June 4, 2024

Solar Power Surpasses Palm Oil in Profitability: Maybank Report

A recent report by the Maybank Investment Bank has historically placed hard numbers on the percentage profits of solar against traditional palm oil ventures showing that LSS plants can have 54 times more operating profits per hectare than oil palm.

Large-scale solar (LSS) or solar farm is a concept in renewable energy in which solar photovoltaic (PV) systems are used on a very large scale in a specific area.

Is Malaysia Solar Program Profitable?

A solar farm can generate anything from hundreds of kilowatts to tens of thousands of megawatts of solar power. In Malaysia, the government has plans for a Large-Scale Solar (LSS) program that enables owners of solar farms to sell the electricity back to the grid at a guaranteed rate.

Based on his quick calculations, Maybank estimates a 1-gigawatt (GW) solar project with 1,500 to 1,700 hectares would generate recurring annual incomes between RM134 million and RM266 million.

Meanwhile, according to the report, the average operating profit per hectare for just the oil palm sector in Malaysia over the past decade stands at RM4,444.

Malaysian palm oil companies that may benefit from this include Sime Darby Plantation Bhd, Kuala Lumpur Kepong Bhd and IOI Corp Bhd mainly due to good location of the plantation estates, while other potentially beneficiary plantation companies are Genting Plantations Bhd, TH Plantation Bhd, and United Plantations Bhd, says Maybank.

Nevertheless, Maybank points out that not all agricultural land is suitable for LSS. ‘It’s not just flat-to-gently undulating. These LSS farms must be close to the national grid and the points of interconnection as well.

Solar Power not Palm Oil Production!

The financial attraction of solar ventures is reinforced by figures from Maybank showing that some plantation companies have arranged to lease out their land to LSS farms at double to three times the per mature hectare returns of oil palm.

Planters can enjoy a subsequent stream of rental returns right away without the usual seven-year gestation period that would take place before an oil palm estate could start making a profit after replanting

On top of that, Maybank urges plantation companies not to give their land to other renewables vendors, but rather to become operators themselves: this way, the land value goes up to its maximum while the land appreciates higher in value by the time the concession ends after 20 years.

This would fit into broader regional and national policy for climate change in Malaysia as a country striving to reduce its reliance on coal and natural gas as part of the energy mix in favour of renewables.

The Sustainable Energy Development Authority of Malaysia estimates that renewable energy will account for 40 per cent of the national energy mix by 2035 with solar making up a consequential amount of this energy.

Finally, Maybank’s report demonstrates how solar energy can add a new dimension to energy diversification and profitability in palm oil production, amid more careful and sustainable energy and agricultural practices in Malaysia.

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