This article first appeared in The Edge Malaysia Weekly on October 21, 2024 - October 27, 2024

THE fifth round of the large-scale solar programme, of which the winners will be announced as early as November, received the lowest bidding prices ever under the competitive bidding programme that was first started in 2016, sources say. The tender for LSS5 opened in April this year and closed in July.

This may not be surprising as the bidding prices for each iteration of the LSS programme have been trending downwards over the years.

For the first LSS, the lowest bid submitted in 2016 was 39 sen per kWh; for LSS2, in 2017, the lowest bid was 34 sen per kWh; and for LSS3, which was in 2019, it was 17 sen per kwH. For LSS4, the Energy Commission’s (EC) annual report stated that the lowest bid was 13.99 sen per kWh.

But, given what happened with LSS4, news that LSS5 has received even lower bids may raise some eyebrows.

When the winners for LSS4 were announced in March 2021 — with the lowest winning bid being 17.68 sen per kWh — some industry observers had estimated that solar panel prices could drop further, to as low as 12 US cents (51.65 sen) per watt from around 20 US cents per watt during the bidding period. Some players put their bids in for LSS4 in anticipation of a further decline in solar panel prices, says the CEO of a solar developer.

However, what happened was an unexpected surge in panel prices due to supply chain issues post-Covid, which led to some solar developers being unable to complete their projects within the stipulated time.

This led to the 30 winning bidders seeking extra time to complete their LSS4 projects, which the government granted by pushing the commercial operation date for all LSS4 plants to Dec 31, 2023 — the original COD varies from mid-2023 to end-2023. The solar players were also given a four-year extension to their 21-year power purchase agreements with Tenaga Nasional Bhd, the off-taker.

Now, the price of solar panels has dropped again. “Solar panel prices have gone down to eight US cents per watt, so if you work it backwards, LSS5’s bids would definitely be lower than LSS4’s bids,” a person with knowledge of the matter tells The Edge.

It is understood that the lowest bids this round could be between 13 sen per kWh and 16 sen per kWh.

“Over the last 10 years, the cost of solar panels has been on a declining trend. But, in 2022, the price of solar panels rebounded due to supply chain issues and increasing demand, especially from China,” Samaiden Group Bhd group managing director Datuk Chow Pui Hee tells The Edge.

That rebound has now been reversed due to oversupply and slower demand, especially from the US and Europe, she says.

“If the government announces the [winners of the] LSS5 projects soon, it will be a boon for the industry as players can take advantage of the low solar panel price and a stronger ringgit against the US dollar. In the last LSS round, the winners were announced six months after the bidding process. There was a gap that saw the surge in demand for solar panels, which pushed up prices during that time,” Chow explains.

The surge in panel prices at that time affected financial modeling of solar projects, making it difficult for companies to get a financial close from the banks.

“Players must be careful in handling price fluctuations that could impact cost projection in a big way. A two-US-cent increase from current levels results in a 20% price increase [in their costs],” warns Malaysian Photovoltaic Industry Association (MPIA) president Davis Chong.

Having said that, Chong reckons that the industry has learnt its lesson under LSS4, which experienced the sudden spike in solar panel prices.

“In the past, when prices shot up, some manufacturers would forgo locked-in contracts to capture the upside. The normal practice today is to keep the price dynamic (which means follow the market price). Now, prices are very transparent and everybody knows the market price. It is quite fair,” he says.

Projects awarded under LSS are based on the capacity they have to deliver, measured in megawatts. Checks with the EC show that only 1,822mw out of the 2,445mw awarded so far under the LSS programme since 2016 are currently up and running.

LSS5, also known as LSS-Energy Transition SuRiA, has the largest allocation to date with 2gw or 2,000mw up for grabs. There are four packages under LSS5. The biggest is Package 3 — which carries 1,000mw and parties can propose to build anywhere from a 30mw plant up to a 500mw one.

LSS5 comes more than three years after the last LSS projects were announced. The solar power plants to be developed under LSS5 are scheduled to be operational in 2026, according to the EC.

Announcement of the LSS5 winners is also coming slightly earlier, as it was expected to only be released by January. This is due to increasing demand for renewable energy (RE) in Malaysia. “Foreign investors want to know how RE is procured in the country, which is also why the government has introduced the CRESS (Corporate Renewable Energy Supply Scheme) programme, which is to increase the supply of RE,” says the solar developer CEO.

According to MPIA’s Chong, solar panels are now at their cheapest ever, which he expects will be sustained through 2025.

“The main factor [behind this price drop] is global oversupply. Annual global consumption is at 500gw to 600gw, as opposed to global annual manufacturing capacity of up to 1,400gw, resulting in a huge supply-demand gap.

“The second reason is competition between different solar panel technologies for market share. The third reason is a weakened economy and weakened demand in China, which resulted in price competition among manufacturers,” he says.

Solar panel prices are now around eight US cents to 10 US cents per watt, lower compared with 12 US cents per watt at its previous pre-Covid low.

The drop in solar panel prices has also been attributed to Chinese manufacturers throwing prices as they cease operations due to oversupply. “They are selling lower than market prices to clear their stocks,” says the solar developer CEO.

In 2023, the average cost of producing electricity from large solar power plants around the world dropped to about 4.4 US cents per kWH, according to the International Renewable Energy Agency. That is down about 90% from 46 US cents per kWh in 2010.

It is anybody’s guess whether the solar panel prices will stay at their record low or trend higher, amid the consolidation of solar panel manufacturers. Hopefully, LSS5 winners will not get caught by unexpected surging panel prices, like the LSS4 winners. 

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