Wednesday 19 July 2017

Solar Project Finance in Malaysia

The Malaysian government has introduced various incentives and strategies (e.g., Feed in Tariff, Net Energy Metering and Large Scale solar projects) to encourage the growth of renewable energy. The initiative has been driven by the environmental concern of fossil fuels. China being the world largest carbon emitter has resorted to renewable energy in an effort to save the environment (http://www.reuters.com/article/us-china-solar-idUSKBN15J0G7).

Funding is key to implementing a solar project. Shareholders need to be able to decide which type of financing would maximise their return on investment. Choosing the right financing mix is the first step for a successful project.

Key types of financing instruments include: -

1. Debt Financing 
Bank loans offer a simple, inexpensive financing option of up to 80% of the solar asset. Loans for solar project are often easier to procure as it is backed by long term Renewable Power Purchase Agreement and a good-credit off taker (Tenaga Nasional Berhad). Nevertheless, lenders will still require a solid credit rating or a credit-worthy guarantor. In which case, bonds may be considered.

2. Equity Investment
If the shareholders have sufficient cash, then an all equity investment may be a good option.  A well designed solar facility in sunny climates generates enough savings to break even quickly.

3. Operating Lease
This is a flexible finance instrument that allows for the use of the solar asset, with no ownership rights.  Operating leases typically have shorter terms and may provide a fast track to system ownership while substantially reducing capital requirements. Operating lease is still new in Malaysia.

Tax incentives, inexpensive debt and prudent matching strategies help establish a robust and diverse solar project finance environment. 

We welcome the opportunity to help your organization think through solar opportunities and assist in securing project finance, financial modelling and financial advisory for your project. 

For more information, please visit http://www.mpcap.com.my/ or contact info@mpcap.com.my.


Photo source: pixabay.com

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