Malaysia has entered into the age of renewable energy (RE). Cleaner energy from solar, bio-waste materials and water will soon be an increasing source of power to light up homes.
The green energy will be paid by consumers who use more than 300kWh a month. Their monthly utility bill will have an additional 1% charge, called feed-in-tarriff (FiT), for the next generation of power producers who used green plants to deliver renewable energy through the national power grid.
But the entire concept of renewable energy is not a novel idea.
The Government has identified RE as the nation’s “fifth fuel”- after oil, gas, coal and hydro - in the Five Fuel Policy back in the Eight Malaysia Plan. Subsequently, in the Ninth Malaysia Plan, a firm target of delivering 350 megawatt (MW) of grid-connected RE generating capacity was spelt out.
Even with the Five Fuel Policy which adds RE sources to the national mix, RE capacity at the moment accounts for less than 1% of power generation. Currently, coal and gas constitute 40% and 55% respectively of the total generation mix in Peninsular Malaysia while the rest is from hydro.
But relying on fossil fuels is expensive and land cleared for dams is not the long-term solution to meet the nation’s power needs.
An ambitious plan has been drafted whereby RE should account for 985MW or 5.5% share of the energy mix by 2015. By 2020, the target is for RE to comprise 11% or 2,080MW of overall electricity generation in the country.
The catalyst for RE in the country has been the change in legislation.
Many parties have complained about the slow development of RE projects in the past but all have changed after the RE Act 2011 and Sustainable Energy Development Authority (Seda) Act 2011 were passed in parliament this year.
But the initial hiccups of the law, which saw the commencement of the FiT postponed from September to December, caused the industry to question if RE would really take off in Malaysia.
Regulatory framework
Analysts say investors and industry players only saw a clearer picture on the future of RE after both regulatory frameworks were passed in April.
While the RE Act would focus on energy, the other would empower Seda to oversee the implementation and management of the FiT mechanism. The four RE resources that are eligible for FiT are biogas, biomass, small hydropower and solar photovoltaic. RE had been a part of the Energy Commission portfolio.
According to Energy, Green Technology and Water Minister Datuk Seri Peter Chin, the idea of implementing the FiT was mooted in 2005 when the present secretary-general Datuk Loo Took Gee led a small team from the ministry to Germany on a study tour.
“They were there to understand and investigate how Germany’s policy had enabled the country to be a world leader in driving the growth of RE. It took the ministry two years to complete the National Renewable Energy Policy and Action Plan. We are on our journey towards a cleaner and greener future,” Chin says.
He adds that the Government created the Small Renewable Energy Power Programme (SREP) to spearhead the RE industry, however until today, the outcome of RE targets set in both the Eighth and Ninth Malaysia Plans “has been very insignificant”.
Apart from generating electricity, Chin says from the economic perspective, RE is seen as a growth sector that will help propel Malaysia towards a high-income economy.
“The RE industry is estimated to generate at least RM70bil worth of revenue for the private sector and this will translate into tax revenue of at least RM1.76bil for the Government by 2020.
“Another economic and social benefit arising from the sector is job creation,” he says.
Economists have made a conservative estimate that Malaysia could generate at least about 50,000 jobs from the construction, operation and maintenance of RE plants by 2020.
On another perspective, the renewable energy generation target would be able to curtail 42.2 million tonnes of carbon dioxide emission in the line with the pledge made by Prime Minister Datuk Seri Najib Tun Razakin Copenhagen in 2009.
Opportunities aplenty
A Seda spokesperson says the RE industry did not take off in the past because of the lack of a legal framework to govern the business and provide security for businesses generating such energy.
“With the RE Act 2011, there is a long-term commitment from the Government that renewable energy producers (feed-in approval holders) can sell to the distribution licencees clean energy at a premium price for a fixed period of time.”
First Solar Malaysia senior director of public affairs for Asia Pacific Ahmad Hadri Haris says that if the annual quota is spread between RE technologies and the industry grows at a minimum 10% per year, there is ample opportunities for new players.
“For First Solar, this will provide us with a good opportunity to promote the local industry and energy sustainability,” he says.
First Solar has six thin-film photovoltaic (PV) solar module manufacturing plants in Kulim Hi-Tech Park, Kedah.
“There is a lot of development potential in Malaysia with regards to the solar industry. For instance, the RE Act 2011 and the FiT system provide incentives for the nation to invest in solar energy and allow for a satisfactory return on investments within a reasonable period of time.”
With FiT, consumers can install their own renewable resources such as solar modules at home.
Under the RE Act 2010, a small-scale solar PV producer or a household can potentially earn up to RM1.75 for each kWh of electricity produced by selling the power to Tenaga Nasional Bhd (TNB).
Consumers who install capacity up to 4 kWp (kilowatt peak) will be paid a FiT of RM1.23 per kWh. With a bonus criteria such as the installation of solar PV in buildings or building structures, they will be paid an additional 26 sen.
Consumers who install solar PV for use as building materials will get 25 sen per kWh and they will get three sen more for using locally manufactured or assembled solar PV modules.
All solar PV producers would be guaranteed an income for up to 21 years from the date of signing an agreement. Hypothetically, consumers producing 4KW of electricity at home will be earning more than RM400 a month.
Setting a limit
Having a mechanism to buy green energy, however, is not a licence for businesses to make money.
Seda has fixed the quota for RE at 190MW, 190MW and 250MW for 2011/2012, 2013 and 2014 respectively. Of the 190 MW, 50 MW have been allocated for solar PV for 2011/2012. The quota for small hydro and biogas are fixed at 30 MW each while for biomass it is 80 MW.
The FiT application for solar photovoltaic technology is limited to a maximum of 5 MWp rated capacity. The maximum limit is determined because Seda needs to manage the RE Fund required for all the different RE sources under the FiT and avoid over-subscription.
Seda chairman Tan Sri Fong Chan Onn says the implementation of the FiT is not a simple issue. He says a sound legal and information communication technology framework is paramount to ensure the FiT programme operates smoothly and effectively.
“I have been informed the management team had spent a lot of time on both matters to ensure we are all set for the implementation of FiT. Malaysia has learnt a lot of lessons from the experience of other countries with FiT programmes and Seda is careful not to be caught in the same trap,” he says.
Among the challenges faced is the lack of understanding and the distortions in power generation cost given the subsidy elements.
Problems faced by other countries include inadequate funds to pay RE players as there are no quota set for each RE technology.
The quota system imposed by Seda will determined how many MW can be offered annually. That also depends on how much money is collected for the RE fund.
A Seda spokesperson says the 1% levy to cover costs associated with the FiT scheme would translate to about RM300mil per annum and that is the amount Seda would pay to approved feed-in approval holder (FiAH).
She explains that industry players will be excited if the quota is increased as it will bring business opportunities for them. However, she says the “pie is rather small” as only 1% would be contributed for FiT.
“We cannot have an unlimited quota as it will cause another problem as to how Seda will pay FiAH with RM300mil unless the consumers are willing to pay more,” she adds.
She says electricity bills fluctuate in Germany and Italy to cater for the FiT. In Germany consumers pay between 3.5% and 5% to facilitate their FiT while in Italy it is 7% to 8%.
Who will pay FiT?
Chin says the FiT in Malaysia is not financed from tax revenue, instead, it will be financed by a RE Fund which is contributed by the electricity consumers.
“The Government has decided that electricity consumers will contribute 1% of the total electricity tariff bills issued by TNB to the RE Fund.
“Nonetheless, 75% of TNB’s customers who consume less than 300 kWh per month will be exempted from contributing to this fund and the collection of 1%.
“I support this strategy because apart from getting the public and industries to participate and contribute to green energy development, it also encourages all parties to use energy efficiently to reduce their electricity consumption because heavy consumers of electricity will have to contribute more to the RE Fund,” he says.
Under the Act, it is required that the management and utilisation of the RE Fund be reported and be tabled in parliament annually.
Thus, the public can scrutinise the information once it is tabled in parliament.
A Seda spokesperson says the risk of the RE quota being oversubscribed is reduced because the RE Act 2011 provides a legal framework for the renewable energy investor to operate under.
“The risks of the RE quota being oversubscribed like in Spain are also mitigated as quotas issued will be based on the availability of the RE fund.
Since the FiT is paid based on energy generation, the investor will be paid according to how much energy is generated,” she adds.
Payment to a FiAH will be guaranteed from RE Fund for a period of 21 years for solar PV and mini hydro and 16 years for biogas and biomass.
TNB has also committed to sign a renewable energy power purchase agreements (REPPA) with FiAH within a certain time frame.
Solar hub
Although the solar modules produced in Malaysia are mainly for the export market, the cluster of companies investing in Malaysia is tremendous bringing in billions of ringgit worth of foreign direct investment. Malaysia is the world’s third largest solar module manufacturer behind China and Germany.
It has been reported that Malaysia’s PV industry received RM12bil to RM14bil in foreign direct investment from 2007 to 2009.
The emergence of major solar companies in Malaysia such as First Solar, Q-Cells and Sun Power Corp, has spurred the growth of the solar value chain, opening up new opportunities for both the local and foreign investors in developing the solar cluster.
Ahmad Hadri says the FiT provides market opportunities for the players.
“More importantly, the revenue will benefit the nation as Malaysians will be hired. For First Solar, this will be an opportunity to contribute to nation building on top of the RM3.5bil that we have given back. We want to be a part in making Malaysia the green technology leader,” he adds.
First Solar, which is the country’s first solar module manufacturer, has invested RM2.9bil in its plants in Kulim.
Last year, it had engaged more than 22 suppliers and contributed about RM3.45bil to the local economy. Its plants in Kulim employs 3,500 people.
Sun Power, a solar cell manufacturer in the United States, was reported to be investing RM2.3bil in a fabrication plant in Rembia, Alor Gajah. In February 2010, China-based EQ Solar Technology International Sdn Bhd announced plans to invest US$500mil to produce modules, cells and wafers at the Senai Hi-Tech Park in Johor.
Last week, Panasonic Corp announced plans to invest 45 billion yen (about RM1.8bil) to build a solar cell factory in Malaysia.
The electronics giant will set up Panasonic Energy Malaysia Sdn Bhd to handle the venture at the Kulim Hi-Tech Park. Production is expected to start in December 2012.
While the pursuit of renewable resources may pale in comparison to other major countries, this is a good start indeed.
Seda has finally decided on the quota for all the RE technology and opened its e-FiT online system for FiT applications.
