Tighter economics on Cress, but still viable

KUALA LUMPUR: The new System Access Charge (SAC) under the Acceleration Package of the Corporate Renewable Energy Supply Scheme (Cress) announced by the Energy and Water Transformation Ministry comes as a surprise to renewable energy developers (RED) and green consumers (GCs).

The introduction of the four sen per kWh in the system for GCs is the issue at hand.

A director of an RE developer pointed out that GCs are reluctant to accept the charge, as it can be increased every regulatory period (RP) by the authority.

"GCs do not want to face the possibility of the SAC being revised upwards every RP. They are asking REDs to bear this cost, and just charge them with a fixed tariff over a 10 or 20 year period," said the director with whom Business Times spoke to.

The director claimed that the Cress Acceleration Package might see low demand, due to the reluctance of the GCs to accept the SAC imposed on them. At the same time, the package is only for renewable energy plants that are completed before Dec 31, 2028.

Cypark Resources Bhd chief investment officer Belqaizi Taufik said that under the current Cress Acceleration Package, the economics are tighter than what the industry initially expected when 14 sen/kWh SAC was announced on Sept 18.

However, the commercial case remains and Cress can still be competitive for large energy users, particularly data centres, said Belqaizi in a written response to Business Times' questions.

This is because the combined SAC of 18 sen/kWh remains below the previous 20 sen/kWh structure, and the 14 sen/kWh charge is fixed for 10 years, giving cost certainty for the REDs and their clients.

"For Cypark, we remain positive. We are actively pursuing opportunities within the growing data centre ecosystem, including renewable energy supply and the supporting energy infrastructure required by these developments," said Belqaizi.

On Sept 18, Petra announced that the government has agreed to implement the acceleration package of Cress with a SAC of 14 sen/kWh for firm supply. In addition, a 10-year contractual period between the RED and GC will be enforced.

Following the announcement, share prices of REDs such as Solarvest Holdings Bhd, Samaiden Group Bhd, Northern Solar Holdings Bhd, Pekat Group Bhd and Cypark rallied as the market bet on them benefitting from the Cress acceleration package.

Share price of Solarvest surged 35 per cent within just about one week, from RM3.33 closing price on Sept 18 to a high of RM4.49 on Sept 29.

Pekat's share price ran from RM2.11 to RM2.98 – an increase of 41 per cent – during the period.

Northern Solar saw its share price surged 87 per cent during the period to RM1.29, while Samaiden rallied 63 per cent to close at RM3.18 on Sept 29, from RM1.95 on Sept 18.

Cypark saw a milder jump during the period, but was still up by 22.7 per cent to 54 sen on Sept 29.

However, the details of the acceleration package that was revealed by the EC in a briefing on Oct 13 where it introduced the four sen/kWh SAC on GC, brought uncertainty to the bankability of Cress.

As a result, investors' dumped REDs' shares. Pekat saw its share price plunge 13 per cent in two days between Oct 13 and 15, to close at RM2.53, while Samaiden saw a 9.8 per cent plunge in its share price during the period.

Solarvest and Northern Solar also declined during the two-day period, but at a milder quantum.

Cypark bucked the trend, with its share price jumped 34 per cent to 71 sen as of Oct 15, before plunging to 65 sen on Oct 20.

Can the commercial arrangement between the REDs and GCs be restructured around the 4 sen/kWh SAC?

For Cypark's Belqaizi, yes they can.

"For the GC, the key consideration is whether the total cost remains competitive against its alternative electricity supply. For the RED, the project still needs to provide an appropriate return and remain bankable.

"There may therefore be room to share or price that cost through the overall tariff, depending on the economics and structure of each project," he said.

Pekat CEO Tai Yee Chee also thinks that the Cress Acceleration Package is still bankable, as the effective SAC has come down 28 per cent, from 25 sen/kWh at inception to 18 sen.

The 14 sen/kWh developer component that is fixed for 10 years is what lenders need to underwrite project debt, he said.

"At an all-in cost of around 48 to 53 sen/kWh, Cress remains competitive against the mid-50s sen/kWh data centres currently paying Tenaga Nasional Bhd before the automatic fuel adjustment.

"The scheme is viable — what the market now needs is for the supplementary guidelines to land on time so negotiations can close," said Tai in a written response to Business Times' questions.

However, will RED be required to absorb all the SACs, including the variable portion that is imposed in GCs, in order to secure a Cress contract?

While the GC's desire for cost certainty is understandable – data centres make 20-year investment commitments – fixing the 4 sen/kWh SAC is a regulatory decision, not one that REDs can offer to absorb, said Tai.

"Grid costs evolve, and the regulator needs the ability to adjust for genuine changes," he said.

Tai added that a more practical outcome would be a transparent review mechanism with defined principles and caps on escalation, so that both GCs and REDs can plan with confidence even if the rate adjusts.

"The four sen is a small component of the total bill – even if it moves by one or two sen per RP, the impact is manageable relative to the savings Cress delivers against conventional tariffs," he said.

For Belqaizi of Cypark, there is merit in providing longer-term certainty on the SAC, particularly for data centres and other large energy users that are making long-term investment and renewable energy commitments.

"Having greater visibility over the SAC for a period that is better aligned with the tenure of these contracts would make it easier for GCs to commit, while also giving REDs and financiers greater certainty when assessing project economics and bankability," he said.

He added that greater long-term certainty would be positive for the overall Cress ecosystem, by helping accelerate contracting and investment, bringing more renewable energy capacity onto the grid and supporting Malaysia's ability to attract large investments that require green energy.

"The current framework is already a positive step in that direction. Any further measures that provide greater long-term cost visibility would, in our view, strengthen Cress and support its wider adoption," said Belqaizi.