She believes it is possible. That Malaysia, a country heavily dependent on fossil fuel, could witness a greater use of renewable energy (RE) in a few years’ time.
Energy, Technology, Science, Climate Change and Environment Minister Yeo Bee Yin says some of her ministry’s policies have already seen an “encouraging uptake.” The icing on this “green” cake: greater participation from the private sector.
“Eventually the government needs to provide enough policies so that there is room for private financing. The main component is to have a government framework where we bridge our goals with that of the private sector. We are not going to do this with taxpayers’ money and pay companies just to go green,” she tells FocusM.
Malaysia’s goal is to boost RE mix from 2% as of last year to 20% by 2025. To achieve this, Yeo estimates that the country needs to generate some 6.9GW from alternative sources. These include solar, biogas, biomass and small-scale hydro.
The target is supposedly challenging on two fronts: it excludes large-scale hydro projects higher than 100MW and she’ll need to attract RM33.25 bil in private investments.
To this end, Yeo’s ministry has extended and revised some of the existing programmes and incentives, especially for rooftop solar and large-scale solar (LSS). The revised net energy metering (NEM) scheme is one of them.
The solar business is very much straightforward. Line up a few photovoltaic panels, capture sunlight, and convert direct current to alternating current. It is relatively easier to operate than coal-fired or gas-fired power plants.
Extension of two incentives
Previously, energy bought was higher than what was sold back to Tenaga Nasional Bhd. This time, the NEM allows excess solar to be sold back to the national grid on a “one-on-one” offset basis. What this means is every 1kWh exported to the grid will be offset against 1kWh consumed from the grid.
The NEM has a quota allocation of 500MW till the end of 2020. Estimates see the revised scheme register a three times higher uptake in the first nine months of this year compared to 2016-2018.
There are more perks. The Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) have been extended under Budget 2020 for three years until 2023. To be sure, these are not new but have been refined under next year’s national budget. GITA provides a tax allowance for buying green technology assets or equipment while GITE is for companies such as solar lessors which provide green technology services. These companies have been given a 70% income tax exemption of up to 10 years.
This gives Yeo a two-pronged strategy. First, industrial and commercial areas with large factories can tap into the revised NEM and GITA for rooftop solar. This has seen “encouraging uptake,” says Yeo as these help businesses recover their capital expenditure in a span of three to five years. “It becomes very attractive for many people. Because whether you are a residential or commercial outfit, it all depends on your tariff. So the higher the tariff, the more savings you get,” she says.
The second strategy targets small and medium enterprises (SMEs). Since these companies are lean and cash-strapped, they can opt for the solar leasing programme.
Here, the installation is undertaken by the lessor while the lessee pays a monthly fee to use the photovoltaic panels. With this rental arrangement, the end-user does not have to come up with the initial capital to purchase and install the system. The cost of the system would be paid monthly over a specific number of years and this is typically reflected in the monthly electricity bill.
Businesses are also eyeing the LSS scheme. This is a bidding programme designed to drive down the levelised cost of energy for the development of LSS photovoltaic plants. The recent LSS3, the bidding for which closed in September, saw prices range from 17.77 sen to 23.18 sen per kWh. That bracket makes solar cheaper than gas-based power which is priced at 23.22 sen per kWh. Winners of the LSS3 should be known by next month.
“If you compare all three cycles of LSS, you see a huge reduction in tariffs, especially the third one. Previously, rates came at a huge premium to displaced cost, that is traditional fuel. In LSS3, you see the lowest bid par value to power production from gas. This doesn’t match coal. That remains a lot cheaper. But we are closing the gap quickly,” an industry insider says.
Yeo also sees the encouraging response to LSS3 “as a starting point” for solar to be offered at a cheaper rate, making it more feasible to be included in the electricity mix. “When the percentage is higher, we can use solar to help meet peak demand. Currently, what happens is first you dispatch coal, and then the more expensive gas, and then when it’s peak period, you use open-cycle gas turbine. Now, we have two peak periods and one of them is during the daytime, which makes it ideal for solar.
“So what you’ll see is greater savings because you can reduce cost with solar energy which is cheaper than using the open-cycle gas turbine. People might say, how are you going to be taking advantage of this because it is replacing the peak and solar is intermittent? Well, we are not replacing the base. When you replace the base is when you need storage and other equipment.”
What the sceptics say
But Yeo’s plan for a green Malaysia is not without its sceptics. Hong Leong Investment Bank research analyst Daniel Wong acknowledges that while RE is the next “big thing”, there are problems that need to be dealt with.
“Renewable energy may contribute to 20% of overall energy supply capacity. But in actual contribution, in terms of power supply it will still be less than 5%. So it is no point having capacity if you can’t use it to contribute power. Also remember that during the night or on days with low sunlight, there will be no contribution to the system. So there is a huge question mark over reliability as that 20% is not useable 24 hours a day,” he tells FocusM.
Wong also believes the current incentives scheme would not be a major catalyst for RE. “If you are talking about small to mid-cap companies around RM100-RM200 mil, then okay. But if you are looking at the scale of Tenaga Nasional Bhd or Malakoff, then the LSS3 is not a big contributor. For larger players you are looking at around 1,000MW and up.”
Another analyst notes that what has been rolled out so far is a “mere continuation” of past programmes. “So it’s not a real game-changer per se. I’m not doubting that we will see a gradual take-up of solar energy. But this is going to be at a slow pace,” an energy analyst says.
He adds that while LSS3 may signal that solar is cheaper to produce, there are other factors worth remembering: location and intermittency. “Location and productivity are better up north while in the south it is less efficient. The other problem is intermittency where there are only a certain number of hours when you can generate solar and even wind. Traditional fuel helps you generate power 24/7.”
Another industry player flagged costs, especially land acquisition, for the LSS scheme. “Usually the concern is finding the right plot of land and also scaling up,” he says. It is believed that roughly three acres of land are required to generate 1MW of solar power.
“But the biggest challenge is acquiring land which is not cheap. Land near the grid is expensive while a plot in a remote area, while cheaper, might be costly if you factor in infrastructure investments. So, yes, while I can recover my capex cost, I still have to fork out upfront capital to get the entire system up and running. And, bear in mind, I can’t stack up solar panels, meaning I need a sizeable plot of land to spread out the panels to capture sunlight,” he says.
Rakuten Trade vice-president Vincent Lau, however, sees an upside. “The 20% RE target has been generating some buzz. We are seeing industry players such as rubber glove maker Supermax Corporation Bhd expressing interest in rooftop solar. SMEs are also looking to move in with the solar leasing programme. Note, solar panel prices are also on the decline, so it makes the venture more viable.
“But more importantly, it signals our commitment to climate change. That is a good thing since overseas investors especially, are more conscious of these things, especially under the environment, social and governance framework which is huge among large funds.”
Indeed, Malaysia’s push for a green future dovetails with a global consciousness for renewables. Ambitions are high: Malaysia is a signatory to the 2015 Paris Agreement, a global pledge to combat climate change. To that end, the country has vowed to reduce carbon intensity of gross domestic product (GDP) by 45% in 2030. This is relative to its energy intensity in 2005.
It is a goal Yeo believes can be met. “We are only emitting about 0.6% of total global emissions. Our commitment is 45% emission intensity of GDP. We need to achieve this by 2030 relative to emissions intensity of GDP in 2005. We are already at 33%. We have 12% more to go so we can definitely reach our Paris Agreement very easily.”
But Yeo’s focus is on realising the 6.9gw green dream. She needs RM33.25 bil on the table. To draw investors, she is working on a renewable energy transition roadmap which will be made public in April next year. “We have the rough numbers,” she says, but adds that she doesn’t want to disclose the actual figures as “we are still finalising the numbers.”
Yeo stresses that the roadmap will be “very transparent” for investors. “Because if you want people to invest in this 20%, you need to able to give certainty in two areas: one on regulation and the other on planning. That is the certainty we are looking to give.”
Certainty and transparency are buzzwords investors want to hear. Yeo is cognisant of that. But she also sees a diversified electricity mix as one that is beneficial not only for the environment but also cost efficiency. “If you take the business as usual approach and you keep on injecting fossil fuel, you will never get competitive costs,” she says.
Indeed, that is the bigger picture. But what will really set her apart if she fulfils the plan is something closer to the hearts of Malaysians: jobs. “By 2025, we could see the creation of 100,000 jobs,” she says. Half of them will be highly skilled labour while the other half will be in solar panel manufacturing.
“We are one of the largest producers of solar panels in the world. That is what we will be looking at next year – the other side of renewable energy. How we can incentivise the manufacturing of solar panels and other equipment related to renewable energy,” adds the minister.
Energy, Green Technology, Science, Climate Change and Environment Minister Yeo Bee Yin clocked into work on July 3, 2018, on the back of a historic electoral victory two months earlier.
As the lengthy ministry name suggests, Yeo has a lot on her plate, overseeing five different portfolios and a plethora of agencies. It is easy to miss that prior to the birth of Mestecc, as the ministry is known in its abbreviated form, this entity consisted of a few separate ministries with specialised functions. They have been consolidated as part of the Pakatan Harapan government’s plan to reduce the number of ministries and agencies in federal capital Putrajaya.
Since then, it has been a rollercoaster ride. There have been some tense moments. Yeo has been heavily criticised for the government’s flip-flop over rare earths miner Lynas Corp Ltd and perceived inaction with regard to transboundary haze stemming from Indonesia.
But there have been some bright spots. Yeo is campaigning for the end of single-use plastics and has been in the forefront of pushing for a greater use of alternative energy in tackling climate change.
In this in-depth interview, Yeo shares with FocusM her approach to policymaking as well as plans in the pipeline for renewable energy next year.
Some quarters have been demanding a carbon tax. But you’ve chosen to go the other route of incentives instead. Why?
We always have to ask, if I were to reduce my carbon footprint, what do I want to get out of it? If I want economic growth, I need to have green sectors. You need RE sectors. And you need to grow industry.
To do this, we have to step up a proper regulator framework that people know and can invest in. If possible, the goal is to leverage on private financing. That is how we go about this. So, I think in order for us to reduce our carbon emission, there are many ways we can exhaust it first than resorting to a carbon tax.
A lot of people ask me that question, why can’t we do carbon tax. But carbon tax is one of many regulatory tools that you can use. It’s just one item in the toolbox. Whether you use it or not is open for debate.
But I believe there are easier steps that we can take first before we get into things that burden people. So, I’d rather go for measures that can create jobs, stimulate the economy and at the same time save the world, as opposed to a measure that affects our competitiveness in terms of business. And this might burden the economy, too.
Also my approach to regulatory tools is that they have to serve two purposes: environment/climate change goals and economic goals. So if we find such options available, we will go with them first before thinking about other options.
Do Malaysians understand the importance of renewable energy?
I think slowly, there is an awareness. And we are doing our part to promote green energy, especially because it is quite competitive. You have those opting for rooftop solar and they can cover their costs within three to five years. So there is real savings there. And I believe people are looking to solar as an affordable, alternative energy.
We have RE certificates and training. For example, corporates want to be RE100 or Renewable Energy 100%. This is a global trend and multinational companies want to buy or sell all their energy from green resources. Now they can’t buy in Malaysia because our grid is 90% fossil fuel but what you can do is go to a trading market, buy RE certificates and offset your carbon use here. We recently launched this during the 10th International Greentech & Eco Products Exhibition & Conference Malaysia through the Malaysian Green Attribute Tracking System (MGATS).
So we have some voluntary market for RE players to monetise their RE projects based on environmental attributes. For now, they can only monetise by selling their excess electricity to TNB. But there is another way through an environmental attribute as in how much carbon they reduce. They can monetise those in an RE market.
But are the current incentives enough to push businesses onto the RE bandwagon?
We had114 bidders for the 500MW LSS. So there is interest there, especially on investing in large-scale solar. As long as you make it feasible and businesses can make money, people will be interested. It is how we design the tender and regulations. This is the same with NEM. More and more people are interested to move into that so I don’t see this as a hurdle for our solar projects.
You have made it clear that Mestecc will adopt the open tender for projects. How has that panned out so far?
If you look at the pricing of the LSS bids, they are very competitive. This shows that the open tender is the way forward for most of our energy projects. This leads to better price discovery. For example, when we opened for bidding, our reference price was 32 sen per kWh. This is because the previous LSS was 32 sen so our reference price naturally was 32 sen.
This round, all of them submitted, and while we have not awarded the LSS3 tenders yet, if you look at the pricing, it’s lower than 25 sen. The lowest is 17.77 sen. So you see the difference. We thought that the cheapest was 32 sen or sub-30 sen. But this was what we expected. When you do an open tender, you will see surprising results, especially how low and competitive things can be. So this is certainly my hope that we will be able to run most if not all our projects on an open tender.
Give us a timeline of how long it takes for projects to be awarded and completed?
It takes about six months to submit a bid after we’ve announced the tender. So for LSS3, it was between February and August this year. By the end of the year, we will award the chosen bidders. After a company wins a bid, it will have to do deal with the relevant authorities and that takes between three and six months. The whole process from bidding till the work starts is roughly 12 to 18 months. So we are hoping this round of 500MW of RM2 bil will be realised next year. Also, next year, we hope to call for another tender again which will be realised the following year.
How has the response been towards RE among government-linked investment companies (GLCs)?
Everyone is onboard. That is why it took us a year to get that buy-in from the business community. In terms of GLCs, TNB has a subsidiary called GSparx. This is a solar leasing company. Petronas, too, has solar leasing subsidiary.
So we are seeing them coming onboard and most GLCs know that reforms or change is inevitable. Other countries are changing and if Malaysia isn’t, then we are not going to be able to leverage on new technology and be able to say that we are experienced in it to the point of exporting our expertise elsewhere.
Think about our solar players today. If we can make Malaysia their nurturing ground, they’ll be able to sell their expertise to other countries in the region. So, in Malaysia, if we are not the most aggressive, we are one of the most aggressive countries in pushing for RE to be in the electricity mix. Therefore, there is a launching pad for our companies to gain their experience, to provide for the Malaysian market and, hopefully, later on to the Asean market.
That is why when we think about new initiatives, we really need to figure out what economic activities we’d like to venture into, how our firms are going to thrive in those sectors and how they can grow beyond their home ground.
What are your goals for next year?
For RE, most of the foundation has been set. What we are looking into is green financing. So you are seeing more and more banks providing loans for solar and renewable energy projects. But in terms of government bureaucracy, there is a need to streamline where we get things done even faster.
We will be looking into the details on green financing and how to make things easier such as the incentives we can possibly put in place, for example.
The goal is to make Malaysia a place where people want to think about investing in. A lot of funds, international funds, are looking into green activities to invest in. So, how do we attract these funds to come in?
So, that’s next year’s focus: delivering our green financing taskforce recommendations. Beginning of this year I have commissioned the Securities Commission to actually look into green financing in RE projects. They have made 21 recommendations. Some of them are done, some of them aren’t. Next year, we are going to work towards implementing the other action items.
Also next year, we are looking at energy efficiency. When we talk about carbon emissions, we talk about RE. We forget about reducing the use of electricity, which also cuts the carbon footprint. It also saves money. So next year, we will table the Energy Efficiency and Conservation Bill either in the first or second sitting of Parliament.
Once that Bill is passed, we would have institutionalised energy efficiency. We are also looking into an energy efficiency action plan –how do we increase energy efficiency while helping consumers reduce their bill. Because everything we do needs to be designed in such a way that it is a win-win. So energy efficiency will be something we will focus on next year as well.