A recent report by Maybank Investment Bank highlighted the significant financial benefits of large-scale solar (LSS) projects compared to traditional palm oil ventures. LSS plants can generate operating profits that are 54 times higher per hectare than oil palm plantations. LSS, or solar farms, utilize large-scale solar photovoltaic (PV) systems to harness solar energy in a specific area.
Malaysia's Solar Program Profitability
Solar farms can generate anywhere from hundreds of kilowatts to tens of thousands of megawatts of solar power. In Malaysia, the government's Large-Scale Solar (LSS) program allows owners of solar farms to sell electricity back to the grid at a guaranteed rate.
Maybank estimates that a 1-gigawatt (GW) solar project, spanning 1,500 to 1,700 hectares, could generate annual recurring income between RM134 million and RM266 million. In contrast, the average operating profit per hectare for the Malaysian oil palm sector over the past decade has been approximately RM4,444.
Image: Collected
Malaysian palm oil companies such as Sime Darby Plantation Bhd, Kuala Lumpur Kepong Bhd, and IOI Corp Bhd, which own large plantations in prime locations, could potentially benefit from exploring solar energy projects. Other plantation companies like Genting Plantations Bhd, TH Plantation Bhd, and United Plantations Bhd may also consider similar initiatives.
Maybank notes that not all agricultural land is suitable for LSS projects. The land must be relatively flat and located near the national grid for efficient interconnection.
Solar Power not Palm Oil Production!
The financial attractiveness of solar ventures is further underscored by Maybank's findings that some plantation companies are leasing their land to LSS farms for double or triple the per-hectare returns of oil palm cultivation. Planters can enjoy immediate rental income without the traditional seven-year waiting period associated with oil palm replanting.
Maybank encourages plantation companies to consider becoming operators of LSS projects themselves rather than simply leasing their land to third-party vendors. This approach would maximize land value and align with Malaysia's broader national policy of reducing reliance on fossil fuels and transitioning to a renewable energy-based economy.
The Sustainable Energy Development Authority of Malaysia estimates that renewable energy will contribute 40% of the national energy mix by 2035, with solar energy playing a significant role.
Maybank's report highlights the potential of solar energy to enhance energy diversification and profitability within the palm oil industry. By adopting sustainable practices and embracing renewable energy solutions, Malaysia can achieve a more balanced and environmentally friendly approach to energy and agriculture.