Quota Obligations

Assignment 1

Muhammad
Muhammad Fauzi
Fauzi bin
bin Muhammad
Muhammad Sulaiman
Sulaiman
ME093539
ME093539
Muhammad
Muhammad bin
bin Ahmad
Ahmad Kahar
Kahar
ME093635
ME093635

QUESTION

What is Quota Obligations and

its
role
in
promotingthe
growth of Renewable Energy.
How would this be applicable
to Malaysia? You are allowed to
include case studies as proof of
existing schemes.

What is Quota
Obligations?
Known as an energy entitys obligation to produce
or

off-take

specified

amount

of

electricity

generated from renewable energy sources.

The quota fulfillment is supervised by a responsible
body authorized and registered by the authority.
Quotas are defined by national, regional or local
governments and are usually increased over time in
order to support the development of renewable
energy

Quota Obligations role in promotingthe

growth of Renewable Energy

The quota obligation scheme aims to

support
new
renewable
energy
generation by increasing demand for
renewable electricity.
Obligation systems often use Tradable
Renewable Energy Certificates (TREC)
that represents the renewable value of
electricity produced from renewable
sources and allows sale of that benefit to
be detached from the sale of the physical
electricity.

FLOW CHART OF THE MAIN

COMPONENTS OF A TREC SYSTEM

*Ref: REVIEW OF INTERNATIONAL EXPERIENCE WITH RENEWABLE ENERGY OBLIGATION SUPPORT MECHANISMS.,
Energy research Centre of theNetherlands

ADVANTAGES AND DISADVANTAGES

RENEWABLE ENERGY QUOTES

ADVANTAGE

DISADVANTAGE

Cost efficiency through focus

on least cost technologies

Exclusive support of low cost

technologies

Encourage
competition
among
renewable
energy
industries, and within the
same industry; and
can achieve the goals most
efficiently on the market
price.

Little
investment
security
(volatile
market
and
certificate price) requires risk
premium
for
financing
(increased capital costs)

No risk of an uncontrolled Little

dynamic
efficiency
growth of Renewable Energy (focus
on
mature
source installations because technologies),
de
facto
there is no incentive to penalizing
technological
produce
additional
RES innovations
*Ref: APECelectricity
Energy Working
Group
December
once
the
quota(2012).
has Renewable Energy Promotion Policies

ARE THERE POSSIBLE FOR

MALAYSIA?

There are possible to introduce Quota Obligation in

Malaysia but not in the near future
Parliament of Malaysia approved the Renewable
Energy Act in April 2010. The Feed-in tariff (FIT)
system was incorporated in the law to obligate the
National power company to purchase the electricity
generated by renewable energy at a fixed price. The
FIT mechanism allows electricity that is produced
from indigenous renewable energy resources to be
sold to power utilities at a fixed premium price and
for a specific duration. The FIT also provides a
conducive and secured investment environment
enabling financial institutions to be comfortable in
providing loans for long periods of more than 15
years.

 The level of tariff for Malaysian FIT is calculated based on

the rate of Return on Investment, ROI and electricity
production cost. Basically the FIT rate (tariff) is determined
by setting a constant ROI to guarantee the interest of
investors. The premium added to the electricity production
cost is an additional cost to keep the ROI constant.
From the mechanism set by Malaysian Government, FIT
system will give more benefit to renewable energy investor
in the mean time.

*Ref: APEC Energy Working Group December (2012). Renewable Energy Promotion Policies