Naturally endowed with thousands of kilometres of rivers, abundant sunshine, a vibrant agricultural sector producing plenty of biomass and even the odd geothermal hotspot, Malaysia’s renewable energy (RE) segment has the ability to transform the country’s energy sector. According to the Sustainable Energy Development Authority Malaysia (SEDA Malaysia), the country’s RE potential includes 1340 MW of biomass capacity, 360 MW of municipal solid waste, 490 MW of mini-hydro (along with approximately 20 GW of large hydro) and solar capabilities limited only by the amount of space needed to host the panels. Wind power potential is absent from the estimates due to a lack of data. By tapping into these power sources, the government hopes to boost the RE generation to 5.5-6% (985 MW) of the country’s total power mix by 2015 and to 17% (4000 MW) by 2030.

Despite the strong potential of renewables in Malaysia, implementation has so far been lagging behind ambition, as only 68.45 MW (mostly from 12.5 MW of mini-hydro and 50.95 MW of biomass and biogas) of renewable power were connected to the grid at the end of 2011, according to SEDA Malaysia. While there is another 453.3 MW of renewable capacity installed off-grid, these mostly biomass and biogas power plants are built on-site at large agricultural plantations to utilise waste and power localised facilities.

LOOKING FIT: While the government has passed legislation designed to stimulate the nascent RE sector via efforts such as the Fifth Fuel Plan of 2000, the National RE Policy and Action Plan of 2010 and the New Energy Policy and 10th Malaysia Plan of 2010, the first acts with tangible incentives for producers were enacted in April 2011 with the passage of the Renewable Energy Act 2011 and Sustainable Energy Development Authority (SEDA) Act 2011. The former established a feed-in tariff (FIT) incentive scheme and an RE fund (REF) to finance the FIT, while the latter established SEDA to oversee the FIT management, among other duties. While modelled loosely on FIT schemes employed in countries such as Germany and Spain, the Malaysian version puts the initial financial onus on the end-user through a 1% FIT incorporated into consumers’ electricity tariffs rather than the traditional method of producers paying the FIT and then passing along costs to consumers later. Under the system, distribution licensees such as Tenaga Nasional or Sabah Electricity are obliged to purchase electricity from qualified RE producers known as feed-in approval holders at predetermined FIT rates. As a result, the quota of RE power produced which qualifies for REF funds is capped and determined by the amount taken in by the FIT.

FIT ELIGIBILITY: The funds garnered from the FIT are pooled in the REF and then distributed to qualified RE producers at a variable rate depending on the technology employed, installed capacity of the plant and the year the project becomes operational. Wind and geothermal have yet to be included in the FIT scheme due primarily to relatively unexplored viability. This is likely to change in the future, however, as SEDA is currently undertaking a feasibility study for these two technologies for Malaysia. The technologies eligible for the incentive scheme are biogas and biomass, which receive FIT rates for a period of 16 years from commencement date; and small hydro and solar photovoltaic (PV), which each receive FIT rates for a period of 21 years following the commencement of operations.

Qualified producers of biomass-generated electricity, for instance, are eligible to receive an additional RM0.31 ($0.10) per KWh for power plants up to and including 10 MW of installed capacity that begin operations in 2012. In order to encourage rapid investment, these rates decrease for plants starting up each subsequent year to RM0.3085 ($0.099) per KWh in 2013 and RM0.3069 ($0.098) per KWh in 2014. A corresponding drop is also present relating to the size of projects with biomass power plants ranging in capacity from 10-20 MW receiving RM0.29 ($0.094) per KWh and those ranging from 20-30 MW receiving RM0.27 ($0.0871) per KWh. Additional supplemental FIT bonuses are also available for using specific efficient or locally produced technology. Examples of these include an RM0.02 ($0.0064) per KWh bonus for biogas producers using gas engine technology with electrical efficiency above 40% or an RM0.03 ($0.010) per KWh payout for solar PV producers using locally manufactured or assembled solar PV modules.

In order to gain access to these funds, aspiring RE producers must first petition SEDA for feed-in approval. As of July 4, 2012, 24.9 MW of commissioned biomass generation had been given the green light, along with 0.34 MW of solar PV capacity. Through July 2012 these installations produced a total of 11,173.63 MWh of electricity (comprising 11,110.71 MWh of biomass generation and 62.92 MWh of solar PV).

LEVELLING OUT: Ultimately, the goal of the programme is to develop RE through FIT incentives until producers achieve grid parity with other types of generation. But before this can happen, the first step is to stabilise the FIT, which will likely take at least a few years and some minor tweaks as the scheme evolves to better suit the market. Myriad complicating factors continually influence the scheme, such as the changing price of RE technology, fluctuating power prices, financing constraints, grid connection problems, permits and other issues.

As in many countries beginning to make the push for a greater contribution of RE sources, the process of developing fair and effective incentive schemes for these producers is an ongoing one, involving a fair bit of trial and error which can oscillate between overcompensation and under-incentivisation for producers. “We can’t wait to perfect the renewable energy promotion scheme, as rewriting the draft law, getting government approval and waiting for it to be published in the official gazette all takes time,” Badriyah Abdul Malek, CEO of SEDA Malaysia, told OBG. “It is a vicious cycle and we can’t wait for the perfect time.”

The amount collected from the FIT and thus available to producers from the REF may also need to be revisited. Early indications point to underfunding, which limits the available quota for RE producers and could slow the segment’s growth to less than the 15.6% compound annual growth rate of RE power capacity necessary to reach the government’s RE targets. Indeed, according to Abdul Malek, one of the largest obstacles for the success of the programme is obtaining enough cash for the REF. One way to boost funding would be through contributions from highly profitable conventionally fired independent power projects that have seen windfall profits and have internal rates of return in the high teens. Another option is to increase the FIT rate – an option left open through a government proposal to double the FIT to 2% in 2013.

EARLY RESULTS: Investors are beginning to take notice as a number of new RE projects are announced. The largest solar PV project to date was launched in March 2012 when the RM90m ($29m), 8-MW Pajam Solar Park began operations. Developed by Cypark Resources on a site of safely closed landfill, the 16.9-ha complex is expected to add 5 MW of solar capacity alongside a 2-MW landfill biomass plant.

“Malaysia is beginning to take the steps required to start getting value from waste, and eventually hopefully stop using landfills altogether,” said Nadzri Yahaya, the director-general of the Department of National Solid Waste Management.

A host of other renewable projects were announced in early 2012, many of them from large-scale agro-industrial groups such as Sime Darby and Felda Palm Industries, which are planning dozens of small-scale biomass power plants. According to SEDA data from August 2012, the cumulative installed capacity of RE producers with plants in progress that have been granted approval but have not yet commenced the FIT totalled 348.57 MW. Of these projects, expected to come on-line during 2012-14, the largest subgroup is solar, with installed capacity totalling 165.9 MW planned (9.39 MW for individual, 6.74 MW for non-individual of less than 500 KV, and 150.45 MW for non-individuals between 500 KV and 5 MW). This was followed by biomass generation, with 96.4 MW (including 8.9 MW from solid waste biomass) to be installed, and small hydro, with 65.75 MW. Landfill- and sewage-powered biogas power plants are expected to add 12.36 MW in capacity along with 20.53 MW of general biogas power.

In an effort to discourage speculative projects the government has implemented controls whereby potential RE producers must formulate and adhere to a developmental plan for their projects. Thus, if certain milestones are not met in a timely fashion, SEDA may then revoke the company’s feed-in eligibility status.