Malaysia’s renewable energy (RE) sector remains on track to achieve its 32 percent installed capacity target in 2026, Hong Leong Investment Bank Research said Tuesday.
According to the research house, near-term solar engineering, procurement, construction, and commissioning (EPCC) activity is expected to strengthen in the second half of 2026.
Key structural drivers include stable photovoltaic (PV) module pricing, rising rooftop solar adoption, accelerating battery energy storage system (BESS) integration, and potential corporate renewable energy supply scheme (CRESS) refinements to improve bankability amid strong data canter-driven demand.
“We are upbeat on Malaysia’s RE sector, which remains on track to achieve its 32 percent installed RE capacity target this year, providing a solid foundation towards the National Energy Transition Roadmap’s (NETR) longer-term targets of 35 percent by 2030 and 70 percent by 2050,” said Hong Leong.
While EPCC contract awards have moderated in the first half as developers adopted a “wait-and-see” approach amid geopolitical uncertainties and fluctuations in upstream material prices, the research house believes market visibility has improved.
“As such, we expect project activity to pick up in the second half, supported by ongoing construction activities and upcoming project deliveries,” it said.
Looking ahead, it views the rapid expansion of Malaysia’s data center pipeline as a key structural demand driver for RE.
However, the relatively slow adoption of the CRESS – mainly due to elevated and uncertain System Access Charges (SAC) of 20 sen/kWh for firm power and 40 sen/kWh for non-firm power – continues to constrain the framework’s commercial attractiveness.
“We believe this strengthens the case for regulatory refinements, particularly on SAC recalibration, to improve CRESS’ bankability and accelerate its adoption，
”As such, we expect greater regulatory focus in 2H26, with potential SAC rationalization serving as a key re-rating
catalyst for the sector,” it said.
It is noted that in April, China completely eliminated its 9 percent export value-added tax (VAT) rebate for PV products, which exerted upward pressure on procurement costs and contributed to an 8 percent to 9.6 percent year to date increase in PV module prices.
While this introduces near-term cost pressures, Hong Leong believes structural oversupply remains the dominant force shaping long-term module price trends.
Notably, Chinese solar installations have continued to decline following policy changes from guaranteed feed-in tariffs (FiT) to a market-based pricing system, alongside increasing grid curtailment arising from aggressive capacity additions.
“Given that China accounts for about 58 percent of global solar installations in 2025, any moderation in China’s demand carries significant implications for the global solar supply chain,
“Against this backdrop, we expect global solar module prices to remain anchored between $0.11-$0.12/watt in the near term,” said Hong Leong.
While stable module prices should provide greater cost visibility for solar developers and EPCC players, Hong Leong believes the next phase of growth will increasingly be driven by BESS.
According to the research house, the structural shift toward grid-scale storage began accelerating in 2025 when the Energy Commission (EC) awarded 400MW/1,600MWh of capacity under the MyBeST program, alongside Sabah Electricity’s 100MW/400MWh facility in Lahad Datu.
“Moving forward, all major RE projects (e.g. LSS6 & CRESS) are expected to explicitly require storage capabilities,
With the majority of utility-scale batteries sourced from Chinese original equipment manufacturer (OEMs), it said the impending removal of China’s export VAT rebates for battery products on January 1, 2027 could place upward pressure on procurement costs.
“Given the scale of these upcoming BESS mandates, we expect domestic RE developers to aggressively front-load their battery procurement in the second half before equipment costs inflate,” it said.
According to the research house, rooftop solar adoption is also gathering momentum.
“We expect stronger adoption of rooftop solar across both the commercial and industrial (C&I) and residential segments in the next six months, supported by the introduction of the SuRIA Home rebate program and potentially higher AFA surcharges amid elevated fuel prices,” it said.
While the initial response to the Solar Accelerated Transition Action Program (Solar ATAP) framework was relatively muted – largely due to consumer uncertainty surrounding the new compensation mechanism versus the previous NEM’s 1:1 offset structure, as well as the absence of application deadlines or capacity quotas, Hong Leong believes market momentum is beginning to improve.
Based on its channel checks, Solar ATAP applications have surpassed 10,000 registration as of May, indicating growing market acceptance.
“While this trend is supportive of overall industry activity, we expect its earnings contribution to the companies under our coverage to remain relatively modest, given that their primary exposure is on utility scale EPCC projects,” it said.