KUCHING: Interest in renewable energy projects has been gaining momentum in Malaysia, fuelled by the push for environmental awareness and sustainable and responsible investing, technological advancements, and a stable local regulatory framework.
This comes as RAM Ratings yesterday published a rating methodology on renewable energy projects as a thought leadership initiative to bring further clarity on the topic to the Malaysian bond and sukuk markets.
“Large economies in the international scene have sizeable renewable energy in their installed capacity mix, such as Germany (51 per cent), China (33 per cent), the United Kingdom (29 per cent) and the United States (16 per cent) in 2015,” detailled the group in a statement.
“In Malaysia, the sector has been dominated by large-scale hydro power plants; the installed capacity of renewable energy stood at 6,083MW in 2015, constituting 23 per cent of the national capacity mix. Excluding the large hydro power plants, renewable projects projects – solar photovoltaic, biomass (including waste to energy) and small hydro power plants – only comprised two per cent of the portfolio mix.”
Although the sector is still at a nascent stage in Malaysia, RAM noted that the government has been encouraging the use of renewable energy through the Sustainable Energy Development Authority of Malaysia, which provides strong regulatory support to this sector.
“Price certainty via the implementation of the feed-in tariff mechanism as well as demand assurance through long-term RE power purchase agreements with national utility giant Tenaga Nasional Berhad help ensure the economic viability of RE investments,” highlighted Chong Van Nee, RAM’s Co-Head of Infrastructure and Utilities Ratings.
“As such, we expect RE producers to experience encouraging growth and access the bond market, as has been observed globally,” added Chong.
RAM’s methodology outlines its analytical framework on rating debt securities issued by RE producers, with a focus on the risks faced by solar photovoltaic, biomass (including waste to energy), and hydro power plants in Malaysia.
Similar to conventional thermal-powered projects, renewable energy projects would be rated based on the project-finance methodology, so long as they are limited-purpose entities, with typical risk elements ring-fenced via contracts with key counterparties and debt-protection covenants stipulated in financing documents.
“Specifically for renewable energy projects, resource-supply risk is the most pronounced post-completion risk,” it added.
“Meanwhile, solar and hydro resources face intermittency risk as inadequate resources would affect output. On the other hand, biomass power plants need a secure and consistent supply of feedstock that meets specific calorific-value requirements to ensure optimal plant efficiency and production.
“Generally, pre-completion risk is the highest for large-scale hydro power plants involving the construction of dams. This is because it involves land acquisition and settlement relocation, albeit moderated by relatively lower operational risk compared to thermal-power plants.”