The thirst for RE opens up new opportunities for selected MY-based planters with suitable land. Those willing to venture into LSS may be well rewarded. Maybank said by estimates, LSS allows planters to potentially generate up to 54x more operating profits (per hectare) compared to oil palm. The house count SDPL, KLK, IOI, GENP, THP and UPL as potential beneficiaries given their estate locations.
So far, only SDPL has made public its RE ambition with a 1GW capacity target.
Rental for solar farms is 2x-3x better than oil palm… In FY23, we estimate that the average oil palm operating profits per mature hectare was MYR5,027 while it averaged MYR4,444 in the past 10 years. Some planters have been leasing their lands to RE players of LSS farms at rentals 2x-3x the average returns of oil palm on a per mature hectare basis. Such moves helped planters gain immediate rental returns as opposed to the typical 7-year gestation period for oil palm to generate
maiden profits after replanting. The leasing of less productive land or those due for replanting, therefore, makes financial sense as it also helps to defer the huge capex otherwise required for replanting (i.e. MYR20,000- 30,000/ha over 3 years).
… but being a RE producer may return up to 54x more
Having said the above, the lease rentals of LSS are unlikely to move the needle for planters. The bigger return is in being a LSS (i.e RE) producer. According to recent guidance by SDPL who is keen to venture into RE with a 1GW capacity target in 5 years, every MW of solar capacity will cost MYR2.5m and requires between 1.5ha to 1.7ha of land use. SDPL expects
8%-13% return from this RE project. Based on a back-of-the-envelope calculation, 1GW capacity may bring in recurring income of MYR134mMYR266m pa, using just 1,500-1,700 ha of land. This translates into 24x-54x higher return compared to the sector’s average oil palm operating profit of MYR4,444/ha achieved for the past 10 years. Viewed differently, each MW of investment may bring in MYR0.134m-0.266m of net profit.
Planters with strategic land have natural advantage
By estimate, LSS is unlikely to replace oil palm planted area in a big way. According to SEDA Malaysia’s projection under its Malaysia Renewable Energy Roadmap (MyRER), the share of RE will rise to 40% of 18.0GW in 2035, of which solar will account for 7.28GW (Fig 7). Even if we were to assume all the 7.28GW projection were to be met with ground-mounted
solar, the maximum land requirement would be 10,920 ha – 12,376 ha, just a fraction (i.e. 0.2%) of MY’s total oil palm planted area. But not all agricultural land may be suited for LSS. Besides flat-to-gently undulating land requirement, LSS farms are preferably located near the national grid and its interconnection points. Therefore, only selected planters with the right estate location may benefit from this solar potential should they choose to capitalize on this opportunity.
Rather than leasing to other RE players, it makes financial sense for planters to be RE producers themselves and maximize their land values, while allowing their land to further accrete in value when the RE concession ends after 20 years or so.
Proximity to national grid an added advantage
Besides flat-to-gently undulating land requirement, an LSS farm is best located near the national grid (see Fig 3) and its interconnection point. Therefore, only selected planters with the right estate location may benefit from this solar potential should they choose to capitalize on this opportunity. Maybank IB counts SDPL, KLK, IOI, GENP, THP and UPL as potential beneficiaries given their estate locations which are potentially near the national grid, providing them with an added advantage. Among them, only SDPL has made public its RE ambition with a 1GW capacity target.
Besides LSS5, the market is also anticipating details on the much-awaited third-party access to the national electricity grid as well as how RE producers can export their energy, especially to Singapore.
