18 opinion
@ green | March-April , 2021
Malaysia ’ s Large Scale Solar 4 :
Analysis of Results
This round ’ s criteria came as a surprise to many as participation was open only to locally-incorporated companies fully owned by Malaysians
LEGAL EAGLE
By Christopher Lee and
By Chor Jack
Malaysia ’ s fourth competitive bidding programme ( dubbed the LSS @ MEnTARI and generally referred to by the industry as “ LSS4 ”) for the development of large-scale solar (“ LSS ”) power plants was launched at the end of May 2020 . The bid closed on Sept 2 . The programme deviated from the past three rounds in that this was the first time that participation was limited only to Malaysians .
The previous three LSS rounds allowed foreign parties to hold up to 49 per cent of the equity interest . In contrast , this round ’ s criteria came as a surprise to many , as participation was open only to locally-incorporated companies 100 per cent owned by Malaysians and companies listed on the local stock exchange ( Bursa Malaysia ) with at least 75 per cent of their shares held by Malaysians .
There was speculation that this would result in a reduced number of bids . But bid opening prices released by the Energy Commission of Malaysia (“ EC ”) indicated otherwise .
There were 137 bids in total ( 138 , including an offer for a plant of 7MWa . c ., which was under the P1 Package ( 10MWa . c . – 29.99MWa . c .)). Forty-five of the bids submitted for plants with the proposed capacity of between 10MWa . c . to 29.999MWa . c .
Ninety-three of them submitted for plants with the proposed capacity of between 30MWa . c . - 50MWa . c .
There was some confusion during the LSS4 clarification period as to whether foreign participation would be allowed . The EC had indicated in some of the clarifications that foreign participation would be permitted as long as it is via “ non-convertible preference shares with debt characteristics and no voting rights are allowed ” (“ First Response ”).
However , closer to the bid closing date , the EC then clarified that “ any financial or debt instruments including but not limited to preference shares for LSS @ MEnTARI project can only be issued to and subscribed by Local Company or Malaysian individual ” (“ Second Response ”).
The confusion was further compounded by the fact that the First Response and Second Response were set out in a single response box , and there was no indication that the latter was intended to cancel out the First Response .
Eyebrows were also raised when the LSS4 results were not released by the end of 2020 . Results are traditionally announced at the end of the year . The bidding round is held to allow shortlisted bidders sufficient time to commence work to achieve financial close by the end of September of the following year ( being the EC prescribed deadline ).
With the results announced on Mar 12 , 2021 , an approximately three-month delay compared to the usual timeline , it remains to be seen whether the EC will extend the dates / period for shortlisted bidders to achieve financial close and the respective scheduled commercial operation dates .
Results of LSS4 , and a Recap of the Results of LSS2 and LSS3
The LSS4 bid opening prices and results show an aggressive decline in bid prices in line with international trends . Below is a recap of the bid prices for LSS2 and LSS3 and a breakdown of the bid prices for LSS4 .
LSS2 To recap , during the LSS2 bidding round in 2017 , the EC had suggested a reference price of RM0.41 / kWh based on its estimate of the prevailing market conditions and typical connection requirements . The offer prices , number of bids submitted , and shortlisted bids ( successful bids ) were as follows :
LSS3 Following that , the EC then reduced the reference price to RM0.3240 / kWh for the LSS3 bidding round ( which was for Peninsular Malaysia projects only ) in 2019 but removed the separation of capacity packages , i . e . there was only a single category and bids could be for plants from 1MWa . c . up to 100MWa . c .
Bidding was aggressive , and , ultimately , there were only five shortlisted bidders ( consortiums of entities ) amongst 112 bids , and amongst the five shortlisted bidders , four of them were consortiums with links to foreign players .
Many local players were understood to be disgruntled that only five bids were shortlisted . That would mean fewer jobs available to be parcelled out , mainly because most shortlisted bidders were foreign-linked consortiums .
For reference , we have categorised the bid prices received during LSS3 according to the LSS4 capacity packages as follows .
LSS4 The LSS4 ( also for Peninsular Malaysia projects only ), which was launched amid the Covid-19 pandemic to stimulate the recovery of the economy , was widely seen as a move to allow bidders ( particularly local bidders ) who were unsuccessful during LSS3 to repurpose their submission packages .
More particularly , foreign participation restriction was seen as a move to encourage local solar industry players ’ involvement and a protectionist action to address complaints raised by local players regarding the LSS3 results mentioned above .
It is to be noted that the EC did not set any reference price for LSS4 , and the segregation of capacities was reimplemented .
The LSS4 results issued by the EC on Mar 12 , 2021 , shortlisted 30 out of the 137 bids received and awarded projects of an aggregate of 823.06MWa . c . ( out of the 1,000MWa . c . offered in the RFP ).
Analysis of Results of LSS4
LSS4 – A Mix of Winners Among the shortlisted bidders of LSS4 were some familiar names in the solar industry such as Solarvest Holdings Berhad ( via Atlantic Blue Sdn . Bhd .), KPower Berhad ( via its consortium with Perbadanan Kemajuan Negeri Pahang ) and Tenaga Nasional Berhad ( via TNB Renewables Sdn . Bhd .), together with several listed companies who are new entrants to the power industry ( mainly solar ).
Some of them are listed in the table right .
At first glance , their involvement in LSS projects indicates that these listed companies are on the lookout to diversify their revenue streams . However , large scale solar projects are not known to give high returns , and project IRRs usually hover around the high single-digit range .
A closer look suggests that these companies are primarily involved in what is known as “ brown ” industries . Their involvement in the solar industry could portend a shift by adopting a more ESGconscious approach in their businesses or activities .
The fact that most of the shortlisted bidders under the P2 Package ( 30MWa . c . – 50MWa . c .) have listed companies as parent entities could also reflect that listed entities have a better chance at securing awards due to the strength of their balance sheets .
Quality of Bids / Bidders
A curious feature of this LSS4 is that the EC only shortlisted bids of up to an aggregate capacity of 823.06MWa . c . when it had initially called for bids to develop 1,000MW . a . c . of LSS plants .
The shortfall can be attributed to awards made under the P1 Package that