LSS6 To Unlock RM13 Bln-RM15 Bln In Private Investments -- Kenanga IB

KUALA LUMPUR, July 17 (Bernama) -- The newly launched sixth cycle of the Large-Scale Solar programme (LSS6) is expected to unlock between RM13 billion and RM15 billion in private investments, as the tender quota has expanded to 2.65 gigawatts (GW) from the previous 2.0 GW.

In a research note, Kenanga Investment Bank Bhd (Kenanga IB) said this implies a blended investment intensity of RM4.9 million to RM5.7 million per megawatt (MW) of solar capacity, inclusive of battery energy storage systems (BESS). 

The bank said it is significantly higher than the conventional benchmark of RM3 million per MW for utility-scale solar developments, due to the additional costs associated with battery cells, power conversion systems, energy management systems and grid integration.

"Given this massive capital landscape, we expect LSS6 tariffs to remain highly competitive, supported by bulk procurement economies of scale," it said. 

Kenanga IB also said LSS6 is expected to drive higher absolute contract volumes rather than improve net profit margins for project developers and engineering, procurement, construction and commissioning (EPCC) contractors amid continued pricing pressure.

It said the inclusion of BESS will intensify upfront procurement requirements and project complexity, as LSS developments typically require contractors to fund equipment procurement and construction costs ahead of milestone payments. 

"Accordingly, EPCC contractors with stronger balance sheets and proven execution capabilities should be better positioned to secure these technically more demanding packages. 

"Assuming a six-month tender process, we expect meaningful LSS6 EPCC contract flows to emerge from the second quarter of 2027 onwards, with earnings contributions building progressively through 2028," it said. 

Beyond solar EPCC, Kenanga IB also sees strong opportunities for specialised electrical infrastructure contractors, as large solar-plus-storage projects will require sizeable grid interconnection facilities, substations and high-voltage engineering works.

"Although the projected contract values and investment intensity are increasing significantly under LSS6, we have decided not to adjust our sector valuation and corporate earnings forecasts at this juncture. 

"Consequently, we maintain our 'overweight' stance on the sector," it added. 

-- BERNAMA