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It’s a billion dollar question whether Malaysia’s newly-minted feed-in tariff (FiT) mechanism is designed well enough to fully unlock the renewable energy (RE) potential of the oil-and- gas exporting country that has long subsidised natural gas for electricity generation. Certainly, the political will has been demonstrated. The two laws that will enable the FiT – the Renewable Energy Act 2011 and the Sustainable Energy Development Authority (SEDA) Act 2011 – were passed by Parliament end April, and are being gazetted. Certain processes will take their course now before the FiT is finally imple- mented, probably by next month. Even funds to support the first-year targets – at RM189 million (US$62.3 million) – have been set aside. On top of that, it is interesting to note that the government’s economic transformation programme has lately churned out entry-point projects (EPP- 10) that include solar power plants of higher capacities than those originally planned under the Renewable Energy Policy. These have been injected into the RE targets for the FiT, significantly raising them (see table on page 15). There’s a lot riding on this scheme. By 2020, RE is touted to cre- ate a host of spin-off benefits, includ- ing:

• Savings of RM2.1 billion in external costs to mitigate CO ² emissions • At least RM19 billion in loan values for RE projects (at 80% debt financ- ing) • RM70 billion of revenue from RE power • RM1.75 billion in tax income to the government and • 52,000 jobs to construct, operate and maintain RE power plants (at 15 to 30 jobs per MW). These were the projections that Ahmad Hadri Idris, the chief technical advisor to the National RE/Malaysian

Building Integrated Photo Voltaic (MBIPV) project team, presented to the industry in recent months. The success of the national green policy will be measured by the RE quotas uptake, and the realisation of the projections. Many businesspeople are placing expectations on the FiT: power produc- ers, photovoltaic manufacturers, dis- tributors and installers, palm oil planta- tions set to make money from their empty fruit branches, logistics provid- ers, bankers and insurers, training institutions and trainers, consultants and even colleges and universities who are heavily into research.

The bees are buzzing around the honey pot, and from what Green Purchasing Asia has learnt, the frenzy of economic activities will start as early as next month. Industry circles and even the lawmakers themselves, however, think the effects will only be felt in a year or so. People need to be trained to set up electrical systems and to handle ma- chinery. Bankers need to be engaged to fund the RE projects as they still see RE as risky projects. Hadri calls for patience, saying those interested will need to be familia- rised with the application process and do their math and some may want to see how others do it before wading in. As usual, there are some early birds who want to catch the action early and have long been prepared. Based on enquiries received so far, Hadri expects 20 to 25 applicants for biomass, biogas and small hy- dropower. But the biggest attraction is solar, where there will be about 50 corporate players and hundreds of individuals. More than 40 solar photovoltaic installers were listed on the MBIPV website (www.mbipv.net. my) as approved installers. They will now have to seek relisting in the SEDA website after June 30th. “There is this over-excitement in


the market, and some people are going to be frustrated, but that’s the beauty of it because you have competition, and competition means better costs. At the end of the day, it’s an open market, and the market will balance itself,” he says.

The roadmap is simple. SEDA will be set up, probably by next month, after the chairman and CEO and board members have been appointed. The Renewable Energy Fund details would also have been sorted out by then. Next comes the information mecha- nism – the website – that the public will refer to for guidance on the FiT. Enough time will be given for them to become familiar with it.

cover the market, and some people are going to be frustrated, but that’s the beauty of

Malaysia’s FiT is based on the German model (and has reportedly received ac- colades from the German pioneers) but with a big difference: there is a quota system which will effectively limit the growth of each RE source. The quota system means interested energy producers will have to vie for limited megawatts yearly when they apply to be feed-in approval holders. The good thing is once the quota is allocated to a company or individual, it is licensed to make money for the next 20 years, backed by a fixed pay- ment scheme that does not depend on subsidies or economic vagaries. The direct licensee (the main power generator and distributor), which is Tenaga Nasional, is obligated by law to buy the RE from these producers. That said, 219MW was originally up for grabs this year when FiT was anticipated to start in April 2011 but because the FiT has been delayed, the quota for this year will probably be reduced, and the unused portion car-

ried forward to next year. The figure is likely to be just over half of the original target depending on when FiT actually starts. This has to be shared among four sectors: biogas, biomass, mini- hydro and solar PV (see table on page 15 for the quotas). There is market fear that the quo- tas will hinder the development of RE and the creation of related economic opportunities. Detractors accuse those behind the quotas of paying lip service to RE to protect fossil fuels in the power mix. However, if one studies the experience of countries that success- fully carried out the FiT and also those that failed, the quota system seems a sensible way for controlled develop- ment of RE. This is more so when the Malaysian experiment of renew- able energy, via the Small Renewable Energy Project (SREP) that started in 2001 has been at best a good experi- ment and learning opportunity, and at worst, a dismal failure. The target set by the 9th Malaysia Plan in 2005 targeted 350MW of RE connected to the grid (or 1.8% of the power generation mix) by 2010. What it got was one-sixth of that, 62.3MW, or a mere 0.4% of the energy mix. Giv- en this poor record, setting a quota will give the planner a chance to prepare a strong foundation in the initial years. It is learnt that the government is considering passing on the “unused” quotas for 2011, to 2012, since it is already mid-year. It is also consider- ing not imposing the degression for 2012. (Read interview with Energy, Green Technology and Water Minister on page 16.) This will please investors, especially those in the solar PV sector which faces the highest degression rate.

Malaysian Photovoltaic Industry Association president Shamsudin Kha- lid is concerned about the degression, saying the FiT and degression have to be business-friendly to encourage take- up. “If they (the investors) don’t bite, we cannot achieve our target of 5.5% for RE by 2020,” says Shamsudin, who is also marketing manager for Sharp Solar at Sharp Roxy Sales and Service Company.

The degression principle is based on the expectation that RE technology costs will go down over time, as in the case of solar PV. That is why there is no degression for mini hydro which is a mature technology. However, the Fukushima nuclear plant crisis in Japan may alter the scenario, as some countries have put on hold plans to pursue nuclear and are opting for solar energy, at least for now. This brings up demand for solar PV, which may increase prices. These concerns were expressed during an industry dialogue conducted by the Ministry of Energy, Green Technology and Water for some 300 stakeholders in April, and echoed by

cover the market, and some people are going to be frustrated, but that’s the beauty of
cover the market, and some people are going to be frustrated, but that’s the beauty of
cover the market, and some people are going to be frustrated, but that’s the beauty of

a potential major player privately to Green Purchasing Asia. However, these legitimate fears may be































































a potential major player privately to Green Purchasing Asia. However, these legitimate fears may be

a potential major player privately to Green Purchasing Asia. However, these legitimate fears may be short-term. If there is a shortage of solar panels, prices may not drop that quickly, but in the medium term, economies of scale will even things out. Hadri is optimistic the FiT will de- liver. “There’s a difference today. When we did the SREP, they just provided the targets without the means. It’s like providing the food without the tools to eat. Now we provide not only the food, but also the cutlery to enjoy the food,” he says. He credits the willingness and openness of the industry players, especially those who started with the SREP, in sharing their views and even confidential business information with the authorities when the latter devel- oped the laws and the FiT. Engaging Tenaga Nasional took

two full years and industry discus- sions were sometimes heated. The end results, however, seemed pleasing to Hadri. “Hans-Josef Fell and the late Dr Hermann Scheer, both pioneers of FiT, came to Malaysia to understand what we were doing and they said we were on the right track. That gives us confi- dence. Of course, there are limitations, like the quotas, but Hans-Josef said that’s fine. You are starting from a zero base, or even negative base. It’s okay to start slowly.” If the people want renewable energy badly enough, they will be will- ing to pay more, the RE fund will be expanded and then the sector will truly soar. For now, the target is 1.2GW by 2015, and 3.1GW by 2020. These alone will mean RM70 billion in revenue from RE power for companies and individuals by 2020.

a potential major player privately to Green Purchasing Asia. However, these legitimate fears may be


cover Investors looking at Malaysia’s feed- in tariff (FiT) mechanism as a busi- ness opportunity should

Investors looking at Malaysia’s feed-

in tariff (FiT) mechanism as a busi- ness opportunity should find comfort in the initiatives the government has taken to ensure the potential problem areas are adequately addressed. The government may be cautious in ap- proach, but it is not short on ambition. To ensure the fund is kick started without a hitch, the government has agreed to inject RM189 million into the Renewable Energy Fund to fund the RE targets for a year, Datuk Seri Peter Chin says. The advance was given via the Performance Manage- ment & Delivery Unit (Pemandu), a unit under the Prime Minister’s Department whose role is to oversee implementa- tion of the country’s Economic Trans- formation Programme and Government Transformation Programme. In the long-run, however, the RE Fund will be fed by a 1% electricity tariff increase. (At press time, Chin held a press conference to say that the 1% increase will take effect from Sept 1st. He also announced an average 7.12% increase in electricity tariff beginning June 1st, partly because of a gas subsidy reduction exercise. How- ever, domestic users who use less than 300kWh per month will be exempted from these increases). Chin says that because there has been a delay in the onset of the FiT,

the amount in the RE Fund that is not used for this year will likely be carried forward to 2012. He indicates the FiT will start in July with the set up of the

cover Investors looking at Malaysia’s feed- in tariff (FiT) mechanism as a busi- ness opportunity should

Sustainable Energy Development Author- ity (SEDA) at an office in Putrajaya. As for requests from stakeholders that the degression of 8% for 2012 be postponed for the same reason, Chin

says: “This seems to be the case; that we have to adjust.” This indication from the minister will please industry players as whatever tariff that has been agreed on will last for the duration of the agreement – 21 years in the case of solar photovoltaics. The minister touched on a num- ber of other issues in the interview.

be disbursed. We don’t want to keep the money.

On the rationale for quotas in the FiT

I met investors at the Malaysia-Europe- an Union Forum in Vienna, and among other things, they want Malaysia to remove the cap on annual capacity tar- gets. They want a free-for-all as is be-

On whether RE levy will be increased 2% or 3% to boost the RE sector

If we want a larger role for RE, we have to promote it. We can increase the RE levy to boost the pool fund. However, there are other mechanisms we can use to promote RE, like double deduction for investments or (reduc- ing or abolishing) import and excise duties. Don’t forget that electricity con- sumption grows over time and the 1% levy will translate into a larger amount. It all boils down to the size of the RE fund. For the first year, I am get- ting RM189 million from Pemandu as advance. As I collect more, and if the pool is big enough to sustain higher quotas, I will do it. After all, the money is earmarked for this purpose. If it is growing the green economy, why not? If we invest a small amount and get big returns from it, why can’t we do it? If you invest a certain amount to grow the economy and it is successful, why can’t we do some more? Those funds can be from other sources, not just from the 1% tariff hike. If the gov- ernment feels it is a good deal, it can invest. However, if it falls flat, I can’t justify asking for more. The existing quotas are to prevent overheating of the RE industry, but they are not carved in stone. They will be revised accordingly, depending on the funds available.

says: “This seems to be the case; that we have to adjust.” This indication from the
says: “This seems to be the case; that we have to adjust.” This indication from the

Assurance for players in Malaysia’s FiT scheme, given the flip-flop in some countries

The law is explicit. We are applying a law passed by parliament. If we renege on it, any of the players can use the law to sue the government. It is as simple as that. The agreements that we sign is part and parcel of the regula- tions that will come. I am using the law to guarantee you. Which government wants to be sued? This is the inbuilt system. Everything depends on the total amount we can collect, and it will

ing done in some European countries. We know however that some have failed when the funds ran out because there were too many players. We can’t be too bullish from the beginning. I would like to see SEDA taking a cautious approach. We start small. This is something new. We don’t want to fall into the trap that some countries found themselves in because they went overboard.

On whether foreign participation is crucial to the success of the FiT

For the amount of money we have (in the fund), I think locals can take up the quotas. I have many people writing to me. I say you have to bid; I can’t promise you. I think foreign participation will be in providing technology. You have one or two Chinese companies keen to do solar farming here. In the solar sector, Malaysia has the best opportunity to position itself and become a global leader in solar PV manufacturing. Four leading multi- national PV companies – First Solar, Q-Cells, Sunpower and Tokuyama – have either set up operations here or have announced their FDIs equivalent to RM14 billion. They provide busi- ness opportunities for local players to understand, build capacities, enter the PV business and benefit along the supply chain.

On financing of RE projects

As of now, there is a lack of awareness among financial institutions because

RE projects are still being considered high-risk investments, which makes it difficult for RE developers to source for funding. SEDA and the ministry will look at this issue thoroughly so that action is taken to ensure support from financial institutions in RE develop- ment.

On the importance of a transparent online FiT application process

Because the process is transparent, it will avoid all sorts of talk on whether

so-and-so was selected because of his connections. You can see the quotas online and can see who has been selected at any point of time.

On withdrawal of gas subsidy for electricity generation within four years

Yes, this is the plan. The government has only this pool of money. You can use it to subsidise fuel (to prevent inflation) but it is non-productive and doesn’t grow the economy. Or you can use it to invest in many productive areas, to build incomes and eventually to build a bigger pool of funds. This is a policy choice. And the choice is that we need to transform our economy. We will increase the electricity tariff. But we will all learn to be more energy efficient.

says: “This seems to be the case; that we have to adjust.” This indication from the


The feed-in tariff (FiT) is an incentive to encourage the private sector to go into green power generation. Renew- ables make up only 0.5% of Malaysia’s fuel mix. It is hoped that with the FiT, renewal energy (RE) will make up 5.5% of the mix by 2015. Malaysia uses Germany’s FiT as its model, but imposes annual quotas based on the rationale that they will promote orderly development of RE, and will prevent overheating of the market. The quotas also ensure there is enough money to honour power purchases. The government is also cautious about raising electricity tariff too much to fund the growth of RE. (FiT will be paid from consumer elec- tricity tariff.) Malaysia’s FiT are fixed tariffs paid for RE-generated electricity that

is fed into the national grid. How much is paid depends on the type of technol- ogy, the year the plant starts operating and the size of the plant. In Malaysia, four types of RE are eligible: biomass, biogas, small hydropower and solar photovoltaic (PV). • Solar PV enjoys the highest tariff, as high RM1.78 (US$0.59) if one includes bonuses for using local products, if it is used as a building material, and if the capacity is up to 4kW. However, an annual degres- sion of 8% is built into the solar FiT. The tariff is fixed for 21 years. • Hydropower enjoys the lowest rate of only 23 to 24 sen, also for 21 years, but there is no annual degres- sion. This is because the technology is mature and will not see drastic price changes.

• Biomass’s basic tariff is between 27 and 29 sen, excluding bonuses for efficiency, use of local products or the use of municipal waste (10 sen, or more than a third of the biomass basic tariff). • Basic biogas tariff is between 28 and 32 sen. The FiT for biomass and biogas are for 16 years.

Other aspects of the Malaysian FiT:

Almost anyone can be a power gener- ator if they have the capital. However, foreigners and grid system opera- tors, technically referred to as direct licencees, can only own up to 49% of any plans. Entities like cooperatives, municipal councils and management bodies of common properties like









cover The feed-in tariff (FiT) is an incentive to encourage the private sector to go into
cover The feed-in tariff (FiT) is an incentive to encourage the private sector to go into
cover The feed-in tariff (FiT) is an incentive to encourage the private sector to go into
cover The feed-in tariff (FiT) is an incentive to encourage the private sector to go into





condominiums may also apply. Participants of the Small Re- newable Energy Programme (SREP) launched ten years ago and other government-subsidised programmes have to go through the same applica- tion process. Those who have renew- able power purchase agreements with direct licencees have to terminate them first.

Application is only available online. Once approval is given, also online, the quota is immediately al- located.

this year may enjoy RM1/kWh tariff for the next 21 years, but Company B which is commissioned next year will only get 90 sen (RM1 minus 10%) for the next 21 years. The degression takes into account market conditions, and the maturity and cost of technology. For instance, the cost of PV systems dropped from RM31,000/kW in 2007 to RM26,000/ kW in 2009. Today, the cost is only RM18,000/kW. The law provides for re- visions at least once every three years.

Bonus tariff is given for a host of things like solar PV installations on build- ings
Bonus tariff is given for a host of things
like solar PV installations on build-
ings or as building structures (26 sen
for every kWH; a generous sum when
the tariff for small hydropower is only
23 sen), and locally manufactured PV
panels and inverters. There are also
incentives for efficiency, like an extra 1
sen for steam-based systems (biomass)
with efficiency above 14%.
The Renewable Energy Act guarantees
access to the grid on a first-come-
first served basis, based on a prede-
termined quota. If you get approval,
access duration to the grid is fixed: 16
years for biomass and biogas, and 21
years for small hydro and solar photo-
Annual degression refers to the annual
lowering of tariff for new power plants.
The operative word is “new”. For in-
stance, with a 10% annual degression,
Company A which is commissioned
Every year, quotas are available for
application. For instance, a total of
111MW capacity is up for grabs this
year (if the FiT starts in September
2011), to be shared among biogas, bio-
mass, small hydro and solar. The quo-
tas will be reviewed every six months
via a computerised system. Unused

balance will be offered to sectors with higher demand.

Malaysia uses the shared burden principle. This means the cost of RE- generated electricity is shared by all electricity consumers (except those who use less than 300kWh per month). As electricity from RE is more expen- sive than that from fossil fuels (at least for now), consumer electricity tariff will be increased to fund the FiT via the Renewable Energy Fund.

SEDA will be the statutory body that administers the RE Fund and manages the FiT. It will review the FiT at least once every three years.

Malaysia has had a Renewable Energy Policy since 2001, launching it with the Small Renewable Energy Power Programme (SREP) that covered power generation plants of up to 10MW. How- ever, SREP failed due to the lack of a support system. The targets set by the 8th and 9th Malaysia Plans were not met and even revised downwards in the latter. The 8th Malaysia Plan (2001–2005) envisioned 5% renewable energy in the energy mix by 2005. The target was revised downwards to 1.8% in the 9th Malaysia Plan (2006–2010). But as of December 31st 2010, the RE connected to the grid was only 0.4% or 62.3MW. With the FiT, the target has been revised upwards again to 5.5% (1.27GW) by 2015 and 3.14GW by 2020. By 2030, it should more than double to 7GW.

Aside from the Renewable Energy Act 2011 and the Sustainable Energy Cor- poration Act (SEDA) 2011, there will be seven subsidiary laws which have been discussed with the industry. These will be uploaded on www.seda.gov.my once SEDA is set up. For now see www.mbipv.net.my for details on tariff and other information. The Energy Commission is the authority that licenses power genera-

tion. Laws that affect electricity supply generation must be complied with. Ap- proval by SEDA is only for the FiT.

condominiums may also apply. Participants of the Small Re- newable Energy Programme (SREP) launched ten years