LSS6 moves to address structural gaps 

THE recently launched sixth large-scale solar (LSS6) programme is bigger and more complex, with battery energy storage systems now part of the programme. More importantly, some of its rules appear to address weaknesses that have emerged in earlier rounds.

One is the shorter shareholding moratorium. Allowing project owners to recycle capital earlier could make it easier for developers and investors to move money into new renewable energy (RE) projects. That matters in a sector where large amounts of equity can remain tied up for years.

The reduction in liquidated ascertained damages for late delivery is another welcome change.

Lower penalties reduce developers’ financial exposure when projects are delayed, while potentially easing some of the risks banks consider when financing projects.

There is also a requirement for having more local content.

Taken together, the changes suggest the regulator is looking beyond simply pushing tariffs lower. Competitive bidding has helped bring down the cost of solar, but a low tariff means little if a project cannot be financed and delivered.

For developers under LSS5 and LSS5+, however, projects will continue to be delivered under the rules of those earlier programmes. That makes the delivery of these projects worth watching.

Over the years, the programme has helped build a wider pool of RE developers and contractors with experience in delivering LSS projects. That experience will be valuable as LSS6 introduces the additional complexity of battery storage.

Prioritising bidders that use locally produced RE equipment under LSS6 could help create demand for Malaysian manufacturers and suppliers, while keeping more of the economic value generated by the programme within the country.

The focus, therefore, should not only be on how low the winning tariffs are.

Solar generation has reached grid parity with conventional generation. For LSS6, the market will be watching whether solar-plus-storage can achieve a similar balance.