LSS4 awards — boon or bane to winners?
KUALA LUMPUR (March 20): The announcement of winners of the fourth cycle of the Large Scale Solar (LSS4) programme has long been awaited by the bidders. After almost four months, the government through the Energy Commission (EC) finally announced the shortlisted bidders on March 12.
However, the tariffs of the winning bidders appear to be quite low, especially as project prices of solar plants have been increasing since July last year, leading to scepticism from the market over whether the winners will be able to benefit from the projects.
To recap, the EC awarded an 823.06MW quota to 30 players for LSS4 on March 12. Twenty parties secured 323.06MW under Package P1, with plant capacities ranging from 10MW to under 30MW, in a tariff range of 18.5 sen per kWh to 24.81 sen per kWh.
Another 10 parties secured the remaining 500MW under Package P2 in a tariff range of 17.68 sen per kWh to 19.7 sen per kWh. All the shortlisted bidders have been offered a 21-year power purchase agreement (PPA) with Tenaga Nasional Bhd (TNB), with the plants expected to commence operation by 2022 and 2023.
A disrupted global supply chain due to the Covid-19 pandemic as well as rising demand for solar panels and plants around the world contributed to an increase in project cost by almost 45% between July 2020 and February 2021.
Based on KPower Bhd’s LSS4 numbers, the group is budgeting a RM160.25 million project cost for a 50MWac plant in Pekan, Pahang, on a 180-acre (72.84ha) land owned by Perbadanan Kemajuan Negeri Pahang (PKNP).
A special purpose vehicle (SPV) is formed by KPower and PKNP, with the renewable energy (RE) engineering, procurement, construction and commission (EPCC) player holding a 95% stake. The SPV will also be paying a lease of RM200 per acre per month to PKNP.
According to KPower, the LSS4 project would have an internal rate of return (IRR) of 7.5% and an average profit after tax (PAT) of RM5.2 million. The tariff that the SPV bid for and secured is 17.91 sen per kWh.
With project prices of solar plants still rather high, it is unclear whether the bidders would be able to profit from the project. However, one thing is clear — the market does not seem to be excited about prospects for the LSS4 winners.
This can be seen from the share price performance of the shortlisted bidders between March 12 and yesterday.
Will LSS4 be a boon or a bane to the winners? By hook or by crook, the projects will have to be completed by 2022 and 2023 as there would be liquidated, and ascertained damages imposed if they do not complete the projects on time.