“While the national energy supply will continue to rely on baseload power generated from fossil fuels in the short to medium term, solar energy is set to play an increasingly important role in the national grid moving forward” – Ko Chuan Zhen, CEO, Co-founder and Executive Director, +SOLAR Systems Sdn Bhd.
How do you view the financing landscape in the Malaysian solar energy sector and what more can be done to facilitate access to finance?
When +SOLAR was launched in 2012, the broader solar industry was relatively new and so financing opportunities were minimal. At that time, the banking sector was not fully aware of the reliability or benefits of solar photovoltaic (PV) power and since investment was considered a risk, only the biggest international banks provided financing for solar PV projects. Much has changed since then and there are now large numbers of financiers that understand both the technological prowess and financial potential of solar technology and are willing to invest accordingly.
Market conditions play a crucial role in a solar project’s ability to secure funding. In markets where actors favour an investment-based business model, such as a feed-in tariff, it is more difficult to gain access to financing if companies operate as special purpose vehicles (SPV). This is because financial conditions stipulate that creditors can only hold claims against the SPV rather than the parent company, and the SPV shareholders are generally individuals who are less inclined to provide collateral for financing purposes than a parent company or private individual owner. Efforts to secure funding in this way can therefore become impeded. However, in Malaysia most of our clients favour solar PV projects under self-consumption or net energy metering mechanisms whereby financing can be secured on the basis of the parent company. Obtaining funding this way tends to be more straightforward because the larger parent companies are usually financially sound.
In terms of the broader energy landscape, the recent growth of financing opportunities in the solar sector is critical to national efforts to move towards a low-carbon future, and that is why +SOLAR places a strong emphasis on financing. For example, in addition to providing a range of solar PV services across commercial and industrial projects, we also provide advice and support on financing solutions. We have extensive experience of working closely with prestigious financial institutions including Maybank, CIMB and Malaysian Debt Ventures and we use this experience to bridge the gap that sometimes exists between financial institutions and our clients.
However, for the segment as a whole to reach the next level, a joint effort by authorities and the financial sector aimed at raising awareness around solar PV on the financial side is required to normalise understanding and facilitate access to financing. One key way in which this could be achieved is via the introduction of a newly standardised financial product specifically geared towards solar PV. Until this happens, financing will remain difficult for certain market players.
What are the main considerations when investing in solar energy in Malaysia? How does +SOLAR work with clients who have decided to invest?
The Feed-in Tariff (FiT) mechanism that was launched in 2011 has boosted understanding and awareness of solar PV projects. The challenge now relates to raising awareness about ongoing policy changes, including how to action national targets on renewable energy and energy efficiency.
There are generally two perspectives to solar project financing. The first involves financiers that are seeking a return on their investment and this need is met most obviously by the FiT mechanism. A decade ago, the market was unable to see the potential of solar and policy was not geared towards maximising revenue or raising awareness. However, since the introduction of the FiT and various tax incentives, investment in solar PV projects is growing.
The second perspective involves investors who view solar as an opportunity to save energy and optimise costs. Our experience shows that this perspective is more prevalent in Malaysia, although +SOLAR deploys a full range of services to cater to the needs of both perspectives. This includes working closely with industrial and commercial clients to ensure their personal needs are matched in our project proposals, and all existing and prospective clients are offered tailor-made solutions and early-stage savings projections. This approach reflects our holistic view of solar energy as an untapped resource that can be leveraged to improve revenue, operations, competitiveness and sustainability.
What are the main challenges facing solar farm developers in Malaysia and what can the government do to strengthen market players?
Since the solar energy ecosystem in Malaysia is so mature, it is relatively straightforward to develop a solar farm. Challenges remain, of course, and the first of these is for authorities to develop more Malaysian engineering, procurement and construction (EPC) companies to compete with the major international competitors operating in the local market. One solution is to identify local players to work in collaboration with the international EPCs to boost their experience and expertise. In turn, this requires new regulations and guidelines to ensure that the international EPCs actively support the growth of the local players, including +SOLAR.
A second challenge relates to project design. It is fundamental that projects are designed to cover a broad range of factors, from the identification of EPCs and lenders, to site location and an exit strategy. Since many projects miss out on financing due to unsatisfactory project design, further efforts are needed to boost in-house expertise to maximise the chances of success and increase the number of solar farms nationwide.
Another challenge for the solar ecosystem is to enhance education on the benefits of solar energy, from both the investment and energy efficiency perspectives, and in relation to performance guarantees and risk mitigation with regard to the solar technology deployed. The key is to convince investors that solar farms, and solar PV generally, are genuine investment opportunities rather than simply cost-cutting exercises.
Additional regulatory support is also required. In particular, subsidies on fuel should continue to undergo rationalisation to foster market sustainability. Similarly, while tax incentives such as the Green Investment Tax Allowance have worked well, more awareness of such incentives would increase their take up.
As equipment prices fall and energy storage technology improves, how will an increase in self-consumption affect Malaysia’s energy scenario in the future?
I am optimistic about the prospects of self-consumption and +SOLAR is keen to play a role in developing this area further. While the national energy supply will continue to rely on baseload power generated from fossil fuels in the short to medium term, solar energy is set to play an increasingly important role in the national grid moving forward.
It is not only solar prices that are dropping, but also storage technology costs. Accordingly, another key segment in the national energy ecosystem is electric vehicles (EVs). Clearly, EVs rely on storage technology, and the growth of EVs worldwide is one of the factors behind the drop in global storage prices. This correlation is critical and for storage prices to fall even further two things must happen: the EV market must grow more aggressively; and authorities must address outstanding issues related to tax and import duties.
With EV market growth set to continue, one possible future energy scenario might see energy consumption patterns becoming inverted and peak energy demand shifting from morning to evening due to large numbers of EVs being charged overnight. This would have enormous consequences on the energy sector in general, particularly pricing and physical infrastructure. Therefore, all possible scenarios must be considered by policymakers as the government forges ahead with its national EV agenda.
Does the founding of the +SOLAR Academy indicate a broader talent gap in the sustainable energy sector? And how important is sustainability to your company brand in general?
The +SOLAR Academy is an internal trainee scheme in which engineering students are afforded the opportunity to conduct practical work with the company. We develop the syllabus internally and since inception the Academy has received over 3,500 students. The primary motivation behind its founding was to bridge the gap between the fields of industry and academia, although there is a more general talent gap in the sustainable energy sector. Increasing numbers of engineers will certainly be required moving forward; therefore, we call on other solar market players to follow the example of the +SOLAR Academy.
The talent gap is multi-faceted as it spans not only graduate engineers but also more senior, skilled engineers. To address the latter issue, experienced engineers from other sectors must be retrained. The Academy already has experience in this area having reskilled a number of construction engineers by adapting our syllabus to suit their needs. This could be replicated for engineers from other sectors and so authorities may wish to leverage +SOLAR expertise in syllabus formation as part of their efforts to bridge the talent gap.
Regarding sustainability, +SOLAR sees it as a key component in client retention as well as in securing new customers, and so I would say it is a fundamental part of not only our company brand, but also our corporate culture. The +SOLAR Academy is just one example of our efforts to forge a more sustainable solar sector, manifested through talent development. More broadly, +SOLAR will continue to promote a sustainable and holistic approach to sector-wide and national development that facilitates close working relations between all stakeholders across the value chain.