for internal EPCC execution by asset owners, we estimate the remaining external addressable EPCC market at about MYR 2 to MYR 3 billion ($500 million to $740 million) over the next 12 months, which should continue to support sector earnings visibility through to 2028,” Kenanga said.

Meanwhile, following the successful rollout of LSS5 and LSS5+, the LSS6 program is set to be the next major catalyst for the renewable energy sector.

“With a target allocation of 2GW and mandatory Battery Energy Storage System (BESS) integration, we estimate the program will drive MYR 8 billion ($1.98 billion) in EPCC opportunities,

“This represents a 40 percent to 50 percent increase from solar-only installations, as batteries account for the majority of the additional component cost,” said the research house.

Based on its channel checks, LSS6 is likely to be rolled out in the second quarter, with awards expected in late 2026 or early 2027, in line with the historical six-month tender process.

“While competition is expected to intensify as more players enter to capture a share of the market, we believe existing leading players, particularly those with strong balance sheets, are better positioned to emerge as winners,” said Kenanga.

According to the research house, this is supported by two key factors – larger contract sizes and stronger financing profiles.

It is noted that the inclusion of BESS increases overall contract sizes, which in turn raises working capital requirements and performance bond commitments, potentially limiting participation from smaller players.

Besides, players with stronger financial positions are better placed to benefit from bulk procurement, allowing them to secure more competitive pricing, it added.

Kenanga also expects adoption of Corporate Renewable Energy Supply Scheme (CRESS) to gradually increase following the government’s revision of the system access charge (SAC) to 20 sen ($0.05)/kWh for firm supply (from 25 sen [$0.062]/kWh) in July 2025.

Based on public disclosures, total green electricity supply agreements (ESAs) signed under CRESS reached about 1.3GW, including Tenaga Nasional (TNB)’s 400MW agreement with Bridge Data Centers, UEM Lestra’s 360MW contract with ESR Group, and TNB’s 500MW deal with DayOne, all linked to data center developments in Johor.

“We expect further announcements to be driven primarily by large energy users under the ultra-high voltage (UHV) tariff category, particularly data centers, given the increase in electricity costs under the revised TNB tariff structure,” said Kenanga.

In this context, it noted CRESS is now relatively more attractive compared to the Green Electricity Tariff (GET), with contract tenures of 10 to 21 years offering better cost visibility and some protection against future tariff increases.

“Overall, we expect development to be gradual as most new projects remain at a preliminary stage,” said the research house.

Meanwhile, rooftop solar installers are likely to see earnings improve from the second quarter onwards, following the January 1 implementation of the Solar Accelerated Transition Action Program (Solar ATAP) program, which replaced the expired net energy metering (NEM) scheme.

However, Kenanga expects near-term demand to remain subdued, driven by three key factors: payback periods have lengthened, as Solar ATAP tariffs cover only the energy charge component, compared to NEM, which previously offset both capacity and energy charges; returns are lower, as tariffs are now based on the System Marginal Price (SMP), introducing variability versus the fixed offset mechanism under NEM; higher solar panel prices have increased upfront installation costs, further weighing on project economics.

“Despite these headwinds, solar remains one of the more effective renewable options to offset the recent tariff structure,

“We expect a gradual recovery from the second half, as the market gradually adjusts to the new framework,” it added.

The report also highlighted that effective January 1, BESS has become mandatory for such systems under Self-Consumption (SELCO).

“Following the Regulatory Period 4 (RP4) tariff adjustment, we expect stronger demand for solar among commercial and industrial (C&I） customers, particularly high energy-intensive users,” said Kenanga, adding that this is driven by two key factors higher peak demand charges and lower battery costs.

It is noted that for medium voltage (MV) customers, peak demand charges have increased significantly, rising by 162 percent. This makes BESS-enabled peak shaving increasingly attractive.

Besides, battery prices have declined to about $100/kWh (versus about $115/kWh a year ago), improving project IRRs and enhancing the economic viability of BESS integration.

“This is more favorable to high-energy users, especially MV customers, who face the steepest increase in peak demand charges and stand to benefit the most from demand reduction through BESS integration,” said Kenanga.

Data center boom drives Malaysia’s energy transition and RE demand – Hong Leong