Malaysia’s renewable energy sector is poised for a renewed growth cycle despite near-term weakness in solar pricing, supported by upcoming large-scale projects and evolving policy frameworks, according to analysts.

UOB Kay Hian said in a note on Tuesday that the sector is currently navigating a period of softening upstream and downstream solar pricing, driven by weak demand in China and elevated inventory levels.

Polysilicon prices have fallen sharply to near 2025 lows, reflecting subdued global demand conditions and cautious buying behavior.

It noted that solar module prices have also normalized, with current trading levels around $0.11–0.12 per watt, following earlier front-loading of demand and price spikes in late 2025.

“We believe the recent correction suggests that the short-lived rally was driven more by sentiment than a structural demand recovery,” UOB Kay Hian said.

However, the outlook beyond the current cycle remains constructive, underpinned by policy-driven demand in Malaysia.

The research house highlighted that Corporate Renewable Energy Supply Scheme (CRESS) projects and the upcoming Large Scale Solar 6 (LSS6) program are expected to be key catalysts for the sector’s recovery.

CRESS initiatives, which facilitate corporate access to renewable energy via third-party grid arrangements, are expected to gain traction particularly among data center operators.

Meanwhile, Large Scale Solar 6 (LSS6) — expected to be tendered by mid-2026 — is likely to further boost engineering, procurement, construction and commissioning (EPCC) orderbooks.

The Energy Commission is expected to allocate around 2GW under LSS6, with increasing emphasis on battery energy storage systems (BESS) and floating solar installations.

At the same time, Malaysia’s broader energy transition framework is evolving, with regulatory refinements underway to improve uptake of renewable schemes.

The revision of third-party access (TPA) policies, including adjustments to system access charges, is expected to improve project economics and accelerate adoption.

UOB Kay Hian also pointed to a temporary policy reprieve for carbon-intensive sectors.

The government has postponed the implementation of a carbon tax on industries such as steel, iron and energy, citing cost pressures linked to global commodity volatility and geopolitical tensions.

The move is expected to ease near-term operating costs for utilities and industrial players, although Malaysia continues to advance its long-term carbon market framework, said the research house.

The National Carbon Market Policy, launched in April 2026, and the upcoming Climate Change Bill are expected to lay the foundation for a structured emissions trading system, carbon registry and eventual carbon tax regime. Initial carbon pricing is projected at MYR 15 ($11.76) per ton of carbon dioxide equivalent, with gradual escalation expected over time.

UOB Kay Hian said carbon credit demand could gradually emerge as firms seek to offset emissions, although current credit prices remain above economically attractive levels.

Looking ahead, the research house maintained a positive outlook on the renewable energy sector, citing more than 6.5GW of planned solar capacity additions between 2026 and 2029. This is expected to generate MYR 13 billion ($10.19 billion) to MYR 23 billion ($18.03 billion) in engineering, procurement, construction, and commissioning (EPCC) opportunities.

It added that potential expansion in gas-fired power capacity under Malaysia’s decarbonization strategy could provide additional upside for industry players.

“We expect the sector to resume its growth trajectory as module prices normalize and large-scale renewable projects come through,” the report said.

Meanwhile, following the finalization of access charges, RHB Investment Bank also said in its recent note that it expects more CRESS project news flow this year, while the 2GW LSS6 tender could be called by the year-end.

According to the research house, Malaysia Battery Energy Storage System (MyBEST) is likely to be announced closer to the year-end.

On the carbon tax, RHB does not discount the implementation of a carbon tax next year.

It believes the government will likely introduce free carbon allowances to offset the tax liability, and the current regulatory framework should allow cost pass-throughs to end-users.

While the 4,000 MW of expected solar from LSS5 and LSS5+ will help stabilize the grid during peak daylight hours, Kenanga Research said in its recent note that it remains insufficient as a direct replacement for baseload thermal plants.

However, it noted the integration of BESS is a game-changer, as it helps to mitigate intermittency by shifting excess solar energy generated during the day to meet the evening net peak demand.

“This peak-shaving capability reduces the stress on aging thermal assets and is a mechanical necessity to push the country toward its 40 percent renewable energy capacity target by 2035,” it added.

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