Funding the Power and SCEL!

 

When a top banking official recently suggested that the central bank expand single customer limits of banks’ financing of the country’s energy transition, it highlighted a growing funding gap. As Malaysia’s solar projects increase in scale, it is increasingly difficult to get access to the domestic banking sector. This stems largely from the Single Counterparty Exposure Limit (SCEL), which caps how much banks can lend to a single borrower or related group. 

The country’s large-scale solar (LSS) projects, despite being awarded to several companies, all have one common off taker – Tenaga Nasional Bhd (TNB). Going by SCEL rules, banks cannot have more than 25% of eligible capital exposed to any single counterparty or connected counterparties. TNB and Petroliam Nasional Bhd or PETRONAS are exceptions, with an additional 10% allowance. 

While banks still have headroom, this buffer is narrowing as more large-scale renewable energy (RE) projects enter the pipeline. LSS6 tenders are expected to open soon and will include battery storage requirements. Adding to the challenge are weakening “project economics”. Newer projects are not only larger in scale but are also awarded at relatively low tariffs. This is further exacerbated by rising construction costs, driven by higher solar panel and fuel prices. The rise in diesel price, for example, is having a huge impact on the cost of earthworks, which is the early part of building out a solar farm. 

One obvious alternative to bank financing is the bond market. But bond issuances can be more costly and the issuer needs to get a rating, which means not all can make it, especially smaller newbies.

 

Malaysia is now in its fifth iteration of LSS development, with two tranches – LSS5 and the supplementary LSS5+ – awarded to build larger utility-scale solar plants, with projects typically around 100MW in size, with some projects larger. Taken together, LSS5 and LSS5+ represent roughly 4GW of awarded capacity, marking one of the largest utility-scale solar build-outs in Malaysia. 

Tariffs for LSS5 and LSS5+ projects are understood to range between 13.75 sen and 18 sen per kWh, compared with 17.68 sen to 24.81 sen per kWh under LSS4, reflecting continued downward pressure from competitive bidding. 

This, in turn, suggests that internal rates of return for LSS5 and LSS5+ projects could compress to 5% to 6%, compared with earlier expectations of 7% to 8% – levels which are still bankable but expected to keep domestic banks at the centre of financing, as they typically offer lower funding costs. Private equity, however, is generally considered less suitable for long-gestation infrastructure assets due to its shorter investment horizons. The Asean Catalytic Green Finance Facility (ACGF), led by the Asian Development Bank, as an example of blended finance structures that combine concessional, multilateral and private capital to improve project bankability and crowd in private investment. 

There is a gap and market accessibility to funds. As long as BNM holds firm to SCEL, there is need for third parties to provide Guarantees or Suppliers’ Credit. Without Danajamin, BPMB could step in but they too are constrained by SCEL. Technically, BPMB should be outside of SCEL since it is a development bank! If this is not feasible, then all development institutions should be exempted from this (SCEL) provision. 

Reference:

Funding the Power, Gurmeet Kaur, The Star, 2 May 2026