Renewable Energy Development in Malaysia

INTRODUCTION

Currently the electricity system in Malaysia is heavily dependence on fossil fuels, mainly gas and coal. Malaysia depends more than 55% of energy source from natural gas and more than 30% from coal. With the current economic scenario, the price for these fossil fuels is increasing tremendously as compared to the previous decade. Although natural gas is sourced internally, but the coal is 100% imported. This imposes high risk to the energy security. With the Malaysia’s gross domestic product (GDP) index grows at an estimated average rate of 5.5 percent annually, it is estimated that the energy demand will grow almost at the same rate. In order to sustain the energy security, Malaysia is looking to alternative energy sources such as hydro, renewable energy and nuclear power.

The largest hydro power plant in Malaysia, Bakun Hydro in Sarawak is expected to export the first 800MW to Peninsular Malaysia in 2013, and another 800MW will take place in 2015. The nuclear power is still under study by Government and various government agencies, and is not expected in the immediate future.

Therefore, promoting the diversity of renewable energy generating resources is essential for Malaysia to reduce the dependency on fossil fuels. Furthermore, by displacing the use of fossil fuel for generation will also reduce the Green House Gasses (GHG) emits to the environment and thus, delays the global warming effects.

The pursue towards renewable energy in Malaysia has started since year 2000 with the introduction of Malaysia’s Five Fuel Diversification Policy, followed by the launching of Small Renewable Energy Programme (SREP) in 2001. Now, the policy is being strengthened with the development of Renewable Energy Act and Renewable Energy Action Plan, which will be launched in middle of 2009, the earliest.

DEVELOPMENT OF RENEWABLE ENERGY IN MALAYSIA

Type of RE Projects in Malaysia

Being a major agricultural commodity producer in the region, Malaysia is well positioned amongst the ASEAN countries to promote the use of biomass as a renewable energy source in the energy mix. Malaysia is also blessed with the abundance of hydro resource, all year round solar radiation and wind energy. In the new Renewable Energy Action Plan, six types of renewable energy have been selected for commercial development – palm oil empty fruit bunch (EFB), biogas, landfill gas, municipal solid waste (MSW), mini-hydro and solar.
Currently, there are 51.55MW grid-connected RE, consists of mini-hydro, biomass, biogas and MSW, 168kW grid-connected solar PV and 676kW islanded mini-grid solar PV in Malaysia.

Renewable Energy Action Plan & Renewable Energy Act

In order to support the Malaysia’s Five Fuel Diversification Policy, the Government is developing a Renewable Energy Action Plan and Renewable Energy Act to encourage wider implementation of renewable energy projects. These action plan and act are still under construction and is anticipated to be launched in 2009, the earliest.


Clean Development Mechanism

The Clean Development Mechanism (CDM) as defined in Article 12 of the Kyoto Protocol involves climate change mitigation activities undertaken between developed countries (Annex I) and developing countries (non-Annex I). In Small Renewable Energy Programme, the CDM provides financial contribution to the projects from the sale of Certified Emission Reductions of greenhouse gasses. As Feb 2008, 26 projects have been approved by and registered with CDM Executive Board, UNFCCC equivalent to 2.24 million tones of CO2-equivalent per year.

CHALLENGES IN DEVELOPING RENEWABLE ENERGY IN MALAYSIA

Fuel Security

The reliability of fuel supply is an issue in biomass projects since the fuel suppliers are not committed to have long term agreement with the RE projects developers. This happened due to the reliability of the fuel is dependent on the mills capacity and operation. The uncertainties in volume and quality of the biomass waste are very much affected by seasonal nature of the mill operations and the absence of the standard contract procedures concerning the supply and pricing of biomass waste. There is also competition with non-energy uses of the biomass residues. At the moment, there is competitive use of biomass products and processes such as pulp and paper, medium density fiberboard (MDF), compost fertilizer and mulching.

Subsidy for Conventional Energy System

Malaysia is largest exporter of natural gas in ASEAN. More than 55% of electricity in Peninsular Malaysia is generated from natural gas, which cost is partly subsidized by the government. Therefore the energy generated by conventional power plant is considered cheaper than the energy generated using renewable energy. Therefore, in order to make the renewable energy generated electricity more competitive, renewable energy should receive the same treatment, with subsidy element embedded in the electricity sales price.


Electricity Sales Price (Tariff)

In Malaysia, the sales price for RE generated electricity involves the bargain between potential investors and the national utility. However, for biomass and biogas power plant, an agreement has been achieved that the sales price increases from 17 sen/kWh to 21 sen/kWh for each unit exported to the national grid.

Renewable Energy Power Purchase Agreement (REPPA)

In Malaysia, any investor that would like to connect the RE power plant to the national grid shall sign a Renewable Energy Power Purchase Agreement with the national utility, such as Tenaga Nasional Berhad for Peninsular Malaysia or Sabah Electricity Sdn. Bhd. for Sabah. At the moment, the REPPA is seeing as an hindrance for a potential project as REPPA’s terms and conditions does not give comfortable assurance to financial institution to make a needed investment. The long process to achieve an agreeable term between both parties also sometimes can be an obstacle to the success of REPPA. However, it is hope that after the increment of electricity sales price from 17 sen/kWh to 21 sen/kWh, will make the REPPA more attractive to the financier.

Financial Viability

Lack of financial assistance has also been a major hindrance in making the RE project successful. In Malaysia, there is yet a certain support policy and regulation for financial institution to finance the RE project. Only a few of financing scheme by the institutions include renewable energy in their portfolio. Even so, the interest rate and other term and condition are not favorable to the project’s owner since they are also constrained by the electricity sales price and REPPA. Therefore, a soft-loan, grant and subsidy are very much needed in making the RE project successful at the beginning phase until the industry mature.

Limitation of Local Source of Renewable Energy Technology

Putting up a renewable energy plant at any location means that using the available local source of renewable energy resource at that particular area. This means that a renewable energy resource is unique to the place of origin. For example, the biomass power plant designed for wheat’s straw is not suitable for palm oil empty fruit bunch, without a modification. In Malaysia, research and development of renewable energy technology is still not proven, therefore putting more risk to the investor. As most of the technology used in the RE project are imported (i.e hydro turbine, solar PV, wind turbine, deep-cycle battery and balance of system), it increases the investment cost and making the RE project less competitive.