I Squared makes first Malaysian power investment with 1GW solar play

Partner Chenhua Shen walks us through the ‘unprecedented’ project, which could become one of the largest solar PV developments in Southeast Asia.

I Squared Capital, through portfolio company HEXA Renewables, is to develop up to 1GW of hybrid solar photovoltaic projects in southern Malaysia, potentially one of the largest investments of its type in Southeast Asia.

The scheme is the first to be announced under Malaysia’s National Energy Transition Roadmap, which sees the country aiming for 70 percent renewable energy generation by 2050.

HEXA has signed a memorandum of understanding with UEM Group Berhad, a wholly-owned subsidiary of Malaysian sovereign wealth fund Khazanah Nasional Berhad, and ITRAMAS Corporation, the country’s largest vertically-integrated solar project developer. HEXA will work with the partners on project planning, construction and operation, as well as the development and structuring of offtake agreements.

Financial details were not disclosed but Infrastructure Investor understands the equity capital committed will be between $300 million and $500 million, depending on the final configuration of the project. I Squared Capital declined to comment on the size of its investment.

I Squared’s HEXA Renewables is funded by its flagship Global Infrastructure Fund III and its Growth Markets Fund. The firm will also draw on capital for the projects from a separate pocket of financing provided by the US International Finance Development Corporation, with which I Squared signed an agreement in June. That agreement will see the DFC commit $300 million in emerging markets sustainable infrastructure, with I Squared investing $3 for every $1 DFC does in a commitment of up to $900 million from the funds it manages.

I Squared Capital partner Chenhua Shen said another distinct element of the proposed project is that all its power will be purchased directly by commercial and industrial customers, in a break from previous Malaysian power generation facilities.

“This is unprecedented in Malaysia,” she said. “The entire regime is structured on a willing buyer-willing seller basis. Through the partnerships with these local companies, such as UEM-ITRAMAS, we are confident we can bring the projects to the ready-to-build stage very quickly, by next year.” The firm aims to be in the commissioning stage by 2025, she added.

Shen said this was the first time I Squared has invested in the Malaysian power sector, because the renewable power investment regime had not been very friendly to foreign investors in the past.

“The government decided to launch a new regime to attract private participation – and under this, the government intends to gradually open up the grid systems in what they call an inclusive framework that allows everyone to participate. In the past, it was a single-buyer market dominated by TNB, the national utility.

“Now the government wants to liberalise the sector and allow independent power producers to attract new customers, such that pricing power can be negotiated on a bilateral basis. This is the key to attracting private participation and to push for multinational companies to build manufacturing plants in Malaysia with an ability to access renewable power.”

As well as its Global Infrastructure Fund series, Infrastructure Investor reported earlier this year that the firm is gearing up to launch a new fund dedicated to the energy transition, with a potential target of around $2 billion. That vehicle is likely to target investments in North America and Europe in sectors including renewable energy generation, storage, EV charging and hydrogen.