Energy Policy 39 (2011) 79757987

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Energy Policy
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An evaluation of the installation of solar photovoltaic in residential houses in Malaysia: Past, present, and future
Firdaus Muhammad-Sukki a,b,n, Roberto Ramirez-Iniguez a, Siti Hawa Abu-Bakar a,c, Scott G. McMeekin a, Brian G. Stewart a
a

School of Engineering and Built Environment, Glasgow Caledonian University, Cowcaddens Road, G4 0BA Glasgow, Scotland, United Kingdom Faculty of Engineering, Multimedia University, Persiaran Multimedia, 63100 Cyberjaya, Selangor, Malaysia c Public Mutual Berhad, 1 & 3, Jalan PJU 8/5i, Perdana Business Center, Bandar Damansara Perdana, 47820 Petaling Jaya, Selangor, Malaysia
b

a r t i c l e i n f o
Article history: Received 7 February 2011 Accepted 24 September 2011 Available online 20 October 2011 Keywords: Solar energy Solar photovoltaic Feed-in tariff

abstract
This paper examines solar energy development in Malaysia, particularly in relation to the installation of solar Photovoltaic (PV) in residential houses. It analyzes the past activities related to solar energy in Malaysia, in terms of research and developments (R&Ds), the implementations used as well as the national policies for the past 20 years which have pushed the installation of PV in the country. The Feed-In Tariff (FiT) scheme is discussed, showing comparative cost-benet analysis between the PV installation in houses in the United Kingdom (UK) and Malaysia, and with other investment schemes available in Malaysia. To investigate the awareness of renewable energy policies and incentives, a preliminary survey of the public opinion in Malaysia has been carried out, and an evaluation of public willingness to invest in the FiT scheme by installing the PV on their houses is presented. The costbenet analysis shows that the proposed FiT programme is capable of generating good return on investment as compared to the one in the UK, but the return is lower than other investment tools. The survey suggests that most Malaysians are unaware of the governments incentives and policies towards renewable energies, and are not willing to invest in the FiT scheme. & 2011 Elsevier Ltd. All rights reserved.

1. Introduction On 20 April 2010, the world experienced a huge oil leak as a result of a subsea explosion in the Gulf of Mexico. This leak has had a massive impact on both the environment and the economy of the local vicinity. It is reported that this event has triggered people to focus even more on renewable energy options, which have less environmental effect to the world (Choi, 2010). Solar energy is one of the alternative energies that show signicant potential in fullling the growing energy demand in the world. Since the rst solar houses developed by the ancient Egyptians during the seventh century BC (Petrova-Koch, 2009), there have been numerous other experiments and research projects conducted worldwide to harness solar energy. Solar thermal system utilizes the heat energy from the sun; and depending on the collectors temperature, produces hot water, space heating and even electricity in Concentrated Solar Power (CSP) plants (EIA, 2010; Ekins-Daukes, 2009; Welford and Winston, 1989). As for solar electricity generating system, it can

Corresponding author. Tel.: 44(0)141 331 8938; fax: 44(0)141 331 3690. E-mail addresses: rdaus.muhammadsukki@gcu.ac.uk, rdaus.sukki@mmu.edu.my (F. Muhammad-Sukki). 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.09.052

either be produced from the CSP or by the photovoltaic effect (Ekins-Daukes, 2009; Petrova-Koch, 2009). Malaysia is situated in the South East of Asia and comprises two regions: West and East Malaysia, which are separated by the South China Sea. It consists of 13 states and three federal territories, and has a total area of 329, 847 km2 (Central Intelligence Agency, 2011). This tropical country is located at the equator. With a strategic geographical location, Malaysia benets from a huge amount of solar insolation, ranging from 1400 to 1900 kWh/m2 (Ahmad et al., 2011), averaging about 1643 kWh/m2 per year (Haris, 2008) with more than 10 sun hours per day (Amin et al., 2009). It was calculated theoretically that a 1 kWp of solar panels installed in an area of 431 km2 in Malaysia could generate enough electricity to satisfy the electricity requirement of the country in 2005 (Haris, 2008). Given its potential, it is almost impossible not to tap into this resource for Malaysias benets. Fig. 1 shows the yearly average solar insolation in Malaysia. Section 2 presents an overview of the past and present activities related to solar PV installation in Malaysia covering the current electricity demand, research and developments, implementations and existing national policies. Section 3 discusses the solar feed-in tariff programme in general and presents a comparative nancial analysis on installations in Malaysia and in the United Kingdom. Section 4 presents and discusses the

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Fig. 1. The yearly average solar insolation in Malaysia (Haris, 2010b).

result of a survey carried out on the Malaysian public in relation to awareness and attitudes to PV installations, and conclusions are presented at the end of this paper.

Table 1 Source of electricity in Malaysia (Economic Planning Unit, 2006). Year 2000 2005 2010 Oil (%) 4.2 2.2 0.2 Coal (%) 8.8 21.8 36.5 Gas (%) 77.0 70.2 55.9 Hydro (%) 10.0 5.5 5.6 Other (%) 0.0 0.3 1.8 Total (GWh) 69,280 94,299 137,909

2. Reality check in Malaysia 2.1. Current electricity demand in Malaysia Malaysia had a total population of more than 27 million in 2010 (Department of Statistics Malaysia, 2010). To date, there are approximately 6.5 million households in Malaysia with an average household size of 4.31 people (Department of Statistics Malaysia, 2010). At the moment, the residential dwellings total about 7.3 million (Department of Statistics Malaysia, 2010), and is projected to increase by about 150,000 each year (REHDA, 2010). With such a big increase in the number of residential houses, plus the growth in the commercial and industrial sectors, it is expected that the demand for electricity will also increase. In the rst half of 2010 alone, 21% of the electricity generated in Malaysia was consumed by the residential sector (Energy Commission, 2010) with an average annual consumption of 3300 kWh per household. A typical house uses more than 40% of the electricity on the fridge, air-conditioning, and water heating (Taha, 2003). The electricity generation in Malaysia is largely produced from fossil fuels, mainly from natural gas and coal, which constitute nearly 90% of the overall generation, as illustrated in Table 1 (Economic Planning Unit, 2006). It can be seen that the electricity generated in 2010 has doubled from the amount in 2000. In addition, Table 1 clearly indicates that the electricity in Malaysia is fully dependant on fossil fuel sources. Although Malaysia is ranked 16th in terms of the size of its natural gas reserves (Central Intelligence Agency, 2011), it is reported that the country could only sustain current natural gas production for about 29 years (Ahmad et al., 2011). The supply for coal, on the other hand, is imported from outside of Malaysia, mainly from Indonesia (84%), Australia (11%), and South Africa (5%) (Jaffar, 2009). This means that to sustain this increasing electricity demand, while

cutting the dependency on the fossil fuels, Malaysia needs to shift its electricity generation to alternative energy resources. 2.2. Research and development Malaysia has spent signicant amounts of money on research and development (R&D) activities related to harnessing solar energy. There are three groups of R&D operations in Malaysia; (i) the government research institute (GRI), (ii) private R&D companies (PRC), and (iii) universities (Asmawi and Mohan, 2010). Research in solar energy started in the 6th Malaysia Plan (19901995), however, only at the beginning of 7th Malaysia Plan (19962000), solar research started to surge. Since solar is a relatively new eld in Malaysia, most of the research related to solar is considered as basic research and has been dominated by the universities. To ease the R&D activities related to solar energy, the Malaysian Government introduced the Intensication of Research in Priority Area (IRPA) programme in 1988 (Pey, 2008), one of the key sources of research grant available for the research community in Malaysia. The IRPA programme supports R&D activities in the public sector on areas that address the need of Malaysia industry for the enhancement of the national socioeconomic position (Sopian et al., 2005). Each IRPA programme has a specic funding allocation which can last for the duration of each Malaysia Plan, i.e. 5 years. In IRPA7, there were 102 projects related to energy, amounting to MYR31.83 million; and from that amount, 23 projects were directly linked to solar. Although the number was relatively small, these projects consumed nearly half of the total R&D budget. This

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grid-connected PV installed in a domestic house in Malaysia was made in August 2000, where a 3.08 kWp solar panel was installed for the Tenaga Nasional Berhad (TNB) ofcers house located in Port Dickson. The panel was retrotted on the roof top covering an area of 26 m2. Three months later, another installation was carried out in Subang Jaya, with an output rating of 3.12 kWp which covered a roof area of 24 m2. The next installation was performed a year after the second installation, on a roof of a house in Subang Jaya, with a capacity of 2.82 kWp. All these installations were completed by the TNB research team (Haris, 2006; MBIPV Project, 2010b). 2.4. National policy Since its independence, Malaysia has introduced a number of policies and acts, which were related closely to the national energy development (Chua and Oh, 2010). The rst renewable source used in Malaysia was hydro, which was listed as one of the contributors to the energy mix, in the Four Fuel Diversication Policy in 1981. This policy managed to reduce the dependency on oil from about 75% in 1980 to only 4.2% in 2000 (Mustapa et al., 2010). Although hydro contributed to about 10% of the energy mix in Malaysia in 2000, another 90% of the supply was still dominated by fossil fuels. When the price of oil surged in 2000 (IEA, 2004), the Malaysian Government started to consider nonhydro renewable energy as one of the key energies, by implementing the Fifth Fuel Policy in 2001 under the 8th Malaysia Plan. This policy identied the potential in biomass, biogas, municipal waste, solar, and mini-hydro as the sources of electricity generation. When this policy was introduced, it was aimed to generate 5% of the electricity from renewable resources in 5 years time (Leo-Moggie, 2001). Unfortunately, this target only managed to reach 0.3% by the year 2005 (Economic Planning Unit, 2006). The general causes for the slow renewable energy development were presented in (Abdul Malek, 2010). These causes included: (i) market failurethere is only one buyer which results in unequal bargaining position of the utility and renewable energy project proponents; (ii) economic, nancial, and technological constraints which limits the performance of the market; (iii) absence of a legal framework which prevents proper and legal action from being taken, and (iv) lack of institutional measures to meet informational and technological needs. Further analysis on the setbacks specically in solar technology indicates that the two main reasons were due to the high cost of and low efciency of the PV cell (Ahmad et al., 2011; Maricar et al., 2003; Rahman Mohamed and Lee, 2006). There were a number of key projects implemented in Malaysia from 1999 such as the Malaysia Industrial Energy Efciency Improvement Project (MIEEP), Small Renewable Energy Power Programme (SREPP), Malaysia Building Integrated Photovoltaic (MBIPV) Technology Application Project, Building Energy Efciency Programme (BEEP), and Green Building Index (GBI) (Chua and Oh, 2010; Oh et al., 2010; Rahman Mohamed and Lee, 2006). However, the installation of solar PV in residential houses started to soar during the Malaysia Building Integrated Photovoltaic (MBIPV) Technology Application Project which was launched on the 25th July 2005 (MBIPV Project, 2010a). The main objective of this programme was to reduce the long-term cost of the BIPV technology in Malaysia, which would lead to an increase in the BIPV technology applications whilst reducing emissions of green house gases. The MBIPV project focused on the market development for BIPV technology, and on building the national capacity in three major areas: (i) policy and education; (ii) technical skill and market implementation, and (iii) technology development support. This project introduced three major incentives: (i) SURIA 100 and SURIA for developers; (ii) demonstration, and (iii)

Fig. 2. Allocation of IRPA7 funding for specic renewable R&D projects (Sopian et al., 2005).

was because the cost of each solar R&D activity was relatively highsome of them even higher than MYR1 million each (Sopian et al., 2005). These research activities were conducted by the Malaysian universities, with the top four highest amount of funding being awarded to Universiti Teknologi Malaysia (UTM), Universiti Kebangsaan Malaysia (UKM), Universiti Putra Malaysia (UPM), and Universiti Sains Malaysia (USM). Fig. 2 shows the Allocation of IRPA funding for specic renewable R&D projects in the 7th Malaysia plan. According to the statistic from Malaysian Science and Technology Information Centre (MASTIC), there were about 53 Science and Technology projects related to solar being conducted in Malaysia from 1990 to 2005 under the IRPA incentive (MASTIC, 2010). From 2006 onwards, the Ministry of Science, Technology and Innovation (MOSTI) decided to replace the IRPA programme with the Science Fund and Pre-Commercialization Fund (Pey, 2008). The Science Fund is a grant provided by government to carry out R&D projects that can contribute to the discovery of new ideas and the advancement of knowledge in applied sciences, focusing on high impact and innovative research (MOSTI, 2011). The Pre-Commercialization Fund on the other hand is aimed to undertake the development of new or cutting edge technologies or further develop or value adds existing technologies or products in specic areas for the creation of new businesses and generation of economic wealth for Malaysia (MOSTI, 2011). There are two funds available under the Pre-Commercialization Fund, which are the TechnoFund and InnoFund (Day and Muhammad, 2011). To date, the research covers a variety of areas to solar energy capture, including PV cell, inverters, hybrid systems, concentrators, and tracking systems (IEA PVPS, 2009). It is reported that by April 2010, approximately MYR157 million had been awarded to green technology research including solar under the 9th Malaysia Plan (Ongkili, 2010). 2.3. PV implementation in residential houses (19952004) Solar installation can be divided into two categories; standalone PV and grid-connected PV. The stand-alone PV can be installed in rural areas. Up to 2004, the cumulative grid-connected PV was 468.00 kWp (Haris, 2010b), but this gure was largely due to the installation of a 362.00 kWp project undertaken by Technology Park Malaysia in 2001 (Haris, 2006). However, the contributions from residential houses were very small, about 9.00 kWp corresponding only to three installations. The rst

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Fig. 3. Total number of PV installed and commission until 31/12/2010 (MBIPV Project, 2010a).

showcase. Each incentive involved varying amounts of investment to incentivize the installation of BIPV technology as well as to accelerate the program. This project ended on the 31st December 2010 and has shown some interesting ndings (MBIPV Project, 2010b; Chua and Oh, 2010) which are as follows: (i) the total capacity successfully installed and commissioned was 1516.00 kWp. There were 109 projects completed from which 64 were installed on residential houses, corresponding to about 459 kWp (see Fig. 3); (ii) the cost of PV reduced greatly from MYR31,410.00 per kWp in December 2005 to MYR19,120.00 per kWp in March 2010, a reduction of about 40% of the cost; and (iii) the bidder (home owner) was willing to pay a higher amount of the total of a PV installation, from 46.7% to 59.9%. After the successful MBIPV project, the Government of Malaysia in the 10th Malaysia Plan has conrmed that a new renewable energy law will be put in place, where the Feed-In Tariff (FiT) is included. The new law is targeted at domestic users to generate electricity in their houses by using renewable resources (Chua et al., 2011). It is aimed at achieving 5.5% of the electricity generated from renewable energy sources by the end of 2015 (Economic Planning Unit, 2010). Table 2 summarizes the information in Chapter 2, indicating the short term emphasizes in each Malaysia Plan, the policies and acts introduced in each time line as well as the key projects implemented which closely related to the increased in renewable energies usage in Malaysia.

3. Feed-In Tariff (FiT) 3.1. Overview of FiT Feed-In Tariff (FiT) is a scheme in which the owner will be paid for any amount of electricity generated in kilowatt-hour (kWh), with a contract period of typically 20 years. This is one of the incentives offered to increase the renewable energy penetration, especially for small scale electricity generation. FiT was rst introduced in Germany in 1991 under the Electricity Feed Law (EFL), but the revised FiT scheme under the Renewable Energies Law (REL) law in 2000 has transformed the solar industry in Germany (Qiang Zhai

et al., 2010). By 2004, the PV installation in Germany increased by thirtyfold (Pietruszko, 2006) and the expectation was that it would increase further. Even with a low average amount of solar insolation per year, Germany still managed to become the leading country in terms of PV installation (Chua et al., 2011), with a total cumulative installation of more than 18,000 MWp in mid-2011 (German Federal Network Agency, 2011). Due to its signicant success, the same concept is currently being adopted in about 41 other countries in the world (WFC, 2007). The United Kingdom (UK) for example, started to implement FiT in April 2010 (DECC, 2010b). For any house owner in the UK who enrolls in this scheme, there will be three separate meters installed in their house; one for measuring the generated electricity, one for measuring the exported electricity and one for quantifying the amount imported from the grid. For any solar panel installed in an existing building, the FiT could potentially benet the participants for a contract period of 25 years in three ways1 : (i) all the electricity generated will be paid at 0.433 (MYR2.0784) per kWh; (ii) any electricity exported into the grid will be paid at 0.03 (MYR0.1440) per kWh, and (iii) the electricity generated can also be used by the participants, which reduces the amount of electricity required. Fig. 4 shows the conceptual diagram of an FiT implementation in a UK house. On average, the current cost of electricity is 0.13 (MYR0.624) per kWh (DECC, 2010b) and on average 4457 kWh is consumed annually per household (BERR, 2007). After ve months since the launch of the FiT scheme, there were 3606 installation of PV in domestic houses, with a capacity of 8.457 MW (DECC, 2010a). Malaysia has passed the Renewable Energy Act on the 4th April 2011, in which an FiT scheme is proposed. The FiT in Malaysia gives much emphasis on solar PV. In Malaysias case, only two meter readings are required, which are the generation and the import meter. All the electricity generated will be exported back to the national grid. Table 3 shows the rate for the amount of electricity generated using solar PV, ranging from MYR0.85 to MYR1.23 per kWh produced, depending on the installed capacity. Additional bonuses are also introduced on top of the basic FiT rate (ranging from MYR0.01 to MYR0.55 per kWh) when the installation meets specic criteria. This means that any applicant could gain the maximum amount of MYR1.78 per kWh produced. It has a payback period of 21 years and the degression rate is 8% per year (Malaysian Government, 2011). The launching date for the implementation of the FiT programme is scheduled on the 1st December 2011 (Kui, 2011). The FiT scheme will be nanced by the consumers themselves. This is achieved by increasing the current electricity tariff by 1%, and that amount is pooled into the FiT fund (Yee, 2010), and the increment of the electricity tariff is scheduled to start on the 1st December 2011(Utusan Malaysia, 2011). This fund will be available until 2030 when it will reach a cumulative value of MYR18.9 billion. With a degression rate in place, it is expected that by that year, the cost of solar electricity will reach grid parity, driven by the environment and the energy security in Malaysia (Abdul Malek, 2010; Haris, 2010a). Catalyzed by the FiT scheme, the renewable energies are expected to play a signicant role in Malaysia, with a projected cumulative capacity of 11.5 GW by 2050, where close to 9 GW is expected from the contribution of solar PV, as illustrated in Table 4 (Abdul Malek, 2010). Fig. 5 shows the estimated annual electricity consumption in Malaysia from 2011 until 2050, where about 25,579 GWh of the requirement will be supplied by these grid-connected renewable energy mixtures (Haris, 2009b). This

1 The currency used in the calculations throughout this paper is in Malaysian Ringgit (MYR). The conversion rate for 1.00 is assumed to be equivalent to MYR4.80.

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Table 2 Malaysias renewable energies journey (Abdul Malek, 2010; Chua and Oh, 2010; Rahman Mohamed and Lee, 2006; Oh et al., 2010). Timeline Malaysia Plan 19962000 20012005 20062010 20112015

7th Malaysia Plan 8th Malaysia Plan 9th Malaysia Plan 10th Malaysia Plan Short term goals vested in Emphasis on strengthening Emphasis on the sustainable Emphasis on the sustainable National Green Technology initiatives for EE especially in development of energy development of depletable Policy: transport, commercial, and resources, both depletable and resources and the Increased public awareness and industrial sectors, and in renewable. The energy mix diversication of energy commitment for the adoption government buildings. includes ve fuels: oil, gas, coal, sources. and application of green Encourage better utilization of hydro, and Renewable Ensuring adequacy of technology through advocacy RE through diversied fuel Energy (RE). generating capacity as well as programmes. sources. Intensify efforts on ensuring expanding and upgrading the Widespread availability and Intensify efforts to further adequacy, quality, and security transmission and distribution recognition of green technology reduce the dependency on of energy supply. infrastructure. in terms of products, appliances, petroleum provides for more Greater emphasis on Energy Encouraged the use of new and equipment, and systems in the efforts to integrate alternative Efciency (EE): encourage alternative energy sources as local market through standards, fuels. efcient utilization of gas and well as efcient utilization of rating and labeling Incentives in promoting RE and RE as well as provide adequate energy. programmes. EE are further enhanced. electricity generating capacity. Increased Foreign and Domestic Supports the development of Direct Investments (FDIs and industries in production of DDIs) in green technology energy-related products and manufacturing and services services. sector. Provide incentives for EE, use of Expansion of local research RE resources, and to maintain institutes and institutions of quality of power supply. higher learning to expand research, development, and innovation activities on green technology towards commercialization through appropriate mechanisms. Fifth Fuel Policy (2000) Introduced in recognition of the potential of biomass, biogas, municipal waste, solar, and minihydro as potential renewable energy resources for electricity generation. Energy Commission Act (2001) National Biofuel Policy (2006) Renewable Energy Act (2011) Implementation of feed-in tariff The Energy Commission (or Supports the ve fuels diversication policy. Aimed at mechanism. Suruhanjaya Tenaga) was reducing the countrys established to provide technical and dependence on depleting fossil performance regulation for the fuels, promoting the demand for electricity and piped gas supply palm oil. Five key thrusts: industries, as the safety regulator for transport, industry, electricity and piped gas and to technologies, export, and advise the government on matters cleaner environment. relating to electricity and piped gas supply including EE and RE issues. National Renewable Energy Policy and Action Plan (2010). Enhancing the utilization of indigenous RE resources to contribute towards national electricity supply security and sustainable socio-economic development.

Policy/Act

Key project

Malaysian Industrial Energy Efciency Improvement Project (MIEEIP) Started in 1999 and ended in 2009 to improve EE in Malaysias industrial sector. It achieved EE by removing barriers to efcient industry energy use and creating institutional capacity in policy development, planning, research and implementation of sustainable energy projects.

Small Renewable Energy Power Programme (SREPP) Launched in 2001 with the aim of encouraging private sectors to undertake small power generation projects using renewable resources including biomass, biogas, municipal waste, solar, mini-hydro, and wind energy. Building Energy Efciency Programme (BEEP) EE in buildings promotes optimal use of energy in heating, cooling and lighting which can be achieved by several strategies that optimize and regulate energy use in the building envelope such as windows with glazing to prevent heat gain, and controls for regulating energy use. Intensication of Research in Priority Area 8 (IRPA8) programme.

Malaysia Building Integrated Photovoltaic Technology Application (MBIPV) Project Started on 25 July 2005 and ended on 31 December 2010, the principal objective of MBIPV project is to reduce long-term cost of BIPV technology within Malaysian market, which subsequently leads to sustainable and widespread BIPV technology applications that avoid GHG emissions from the countrys electricity sector.

Intensication of Research in Research and development Priority Area 7 (IRPA7) programme. funding

Science Fund and PreCommercialization Fund.

Science Fund and PreCommercialization Fund.

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Table 2 (continued ) Timeline 19962000 20012005 20062010 20112015

Oil (4.2%); coal (8.8%); gas (77.0%); Source of electricity in hydro (10.0%); and others (0.0%). Malaysia at the end of timeline. Cumulative on-grid PV commissioned and installed at the end of timelinea.
a

Oil (2.2%); coal (21.8%); gas (70.2%); Oil (0.2%); coal (36.5%); gas (55.9%); hydro (5.5%); and others (0.3%). hydro (5.6%); and others (1.8%).

29.05 kW

481.48 kW

1516 kW

1650.63 kW (until 25 May 2011).

This gure includes 468 kWp baseline (grid-connected PV systems installed before the MBIPV project commenced of which some have been dismantled).

However, to ensure that the FiT scheme works successfully in Malaysia, several issues must be effectively addressed by the law. These are: (i) the electricity generated must have guaranteed access to the grid; (ii) the local approval procedures are streamlined and clear; (iii) the FiT rate must be high enough to generate return and prot; (iv) the FiT rate is xed for a long period for business certainty and security; (v) there is an adequate degression rate to achieve grid parity; (vi) there is sufcient fund created to pay the FiT rate for the whole contract period; and (vii) a competent agency is available to implement the FiT (Haris, 2009a). 3.2. Is FIT a good investment? As mentioned earlier, one of the requirements to implement the FiT is to ensure that the scheme will generate a good return and reasonable prot. It is possible to quantify the investment in solar technology. In this section, the analysis presents a comparison of an installation in the UK and Malaysia. For the installation in Malaysia, six scenarios are analyzed, using the solar insolation values of 1400, 1643, and 1900 kWh/m2 which represent the lowest, average, and highest amount of solar insolation, respectively. Also, for each of these three cases, the lowest and the highest FiT rates are used (i.e. MYR1.23 and MYR1.78). First, the cost of installation is calculated, which largely depends on the PV output rating. Next, based on the output rating and the value of solar insolation, the yearly electricity output in kWh is estimated and is later multiplied by the FiT rate to obtain the annual FiT income. The annual revenue is obtained by subtracting the yearly maintenance cost from the annual FiT income (Eq. (1)). The total revenue for the whole contract period is calculated by multiplying the annual revenue by the duration of contract (Eq. (2)). The total prot generated is equal to the difference between the total revenue and the installation cost (Eq. (3)). To get the payback period, this gure is generated by dividing the installation cost with the annual revenue (Eq. (4)) while the average annual return on investment is calculated by dividing the total prot with the total cost over the contract period (Eq. (5)). The relations between each nancial parameter are given in Eqs. (1)(5). Table 6 shows the denitions of all the nancial parameters needed for the nancial analysis in this paper. R F2M TR RnT TP TR2C 1 2 3

Fig. 4. The FiT implementation in the UK.

could potentially avoid an emission of 17,649,620 tonnes of CO2 a year by 2050 (Abdul Malek, 2010). The introduction of FiT will provide greater socio impacts to Malaysia as a whole which are: (i) creation of a minimum of 52,000 green jobs to construct, operate and maintain RE power plants; (ii) more than MYR70 billion of RE business revenues is projected to be generated from RE power plants operation, which will generate tax income of minimum MYR1.75 billion to Malaysia Government; (iii) a minimum of MYR19 billion worth of loans is estimated to be generated for RE projects, which will provide banks with new sources of revenues; (iv) a huge reduction of CO2 emission (as illustrated in Table 4), which could translate to minimum of MYR2.1 billion in savings of external cost to be generated to mitigate CO2 emissions (total 42 million tonnes avoided from 2011 to 2020, on the basis of MYR50 per tonne of external cost), and (v) Malaysia is perceived as a country with a global social responsibility and bears its share to mitigate climate change, and in addition to that, the Malaysia Government is perceived as being responsible to ensure energy security and autonomy, so the countrys economy is resilient and sustainable in the long run (Ministry of Energy, Green Technology and Water, 2011). Further advantages on the FiT programme in terms of economic, political, social, and environmental were discussed in detail by Mendonca et al. (2010) and the summary of the discussion is presented in Table 5.

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Table 3 The FiT rate for solar PV in Malaysia (Malaysian Government (2011)). Renewable resource Description of qualifying renewable energy installation Feed-in tariff rate (in MYR per kWh) Effective period (commencing from the feed-in tariff commencement date) Annual degression rate (%)

Solar photovoltaic

(a) Renewable energy installation having an installed capacity of: (i) up to and including 4 kW (ii) above 4 kW, and up to and including 24 kW (iii) above 24 kW, and up to and including 72 kW (iv) above 72 kW, and up to and including 1 MW (v) above 1 MW, and up to and including 10 MW (vi) above 10 MW, and up to and including 30 MW (b) Renewable energy installation having any one or more of the following criteria in addition to (a) above: (i) use as installations in buildings or building structures (ii) use as building materials (iii) use of locally manufactured or assembled solar photovoltaic modules (iv) use of locally manufactured or assembled solar inverters

Basic feed-in tariff rate 1.23 1.20 1.18 1.14 0.95 0.85

21 21 21 21 21 21

years years years years years years

8.0 8.0 8.0 8.0 8.0 8.0

Bonus feed-in tariff rate in addition to basic feed-in tariff rate 0.26 0.25 0.03 0.01 21 21 21 21 years years years years 8.0 8.0 8.0 8.0

Table 4 Projected renewable energy growth (Abdul Malek, 2010). Year Cumulative biomass (MW) Cumulative biogas (MW) Cumulative mini-hydro (MW) Cumulative solar PV (MW) Cumulative solid waste (MW) Cumulative total renewable energies, gridconnected (MW) 217 975 2065 2809 3484 4317 5729 8034 11,544 Annual CO2 avoidance (tonne/yr)

2011 2015 2020 2025 2030 2035 2040 2045 2050

110 330 800 1190 1340 1340 1340 1340 1340

20 100 240 350 410 410 410 410 410

60 290 490 490 490 490 490 490 490

7 55 175 399 854 1677 3079 5374 8874

20 200 360 380 390 400 410 420 430

846,975 3,707,825 7,746,837 10,117,015 11,393,197 12,060,165 13,166,594 14,950,810 17,649,620

Assumptions: 1. Renewable energy technical potential:  Biomass (Empty Fruit Bunches (EFB), agriculture): 1340 MW will be reached by 2028.  Biogas (Palm Oil Mill Efuent (POME), agriculture, farm): 410 MW will be reached by 2028.  Mini-hydro (not exceeding 30 MW): 490 MW will be reached by 2020.  Solar PV (grid-connected): unlimited.  Solid waste (Refuse-Derived Fuel (RDF), incineration, and sanitary landll): 378 MW will be reached by 2024 (at 30,000 tonne/day of solid waste as projected by Ministry of Housing and Local Government, followed by 3% annual growth post 2024). 2. No loss of renewable energy plant capacity (old plants are replaced or upgraded). 3. Renewable energy electricity generation:  1 MW Biomass (25,000 tonne/year/MW), Biogas generates 6132 MWh/year (70% capacity factor).  1 MW mini-hydro generates 5000 MWh/year (57% capacity factor).  1 MW PV generates 1100 MWh/year (13% capacity factorexpected to signicantly improve in future).  1 MW SW (100.tonne/day/MW) generates 6132 MWh/year (70% capacity factor). 4. 1 MWh RE avoids 0.69 tonne CO2.

PP C=R ROI TP=C=T

To ease the calculations, a number of assumptions are made: (i) each house uses a 2.50 kWp solar panel; (ii) the installation cost is paid in full at the beginning of the projectno loan is taken to fund it; (iii) the solar panel maintain 100% performance during its contract period; (iv) all the electricity generated is exported back to the grid; (v) the maintenance cost is 1% of the capital cost (IEA, 2010); and (vi) the calculation will be done for the duration

of the contract period, i.e. 25 years for the installation in the UK and 21 years for the installation in Malaysia. All the results from the calculations are presented in Table 7. Consider one of the real examples of a BIPV installation made by Planet Solar Ltd. where a system was installed covering a roof area of 17 m2, and at a cost of MYR60,000.00 (Solarcentury, 2011). With an average solar insolation of 1000 kWh/m2 per year (Energy Saving Trust UK, 2005), the solar panel installed in the UK could generate about 2500 kWh in a year. This translates to an annual generation income of approximately MYR5196.00. The UK home owner receives about MYR360.00 per year for exporting the electricity back to the

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Fig. 5. Estimated annual electricity requirement in Malaysia from 2011 until 2050 (Haris, 2009b).

Table 5 Advantages of the FiTs (Mendonca et al. 2010). Economic Green jobs creation Create FDIs and DDIs for manufacturing and export Hedge against conventional fuel price volatility Provide RE investor security Drive economic development Create stable conditions for market growth Simple, transparent policy structure helps encourage new start-ups and innovators Political Demonstrate commitment to RE deployment Increase energy security and autonomy Promote a more decentralized and democratized form of electricity system Create mechanism for achieving RE and emissions reduction targets Increase the stakeholder base supporting RE policies Social Fairer wealth distribution and empower citizens and communities Increased public support for renewables through direct stake and increased exposure to renewables Encourage citizen and community engagement in activities protecting climate and environment Make RE a common part of the landscape and cityscape Environmental Reduce carbon emission and pollutions Encourage energy efciency measures Reduce dependency on fossil fuels

Table 6 Financial parameters. Item Installation cost Annual FiT income Annual revenue Total revenue Maintenance cost Contract duration Total prot Payback period Average annual return on investment Average yearly dividend yield Symbol C F R TR M T TP PP ROI Y

grid. After deducting the maintenance cost of MYR600.00 a year, the annual return calculated is MYR4956.00 a year, about MYR123,900.00 for the whole contract duration. The installation of a PV panel in the

UK has a payback period of 12.11 years, with an average annual return on investment of 4.26%. The prot from this investment is estimated to be MYR63,900.00. For the installation of a 2.50 kWp PV panel in Malaysia, the cost is estimated to be RM47,800.00. This is based on the MBIPV project result that shows that the average cost of a PV panel is MYR19,120.00 per kWp. The maintenance cost is then expected to be MYR478.00 per year. For all the six scenarios, the annual revenue is calculated to be between MYR3827.00 and MYR7977.00, which translates to a total revenue of between MYR80,367.00 and MYR167,517.00 for the whole 21 years. Any house owner could get a reasonable prot of up to MYR119,717.00 depending on the location of installation. The average annual return on investment varies from 3.24% to 11.93%, with a payback period of minimum 5.99 years and maximum of 12.49 years. From Table 7, ve out of the six Malaysian cases indicate that the installation in Malaysia generates higher average annual return on investment and shorter payback period when compared to the one in the UK. This means that, for the same system installed in Malaysia, the investment on the solar PV gives a better performance than in the UK. To see if solar PV is a good investment alternative in Malaysia, the results are compared to typical investment schemes available in Malaysia, which are represented in Table 5. Malaysians have the opportunity to invest in unit trusts, national unit trusts, Employee Provident Fund (EPF) government bonds, xed deposits, and savings accounts. A unit trust allows investors with similar objectives to pool their money to be invested in a number of portfolios, and is managed by professional fund managers (FIMM, 2011). There are 581 funds available in Malaysia which can be divided into two groups, conventional and shariah-based. Currently, there are approximately 14.5 million account holder funds with a total value of MYR228 billion (FIMM, 2011). The national unit trust shares the same concept as a typical unit trust, but is managed by Amanah Saham Nasional Berhad (ASNB), the subsidiaries of a government-link company called Permodalan Nasional Berhad (PNB). There are 11 funds managed by the ASNB (Permodalan Nasional Berhad, 2010). The EPF is a retirement fund for all the private sector workers (KWSP, 2011). Since the majority of the Malaysians work in the private sector, all of them must have an EPF account. They contribute typically 11% from their monthly remuneration with another 12% being paid by

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Table 7 The cost-benet analysis of implementing the FiT in the UK and in Malaysia. Item Unit United Kingdom Malaysia (a) Malaysia (b) Malaysia (c) Malaysia (d) Malaysia (e) Malaysia (f) 1000.00 60,000.00 2500.00 25.00 2.2224a 5556.00 600.00 4956.00 123,900.00 63,900.00 12.11 4.26 1400.00 47,800.00 3500.00 21.00 1.23 4305.00 478.00 3827.00 80,367.00 32,567.00 12.49 3.24 1643.00 47,800.00 4107.50 21.00 1.23 5052.23 478.00 4574.23 96,058.73 48,258.73 10.45 4.81 1900.00 47,800.00 4750.00 21.00 1.23 5842.50 478.00 5364.50 112,654.50 64,854.50 8.91 6.46 1400.00 47,800.00 3500.00 21.00 1.78 6230.00 478.00 5752.00 120,792.00 72,992.00 8.31 7.27 1643.00 47,800.00 4107.50 21.00 1.78 7311.35 478.00 6833.35 143,500.35 95,700.35 7.00 9.53 1,900.00 47,800.00 4,750.00 21.00 1.78 8,455.00 478.00 7,977.00 167,517.00 119,717.00 5.99 11.93

Yearly solar insolation kWh/m2 Installation cost MYR Electricity generated from the 2.5 kWp PV panel kWh Contract period Year FiT rate MYR/kWh Income from FiT scheme Generation and exportation of electricity Maintenance per year Annual revenue Total revenue at the end of contract year Investment analysis Total prot Payback period Average annual return on investment
a

MYR MYR MYR MYR MYR Year %

This value is a combination of generation tariff of MYR2.0784 and exporting tariff of MYR0.144, as mentioned earlier in Section 3.1.

Table 8 Comparison of investment portfolio available in Malaysia. Type of investment Average yearly dividend yield (%) 14.29 10.61 5.92 5.00 3.00 0.95 Total return on investment (MYR) 789,952.15 397,292.29 159,943.03 133,169.01 88,922.08 58,298.94 80,367.00 96,058.73 112,654.50 120,792.00 143,500.35 167,517.00 Average annual return on investment (%) 73.93 34.82 11.17 8.50 4.10 1.05 3.24 4.81 6.46 7.27 9.53 11.93 Reference for average yearly dividend yield

Unit trustPITTIKAL National unit trustASB Employee provident fund Government bond Fixed deposit Savings account Solar PV installationa Solar PV installationb Solar PV installationc Solar PV installationd Solar PV installatione Solar PV installationf

(Public Mutual Berhad (2010)) (Permodalan Nasional Berhad, 2010) (Bernama, 2010a; Idris, 2009; Thillainathan, 2004) (Bank Negara Malaysia, 2009) (CIMB Bank, 2011b) (CIMB Bank, 2011a)

their employer (KWSP, 2011). On top of compulsory monthly deduction, they could also add additional contributions into the EPF fund. Government bonds on the other hand are issued by the Bank Negara Malaysia (BNM), which could be redeemed by the investors after a certain amount of time, typically 5 to 10 years (Bank Negara Malaysia, 2011). Although the dividend yield is small as compared to the unit trust, it offers a secure and reasonable return on the investment. Fixed deposit and savings accounts are the services offered by all the banks in Malaysia (ABM, 2011). While the account holders could withdraw at any time using the savings account, the xed account imposed specic conditions on the amount of money invested, withdrawal frequency as well as the investment period. In return, the xed deposit offers slightly higher return that the savings account. In order to perform the comparison between investing the money in solar panel or other investment instruments, the same amount of money needed for the installation cost of a PV panel is assumed to be invested in each of them, with the duration of investment equals to the FiT contract period. In this section, only one example from each investment instrument is taken into consideration. To get the amount of total revenue at the end of the investment period, the calculation is carried out using the compound interest formula available in (Marecka, 2001) which is shown in Eq. (6). To determine the average yearly dividend yield of each investment type, these gures are obtained based on historical data. If the same capital cost of MYR47,800.00 is the investment for the duration of 21 years in any of the portfolios,

this money could generate a total return of between MYR58,298.94 and MYR789,952.19 at the end of the period. These values are recorded in Table 8. The average annual return is calculated using Eqs. (3)(5). TR C n1 YT 6

If the solar investments are compared with the other investment portfolios, it can be seen that in all cases, the average annual return on investments are higher than putting the money into a savings account. However, only the solar installation in (f) could generate a better result than the EPF scheme, while the installation of cases (a)(d) generate less average annual return than the government bonds. From this table, it is possible to conclude that due to the lower average annual return, Malaysians might choose not to invest in the FiT since they have the option of investing in more lucrative and stable schemes.

4. Perception of Malaysian Solar without doubt has the potential to go even further in relation to installation capacity. Driven by the R&D and the support mechanisms from the government, solar installation continues to increase. Not only that, Malaysia has also managed to attract a lot of Foreign Direct Investment (FDI) in the solar area, amounting to a total of MYR13.8 billion, which will allow Malaysia to climb to position number three in the world in terms of solar PV manufacture in 2011 (Chua et al., 2011). The top

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industrial players include GEWD, First Solar, Q-Cell, Sunower, Tokuyama, MEMC, and STX Energy (Haris, 2010c; Mat Nawi, 2008; Chua et al., 2011). An increase in the FDI in solar not only creates opportunities such as jobs and domestic demands for solar PV, it also encourages market competition among manufacturers in lowering renewable energies technology pricing, leading to better market conditions for renewable energies investors to build and deploy solar projects (Mendonca et al., 2010). It is also interesting to understand public opinion regarding PV issues in Malaysia. As such, an online survey was conducted over three weeks, from the 31st December 2010 until the 21st January 2011. This survey was aimed at investigating: (i) whether the public is concerned about generating greener electricity; (ii) public awareness of government incentives and policies related to renewable energy, and (iii) the willingness of the public to join the FiT programme. A total of 214 Malaysians responded to the survey. This survey was similar to the analysis performed by Haw et al. (2009). The respondents came from different professional areas, with the majority of the respondents, 67% of the total aged between 25 and 34 years old. Almost 52% of the totals do not own a house and are either living with parents or renting a place to stay. The respondents were either living in low-rise (i.e. single storey houses, double storey houses, semi-detached houses, or bungalows) or high-rise (i.e. at, condominium, or apartment) dwellings in Malaysia. Fig. 6 shows the distribution of monthly household income and Fig. 7 illustrates the monthly electricity billings of the respondents. Out of the total gure, 150 are responsible for paying the electricity bill of the house. The results of the survey indicate that 57% are not concerned about the source of power, whether it is generated from fossil fuels or from renewable energy, as long as electricity is supplied to their houses. However, if they have the options to choose the source of electricity, 51.4% of the respondents were willing to opt for electricity generated from renewable sources even though its

Fig. 8. Proportion of respondents willing to pay a higher price for electricity generated from renewable sources.

Fig. 9. Rating for the effectiveness of government awareness programme.

Fig. 6. Average monthly household income of the respondents.

Fig. 7. Monthly electricity bill of the respondents.

price is higher than the cost generated from fossil fuels, as shown in Fig. 8. The next part of the survey aimed to investigate the level of awareness with respect to the government incentives geared towards renewable energy in Malaysia. Around 63.1% of respondents were not aware of any incentives available for renewable energy in Malaysia. Despite the number of publicity drives in the mass media (Ali, 2010; Bernama, 2010b, 2010c, 2010d; Gee, 2010; Yee, 2010), this awareness level is very low within the general public. The respondents then rated the effectiveness of the governments awareness activities in promoting renewable technology (e.g. tax incentives, soft loan, import duty, MBIPV Project, etc.) in Malaysia. The result of the survey is presented in Fig. 9. where 73% rate the effectiveness as either very poor or poor, 22% gave a neutral opinion and only 5% rated the performance as good. No respondents chose excellent. The survey went on to investigate solar PV installation under the FiT scheme in Malaysia. A brief description was given to all respondents to explain the FiT processes at the start of the survey. The vast majority appeared to be interested in installing a PV panel under this scheme, i.e. around 81.3%. Next, the cost of installation was presented to them (ranging from MYR50,000.00 to MYR150,000.00 per installation depending on the PV size) as well as indicating a loan option to nance the installation. After learning these facts, 134 out of the 174 respondents who initially agreed to join the FiT scheme decided not to invest in the programme (refer to Fig. 10). Possible reasons are: (i) the capital cost is considered very high; (ii) they do not have sufcient money to make lump sum payment since 65% of them have an average monthly household income of less than MYR6000.00; (iii) those who have sufcient savings would prefer to invest in other investment instruments, or (iv) although there is a bank loan option, they are worried about their household debt, which shows

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5. Conclusion Solar energy has huge potential in Malaysia. Since 2000, solar PV installations have grown signicantly in this country. The MBIPV project was the driving force to accelerate solar PV penetration in residential houses. With a growing number of funding resources for R&D activities, and supported by numerous government policies, solar could become one of the major renewable sources for electricity generation in Malaysia. The recent introduction of the FiT scheme will denitely become the key driver to boost the solar PV industry in Malaysia, which has already successfully happened in Germany, Italy, and the UK. It is calculated that the FiT rate in Malaysia generates reasonable revenue and prot to the home owner. However, a comparative study with other investment tools available in Malaysia suggests that the total return from solar investment is not considered lucrative enough. A recent survey that was conducted to understand the public perspective and perceptions on renewable and solar PV installation under the FiT scheme suggests that Malaysians have a low level of understanding of the numerous incentives available and are reluctant to invest in solar PV under the current scheme. In spite of the fact that the solar PV industry has shown an increase in terms of number of installations, the study suggests that vast majority of Malaysian are still not willing to invest in this sector. With the low level of awareness of government policies available in Malaysia, it is not surprising and appears to be one of the major barriers for the FiT schemeespecially solar PV. This requires to be addressed carefully not only by the government, but also by the private sector. By providing sufcient awareness via the mass media, it is possible to breakthrough this barrier and see a successful renewable penetration in Malaysia. However, without appropriate awareness by the general public, this programme might not be able to reach its full potential. In addition, without strong support from the public, the initial target of 5.5% of electricity generated from renewable sources by 2015 will not be achieved. Based on the literature reviews, nancial study and the results from the conducted survey, a number of actions are proposed. These are: (i) to educate and conduct more awareness programmes for the general public, highlighting all government incentives and policies which could benet everyone in terms of the economy, social wellbeing, and the environment; (ii) to possibly increase the FiT rate (e.g. up to MYR2.00 per kWh produced), which would result in generating a higher return, and allow it to compete with other investment options available in Malaysia; (iii) increase R&D activities in the area of concentrators, solar trackers, and nanotechnology which have proven to increase the electrical output of the PV panel; and (iv) to attract more foreign direct investment in the Malaysian solar sector, which will help to bring down the cost per kWp, hence generating more return to investors. References
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Fig. 10. Responses on FiT programmeto install a PV panel in the house.

Table 9 Average score of the preference to choose the electricity supply. (3 very important, 2 important, and 1 least important). Preference Initial cost of implementation Electricity tariff Source of electricity Average score 2.44 2.20 1.36

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