From 2% to 20% – Accelerating Renewable Energy Development in Malaysia, part 3

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Recent Developments & Strategies to Address the Challenges

The Ministry of Energy, Science, Technology Environment, and Climate Change (MESTECC) and SEDA lined-up policies and strategies for a faster development of renewable energy in Malaysia. Some of these strategies, like the Feed-in Tariff, has been in effect for several years. On the other hand, Large Scale Solar auction, a public bidding targeted to boost the solar capacity of the country, started its first round in 2016, while Net Energy Metering (NEM) aimed at boosting development in solar rooftop PV has seen success since its launching last year.

Feed-in Tariff in Malaysia

Feed-in Tariff scheme has seen huge success in neighboring Southeast Asian nations in initiating investment interests and project development of renewable energy power plants. In Malaysia, FiT contracts for solar PV and mini-hydro are set for 21 years, while biomass and biogas FiT covers a period of 16 years. FiT costs are pass-through to the consumers who pay a surcharge which will then be deposited to the RE Fund. Customers with low consumption (300kWh/mo) are exempted in contributing to the RE Fund. Generators interested in securing the FiT must obtain the Feed-in Approval from SEDA, and execute a RE Power Purchase Agreement with utilities such as TNB.

FiT rates, especially that of Solar PV, have a degression rate which takes into account the decrease in capital cost of the RE technology through time. This degression rate, usually on a per-year basis for solar, is determined by SEDA. Despite this, generators can get a slight increase on their FiT rates by implementing specific conditions, for instance using locally manufactured solar PV. Table 1&2 below shows the current FiT rate per technology and bonus rates per conditions met.

Net Energy Metering (NEM)

Net Energy Metering or NEM is a mechanism that aims to stimulate the interest of consumers to participate in the deployment of solar PV by providing a mechanism of selling excess power to the utilities.  The new NEM mechanism, which was approved in late 2018 and started to be enforced in 2019, allows prosumers or NEM participants to get the same tariff for buying and selling electricity to the grid or on a “one-on-one” off-set basis. It is expected to entice more and more consumers to convert to prosumers and generate part of their electricity from solar PV installed on their rooftop. The quota for NEM is 500MW on a first come first serve basis (Wan Shakyrah, 2019). NEM has four categories, namely: residential, commercial, industrial, and agricultural. However, at present, its implementation is only limited to Peninsular Malaysia to TNB-registered customers.

Large Scale Solar (LSS) Auction

A competitive bidding process for Large Scale Solar (LSS) was approved in 2016 and will run until 2020. The total allocated capacity for the LSS program is 1,000MW, divided into yearly allocation and with consideration of the location of the power plant. Qualified participants will submit a bid to build, own, operate, and maintain a solar facility and sell generated power to utilities in Peninsular Malaysia, and Sabah (Energy Commission, 2017). The range of levelized tariff for the auction is between US 9.6c/kWh to US 11c/kWh. The winning bidder will enter a Power Purchase Agreement for 21 years. The first solar facility in Malaysia, the 50MWac Sepang LSS was built after winning in the first round of LSS. As of the middle of 2017, a total of 584MW solar PV projects under LSS have been awarded.

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The first large scale solar farm in Malaysia – the 50MWac Sepang Solar of TNB commissioned in 4Q 2018.

2% to 20% a Possible Feat?

The above three initiatives are believed to help boost renewable energy penetration in Malaysia, with great emphasis on the potential for solar development. Biomass, biogas, and small hydropower are promoted via the FiT program. Aside from the NEM, FiT, and LSS, the government of Malaysia also offers renewable energy fiscal incentives such as the Green Investment Tax Allowance (GITA), Green Income Tax Exemption (GITE), and Green Technology Financing Scheme (GTFS).

MESTECC believes that the 20% increase in RE penetration is doable given effective implementation of the above programs and through the enforcement of the Malaysia Energy Supply Industry 2.0 (MESI), which introduces modifications towards a more liberalized and competitive electricity market. MESI 2.0 has been established to achieve three goals: to increase industry efficiency, to future-proof the industry structure, regulations, and key process, and to empower consumers, democratize and decentralize the electricity supply industry. MESI 2.0 will allow green energy trading through the grid and will give RE producers options to sell not only to TNB but to other customers as well. It also paves the way for consumers to be active in the green energy drive and also participate as prosumers and even prosumanagers. The reforms in MESI 2.0 attempt to address the disruptions in the traditional energy landscape brought about by increased electrification, digitization, and decentralization.

The government of Malaysia should exhaust all avenues from public-private partnerships and private funding, to push forward and reach the target.

Malaysia is endowed with good renewable energy sources that can be harnessed to reduce the country’s dependence on fossil fuel. Among all the renewable energy sources, solar exhibits the most potential due to the location of the country along the tropics. This explains why the programs of the government, such as NEM and LSS, are geared towards explicitly increasing the solar capacity of the country. Out of the 20% RE capacity target in 2025, half of this will come from solar power, while the remaining shares will be provided by other RE technologies. Malaysia also crafted fiscal incentives that will entice investors to participate in large scale biddings and even in smaller RE development such as rooftop solar. However, policy alignment must also be employed to facilitate the development of RE sources, for instance, strict enforcement of waste separation to ensure feedstock availability and collection. As for wind power and geothermal power, Malaysia may not have commercially and technically viable resources, but this could change in the future with the rapid improvement in technology and innovation. Boosting RE penetration of Malaysia from 2% to 20% in 6 years is achievable, but the path may not be an easy one.

Historically, Malaysia has been attempting to increase its RE source but fell short of the previous targets. However, those were the era when RE technologies are far more expensive than fossil fuel generators. Despite improvements in the technical and commercial aspects of RE technologies, such feat will entail massive and rapid investment, especially on easily deployable technology like solar power. The government of Malaysia should exhaust all avenues from public-private partnerships and private funding, to push forward and reach the target. The policies and programs in place are towards the right direction, and effective implementation of MESI 2.0 can provide the boost needed to achieve such target given the short period of time.

We hope you liked this series and in case you missed them, here are the links for parts one and two. Don’t forget to subscribe to our Daily Roundup straight to your inbox, check out our other articles and interviews on our homepage, or continue the discussion on our Facebook and Twitter pages.

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