RANHILL: Utilities Sector Poised for Robust Growth Driven by Energy Transition and Surging Demand

The power and utilities sector is set for substantial growth, driven by a robust energy transition framework, surging electricity demand, and strategic infrastructure development, according to TA Securities. The investment bank maintains an “Overweight” rating on the sector, anticipating continued positive momentum.

Performance Review

Peninsular Malaysia experienced its strongest electricity peak demand growth in eight years during 2025, largely fueled by the increasing proliferation of data centers. This unprecedented demand, coupled with scheduled net outgoing capacity between 2027 and 2029, is projected to significantly tighten the country’s reserve margins, necessitating an urgent expansion of generation capacity.

Strategic Capacity Expansion

To address the looming supply gap, the Energy Commission (EC) has initiated a Request for Proposal (RFP) for gas-based power generation, targeting up to 8GW by 2029. This capacity will be brought online through a combination of short-term Power Purchase Agreement (PPA) extensions and greenfield developments, offering a significant catalyst for domestic Independent Power Producers (IPPs). Furthermore, the National Energy Transition Roadmap (NETR) aims to more than double the country’s gas power generation capacity by 2050, underscoring the critical role of gas as a future baseload source and necessitating substantial expansion in domestic gas supply infrastructure.

Accelerated Renewable Energy Rollout

The momentum in renewable energy (RE) deployment is expected to continue strongly into 2026, supported by the execution of approximately 4GW in LSS5 and LSS5+ projects. By 2030, an estimated 10.5GW of RE projects are anticipated to come online, ensuring a robust Engineering, Procurement, Construction, and Commissioning (EPCC) project pipeline for local RE players. Critical grid infrastructure is also seeing significant investment, with a doubling of grid capital expenditure under Regulatory Period 4 (RP4) for Tenaga Nasional Bhd (TENAGA), to accommodate RE intermittence and growing demand.

Regional Interconnection and Investment Tailwinds

RE export initiatives, alongside the development of the ASEAN Power Grid, are emerging as key growth catalysts. Several interconnection projects involving the Malaysian power grid are underway to enhance connectivity and facilitate regional energy trade. Financially, higher grid power costs for data centers and less efficient medium-voltage consumers, combined with reduced System Access Charges (SAC), are making RE adoption, particularly through the Corporate Renewable Energy Supply Scheme (CRESS), increasingly attractive. The impending introduction of a carbon tax in Malaysia is also expected to provide a further tailwind for RE investments. While solar module prices are firming, tariff bids for projects have incorporated sufficient cost buffers, and a strengthening Ringgit offers additional protection against cost escalation.

Risks to Outlook

Despite the positive outlook, key risks include unfavorable policy shifts regarding RE and energy transition, volatility in coal prices, potential delays in RE project rollouts, spikes in supply chain costs for RE components, and unscheduled plant outages.