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Malaysia’s solar sector is being tested like never before. Data centres are driving unprecedented power demand, electricity tariffs are rising and the grid is under pressure to modernise. Datuk Davis Chong built Solarvest into one of Malaysia’s leading listed solar companies. He joins Cynthia Ng to discuss strategy, margins and what it actually takes to power Malaysia’s energy transition.
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00:10Hello, you are watching Awani Review. My name is Cynthia Ng.
00:13Malaysia has set an ambitious target, 70% renewable energy capacity by 2050.
00:20Now, right at the center of that transition is solar power.
00:24One company that has been at the center of it as well right from the beginning is SolarVest.
00:32SolarVest started as a tiny startup back in 2012 and now they are listed on Bursa's main market operating in
00:408 different countries.
00:41And they have just recently wrapped up a record-breaking financial year with a project pipeline worth almost 2.5
00:48billion ringgit.
00:49And it is a pleasure to have the co-founder and group CEO of SolarVest joining me today in the
00:54studio, Dr. Davies Chung.
00:56Thank you so much for coming for this interview Awani Review.
00:59Thank you, Cynthia.
01:01All right, Dr. Davies, I think before we get into the nitty-gritty of the business,
01:05I want to go back to 2012 when you first started the company with your co-founders.
01:10Back then, 2012, Solar was barely a conversation in Malaysia.
01:14So let's start with that.
01:16What exactly did you see in the market 14, 15 years ago that others weren't seeing at that time?
01:22I think we heard about SEDA introducing FIT scheme at that time.
01:26And we kind of interested like how green energy will transform our country, our economy and our living as well.
01:33So our partner, Lim and Edmund and me, we are exploring to attend the conferences from SEDA.
01:41And that time, maybe we forgot already, SEDA do all the free conferences in hotel to introduce all this solar
01:48energy, renewable energy, FIT scheme,
01:50including all the technology players, all the policy makers, agency to educate the public on solar energy benefit to the
01:59country.
01:59So at that time, I understand you were in engineering, logistics with multinationals.
02:04What did you see in the industry that you decided that to do, go at it?
02:09I think I need to give credit to our MD, my partner, Lim, that he was in the M&E
02:15sector, in mechanical and electrical.
02:18He see the opportunity that solar energy is one of the businesses going to grow in Malaysia.
02:24So we attended the conference and after that, I think he started this with Edmund, Mr. Edmund first.
02:32And then, yeah, it works.
02:35We actually started small with residences, solar introductions to friends and family.
02:40Then he started to really build up the project, order book to like 80 to 90 houses.
02:46And he proven that this is going to be a business.
02:48Then at that time, only I joined into the team.
02:50Alright, okay, so fast forward to today, you just released your full year, 2016 financial results, record 757 million ringgit
02:58in revenue.
02:59Those are massive numbers on balance sheet.
03:02But to the average Malaysian, who doesn't track the energy sector, just how big solar vest is really in the
03:09Malaysian energy mix?
03:10How many businesses or houses? Tell us the numbers that you serve.
03:15We have served over 1,000 industrial, commercial, of course, or residential, how we started as well.
03:24So we serve across 30, 40 different industries as well.
03:28Especially now we're talking about data center and also semiconductor players that they have really aggressively need to decarbonize their
03:36industry as well.
03:37And we talk about RE100 company, that they have higher standard of saturnity framework.
03:43Okay, now let's talk about that, about the massive data center boom happening in Malaysia.
03:48We know that all these tech giants, they have RE100 targets, they want to run on clean energy.
03:55Is Malaysia capturing that opportunity fast enough?
03:59And where does solar vest fit in this equation?
04:02I think in the age of development of data center and AI now, we also observe the increasing energy demand
04:11and energy forecast due to data center demand at approximately up to 7 gigawatt of data center in the next
04:21few years.
04:21That will increase energy demand and clean energy demand in Malaysia as well.
04:26And to that, I think with the ministry and also energy commissions that they are rolling out CRESS program to
04:35data center, mainly I think to capture the data center demand that you can connect any solar farm capacity along
04:43the grid, transmission grid in Malaysia,
04:46then to provide clean energy access to all these data center needs for the clean energy transitions.
04:51And that will give opportunity to all these data center to get clean energy supply from all the IPP like
05:00us and also from the TNB grid as well.
05:03All right. And realistically, how real is that commitment? Is there actually enough clean power?
05:08Is Malaysia able to meet the demands of these data centers at this point?
05:14With the netter policy, with the LSS, with the CRESS program that we have, with the immediate demand of near
05:232-3 years, we have no problem to supply it with the current infrastructure of TNB transmission grid.
05:29But of course, there are more infrastructure upgrades needed and more independent storage and also solar plus BSS utility scale
05:40solar farm to add into the grid to stabilize the grid.
05:44And we expect more new substations, more PMU to be added into new area to have more clean energy penetration
05:53as well.
05:54Okay. We'll go to battery storage later because I know you are quite vocal in pushing that.
05:58But I do want to talk about what's really driving demand for solar, right?
06:02You know, for business owners watching this, I think their biggest headache right now is unpredictability of electricity cost, right?
06:10TNB, of course, just overhauled how it builds Malaysians, whereby the charges can shift every single month depending on the
06:17fuel prices, for instance.
06:18And now we're seeing what's happening in the Middle East.
06:20Do you see there is more demand for solar installations because of the trends that we're seeing?
06:29I think for sure we will see this energy demand to increase.
06:34And initially, before even the energy crisis from Middle East issue, that we already see that the electricity price in
06:44Malaysia is actually relatively low in Southeast Asia.
06:46That with the subsidies from the government, that's why we have this kind of luxury.
06:51And with the RP4 transformations, the main objective of RP4 is actually to liberalize and to let the energy price
07:03to fluctuate with the global commodity pricing.
07:07So that should work accordingly, which is more healthy for the energy market as well.
07:12And with that RP4, we still see the industrial energy pricing actually is at low level.
07:19And after that, the energy crisis from Middle East.
07:22Have you seen an uptick in demand?
07:24Yeah, it's actually, we expect the second half electricity tariff will be going up.
07:30And it's actually AFA already increased about 3 cents from the last revisions.
07:36While industry demand of clean energy transition is also keep on increasing.
07:44One of the indicators is always from the retail residential homeowner as well.
07:51It's already keep on increasing already.
07:52And recently, I think Malaysia is just rolling out another 3,000 subsidies to the homeowners.
07:58That actually immediately speed up the homeowners on the energy transition as well to install solar on their rooftop.
08:04That sounds fantastic for your business.
08:06Are you feeling positive about the next year?
08:09Yeah, but homeowners on residential solar play a very little composition in our total revenue contribution, maybe less than 10%.
08:18Okay, all right.
08:18So let's talk about the composition, right?
08:20Solar of us started out building for others.
08:24But you now also own your solar farms, you offer financing, and you run them long-term recurring income and
08:30yields, right?
08:30So let's talk about that business spread.
08:34How much of that is still about building the EPCCs for others?
08:39And how much is that business on owning it and also the recurring incomes that you're generating from your programs?
08:48In terms of total revenue spread, we still 90%, to be exact, it's 89% from EPCC revenue.
08:57Then 11% is actually from recurring income from O&M contracts and also the energy plant that we have
09:05invested.
09:06But to the EBITDA compositions, we are actually 70% EPCC and 30% recurring income.
09:15Okay, and we look at EPCC, we are looking at margins are being compressed a bit more.
09:19I think the last financial report, you're running at 10% to 15%, I believe.
09:25How is that impacting business?
09:27Because you just mentioned that almost 90% of your business spread is still largely EPCC.
09:33I think supply chain credit risk is still an important part for the EPCC to manage it.
09:43Because last year, we do see the commodity pricing to increase.
09:49I think copper increased 40%, silver increased about 170%.
09:55And that will impact actually the solar panel pricing and supply chain as well.
09:59And plus, in last year or until early of the year, China government take away the waiver of the VAT
10:07as well.
10:08And that actually impact the solar panel pricing in early of the year.
10:15But to current, mid of the year, we see it's already stabilized the panel pricing.
10:21But this kind of fluctuation, it will actually continue to impact the margin of the EPCC.
10:30And for us, because we have the volume, we have the scalability to manage our supply chain pricing.
10:37And of course, we also have pipelines that negotiate with the suppliers.
10:41So, we are still able to manage it between 10% to 15% on yearly average gross profit return
10:52for EPCC margin.
10:54Okay. What about your other part of your business?
10:55Do you think that there's something that you would like to focus on more,
10:59given the volatility in the other part of business, EPCC?
11:02Yeah. We're still very focused on EPCC.
11:05Of course, we are also a developer.
11:07But through that strategy to actually manage solar industry business,
11:16we're not focusing on EPCC.
11:17We're focusing on developer EPCC for integrated solutions.
11:21So, we're going to bring in different technology, battery storage technology,
11:26energy platform integration, the EMS and PCS of the battery player
11:33to integrate, to synergy the technology of clean energy,
11:40how it benefits to the industrial energy transitions.
11:45So, that is how we provide higher value to the industrial player,
11:50including data center as well.
11:52Not only provide plain vanilla solar solutions.
11:56All right. Okay.
11:57So, you're trying to capture the ecosystem from A to Z.
12:01Yeah. Because the strategy, the visionary of the strategy is equally important
12:07of the managing the delivery now.
12:11Because you're going to go to the right directions of the industry strategy.
12:18Then, you can provide equal, correct approach to manage the business as well.
12:24Okay.
12:25I want to take a step back and look at the growth of solar industry in Malaysia.
12:29If you look in Malaysia, I think maybe for the rest of the world as well, right?
12:33It's largely driven by government policies.
12:36You mentioned Oceda in the beginning and how they essentially got the industry started to begin with.
12:45So, in Malaysia, we have the large-scale solar, the LSS.
12:49You know, you have the corporate green power, the scheme, the CGPP, NEM, and now solar, ATTAP, and so on.
12:56That's great when government is spending.
12:58But the dependency on government policies also cuts both ways, right?
13:02That is that risk of if a government project slows down, that also inevitably slows down the industry.
13:09How are you mitigating that?
13:11First of all, I think we need to recognize energy or infrastructure business is policy-driven.
13:17So, we'll never run away from policy-driven, policy-making risk that we are having in this industry.
13:25But, and also due to that, and I always give credit to our government in the past five to ten
13:31years on clean energy policy.
13:34We have great clean energy policy along the way, despite a different government and different ministry.
13:40We always make good progress from the last, I would say, since the born of Solar West of 14 years.
13:46And we have LSS, we have NEM, we have CGPP, we have CRESS, and we have ATTAP now.
13:54And we are the most progressive in clean energy policy-making in Southeast Asia right now.
14:01And I would even say globally, we are quite progressive in the last 14 years.
14:07So, by that, we are adding from last time, you know, maybe each year is about 500 megawatt,
14:13to each year about adding total capacity of 2 gigawatt to 4 gigawatt a year to the energy transition.
14:21So, that's very impressive to get a whole global market.
14:25Okay.
14:26So, besides Malaysia, I also want to talk a bit about your footprint in other countries.
14:30So, you are in total eight countries.
14:33How much does overseas business actually contribute to your business right now?
14:37Are there specific markets that you are excited about?
14:40Or are you still focused on Malaysia?
14:44Well, I need to admit that we are primarily focused in Malaysia currently.
14:48Malaysia is really booming in the policy and also capacity that we are adding.
14:54Also, one of the reasons also we are having good focus, great focus on data center development as well.
15:01And to that, we are still very focused in Malaysia.
15:04But we also still keep an eye on Philippines, Indonesia, and also Vietnam market in the energy transitions.
15:13Vietnam, they have a DPPA program.
15:15Yeah, the direct power purchase.
15:17It's equivalent to CRES program, third-party access as well, or VPPA program.
15:21And Philippines has always had energy issues because due to how naturally the country is formed.
15:32And they have a lot of off-grid and micro-grid projects that they need electrification in the country.
15:39Indonesia is a 300 million population.
15:44They always have energy needs.
15:47And one of the reasons we are also waiting for the government to push out a strong policy on energy
15:53transitions.
15:54I understand that your focus is largely still in Malaysia.
15:57But when you go into this sort of different markets, right,
15:59what kind of challenges or rather cultural differences that you had to adapt before entering a new country?
16:10Policy understanding is very important.
16:12And also, you need a good local partner to manage.
16:17Because if talking about utilities or farm development,
16:22largely the differentiation is on the land development.
16:25What kind of resources that you're able to get in that country.
16:29And that value will very largely depends on how familiar is a local partner
16:34with our authority and also land development authorities.
16:37Okay, so I just want to pick Vietnam for a bit because you mentioned the DPPA, right?
16:42You launched PowerVest, your financing arm, I think was just, I think last year, was it?
16:46Are you betting on Vietnam to be a breakup market for you?
16:49What is the situation there?
16:51We did try to penetrate into the Vietnam market for, I think, small PPA to invest into those PPA with
16:59PowerVest.
16:59But I think the policy changes in Vietnam that really slow us down on the foreign investment into the country.
17:06So we still mainly will be focusing in Malaysia for all this corporate and rooftop PPA on PowerVest.
17:12Alright, okay.
17:13So going back to what you have pointed out earlier, which is the battery energy storage system.
17:19So I know that Solaris has been heavily marketing that, of course, ahead of the LSS6 rollout, I think which
17:25is late this year?
17:27It should be in second half of this.
17:29Second half of this, okay.
17:30As soon as possible.
17:31As soon as possible, okay.
17:32So, okay, let's talk about this, right?
17:34Battery storage.
17:35Let's also be pragmatic, because if you look at Tenaga National Energy Grid right now, is it actually modernized enough
17:42to absorb this kind of technology or is that proving to be a bigger hindrance than you have expected so
17:49far?
17:49Because grid problem is, grid capacity has always been the biggest issue when it comes to renewable at the moment.
17:55Yeah, well, the fundamental of power sector is always manage the generations, the energy distributions, and then also demand and
18:05supply.
18:06So I think one of the nature characteristics of the PSS is fast dispatchable, and it can be located behind
18:15the meter or after the meter.
18:17Can you explain that a bit?
18:19What do you mean behind the meter and after the meter?
18:20Behind the meter means after the meter and at the generation side.
18:24And it's supposed to work as to manage the local consumptions with the battery charge-discharge capability.
18:35And of course, to put after the meter means we can actually put it together with the solar farm or
18:43as the independent BSS system to support the grid.
18:48And it can do more ancillary services to help the grid services and to stabilize the grid in terms of
18:54voltage and frequency.
18:56So that those are the, but our crash policy now is coming with battery BSS requirement.
19:05Our LSX6 also coming with battery requirement.
19:09Actually, it's giving you a more firm and stable energy or power rather than just depends on solar, which is
19:18very intermittent.
19:19Yeah.
19:19Okay.
19:20So let's look at the overall target then because Malaysia has set a 70% renewable energy capacity target.
19:28That is 2050, not, well, we have about 25 years to go still.
19:32But we are now just roughly at, I don't know, 30, 31%.
19:35Give me your honest read here.
19:37Are we on track or is that target more exploration than planned at this point?
19:40No, in terms of statistically, we're obviously on track.
19:43I think we get, the numbers sometimes run a little bit.
19:46We have 32, 33%.
19:47Sometimes I heard about 35%.
19:49But I'm quite sure in terms of generation mix, we are around there.
19:52And we're going to hit 70% by 2050.
19:55And I'm sure we are very much on track on that with the demand and investment capacity and the policy
20:05that we're having.
20:05And we just need to add 2 gig to 4, maybe average 2 gigawatt into the generations to meet that
20:11kind of target.
20:13But we are progressing much faster than that.
20:17But until certain point of the penetration, of the capacity penetration into the grid, we'll face bottleneck of the grid
20:25infrastructure.
20:26Yeah, that's what I'm about to ask you.
20:27The biggest single bottleneck right now, if you could fix one thing tomorrow, what would it be?
20:31It will be the grid infrastructure.
20:32And also, of course, when we're adding more BSS into become a dispatchable power, that will help the grid stability
20:40as well.
20:41And I think we have heard about TNB plan to invest 40 to 45 billion ringgit of grid infrastructure investment
20:50into energy transition infrastructure.
20:53And that's supposed to be along the line to hit the 2050, 70% of RE generation's mix as well.
21:03All right.
21:03In just a few minutes that we have left, personally, what does the next five years look like for SolarVest?
21:08Give us a sense of where the vision is.
21:11The next five years will be very much on integrated solutions, industrial focus on corporate demand.
21:20Of course, all this will still go back to how our policy is being driven, being designed to drive this
21:26demand.
21:27And how CRES will be designed to accommodate data center needs, how ATAP and how third party access PPA, how
21:38cell code plus battery storage policy being designed to meet those on-site industrial demand.
21:47Because industrial energy demand, energy transition is still one of the main energy consumptions of our power sector.
21:57The growth, the new demand will actually coming from data center.
22:01Okay.
22:02So you still think data center will be driving the growth of solar?
22:05I think industrial demand and also new demand from data center.
22:11Okay.
22:12I'm going to ask you a question because when we talk about data centers, of course, there comes with a
22:15bit of pushback because of the amount of energy it uses, the amount of water it needs, right?
22:21So where does SolarVest sit in that equation?
22:24Maybe we're talking about renewable energy at the end of the day, right?
22:27We provide that excess of clean energy to them.
22:32And we plan.
22:33In fact, now we're already moving on pre-development to go with the data center player.
22:37Like, okay, with 50 megawatt or 100 megawatt size of data center phases that you want to roll out, that
22:44how we can provide equivalent amount of clean energy access to you along the plan, along 2027 or 2030 to
22:54accommodate their needs.
22:55And some of the data center player, they want this plan to come along before they decide to build their
23:01data center.
23:02Are there hesitation by data center players on investing in a place like Malaysia due to the constraint on the
23:10grid and availability of clean energy?
23:13What's the conversation looking like when you speak with them?
23:15They have hesitations when these resources become an issue.
23:19I think to the amount of the data center project that has been approved, these resources constraints become a bottleneck
23:28for them to get their data center to be approved.
23:30So maybe some of the different strategies that they need to play to scale down the data center and to
23:35phase it to different smaller scale.
23:38And how would you think SolarVest can fit into this if you look at long-term strategy?
23:42We need to go along their plan of their data center capacity and then to design the clean energy needs
23:49for them.
23:49Example, if they go smaller scale, so we need to find a different way to provide stable power access to
23:58them as well.
23:59Okay, right. Just one final question.
24:00Between the LSS6 and the solar ATAP rollout and all that, which do you think is going to be realistically
24:05move the needle for your bottom line in the coming year?
24:09I would say CRESS is a game changer.
24:11And BESS is a game changer for clean energy industry.
24:16Well, LSS6 will always be the base load for us.
24:19We're still participating.
24:21We're still contributing to the certain percentage of LSS6.
24:27Additionally, CRESS and different cell-co model to, well, example, Green Industrial Park is the new things that we are
24:36doing now.
24:36All right. Okay.
24:37Well, thank you so much, Davies, for coming on the show.
24:39And just giving us an insight into your business, it's been great to have you on.
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