DESPITE over a decade of renewable energy (RE) policies, as of today, solar capacity in Malaysia totals just under 375MW. For RE technologies as a whole, the figure is 554MW.

Total electricity capacity in Malaysia was almost 23,000MW in 2016, which means that RE accounts for, at best, a mere 2.5% of national electricity generation.

Meanwhile, two new coal-fired power plants, contributing an additional 3GW – eight times the existing total solar capacity – to Malaysia’s electricity grid, are expected to be online by the end of next year.

Given the previous government’s efforts and resources to boosting the deployment of RE in Malaysia, these developments are indeed disappointing. What went wrong with previous policy efforts and what can be done to successfully boost the capacity of solar energy in Malaysia moving forward?

Feed-In Tariffs (FIT)

Feed-in tariffs were the cornerstone of the RE and Sustainable Energy Development Authority (Seda) Acts of Parliament passed in 2011, and were expected to contribute significantly to the deployment of RE in Malaysia. Driven by high tariff rates and falling costs of solar modules, photovoltaic (PV) quotas under the FIT were routinely oversubscribed.

Between 2012 and 2016, Seda received 13,328 applications for solar contracts (versus just 243 for biogas, biomass, and small hydro combined), approving over 82% of these. As of end-2016, 6,854 solar projects, with a total capacity of 284MW, had been connected to the grid.

Due to the oversubscription of the PV quotas, Seda’s ability to finance the FIT mechanism came under serious question and by late-2016, PV was discontinued as an option under the FIT.

Why did the FIT fail to substantially expand RE capacity in Malaysia? To answer this, we need to examine two interrelated and critical features of the FIT.

First, tariff rates were too high. While incentivisation is imperative to encourage the uptake of RE, the presence of surplus demand for solar FIT contracts indicates that the selected tariff rates were excessive.

This was clear from the first year of the FIT’s existence, and leads to the second major flaw with the FIT – a lack of sustainable financing. The programme derives the vast majority of its funds from fixed surcharges on domestic electricity bills. These surcharge rates, set at 1% in 2012 and 2013 and 1.6% between 2014 and 2016, and covering only 25% of domestic consumers, were too low to ensure the long-run fiscal sustainability of the FIT.

Seda has raised concerns about the low RE surcharge rate in the past; for comparison, equivalent rates in China, Japan (both 3%), the United Kingdom (2% to 3%) and Germany (18%) are all higher.

Additionally, the federal government should allocate an annual budget towards the financing of RE policies to ensure their long-run sustainability.

Net Energy Metering (NEM)

When the FIT was discontinued for solar technology, it was announced that net energy metering (NEM) would take its place. The incentives offered to NEM participants in Malaysia are very different to the FIT. First, payment rates to participants are lower than the average electricity tariff rate, meaning participants are essentially paying Tenaga Nasional (TNB) to produce electricity and sell it back to the grid. Secondly, any excess “electricity credits” amassed by energy efficient households by the end of every two-year cycle are forfeited to TNB.

This makes for a virtually non-existent incentivisation structure, and explains why only 4.7% (or 14.21MW) of the 300MW NEM capacity quota has been taken up to date. The biggest winner from this programme, as it stands, is TNB. Instead of encouraging the liberalisation and democratisation of Malaysia’s electricity markets, the NEM scheme is in fact operating under the regulatory capture of TNB.

Moving forward, this incentivisation structure must be radically overhauled. The rakyat should be sufficiently rewarded for investments in solar modules, and TNB must not be allowed to resist the inescapable renewables-led disruption of traditional electricity markets in the interest of protecting its bottom line. If anything, it should focus more effort on increasing its own deployment of RE technology in Malaysia to ensure the health of its long-run profitability.

Large-Scale Solar (LSS)

On March 2014 and January 2016, the then-Energy, Green Technology and Water Ministry announced the direct award of two large-scale solar contracts totalling 650MW, with the first of these giving 1Malaysia Development Bhd (1MDB) the right to develop “multiple LSS plants”, and the second to a consortium whose identity the ministry was loath to reveal.

It took almost a year to learn the identity of this “consortium”; even then, it was disclosed indirectly through a TNB bourse filing. It is worth noting that none of these LSS plants are as of yet operational – work has not begun on any of the proposed 1MDB-owned plants.

The two incidents provided powerful lessons about the importance of conducting open-tender processes for power purchase agreements and since 2016, the EC has held two open-ballot events for LSS.

The first of these events awarded 450MW worth of contracts, with approved projects expected to achieve commercial operations by the end of this year. The second LSS tender saw the EC awarding contracts worth 562MW, and these projects are expected to be operational by end-2020. This total of 1,012MW in LSS capacity represents the largest single-technology addition to RE capacity in Malaysia’s history. Electricity production costs from LSS are falling quicker than other RE technologies, and are expected to continue declining steadily over time.

After a sticky start, LSS is showing strong potential to contribute effectively to national RE capacity in Malaysia. This highlights the importance of consistent additions to solar capacity through open-tender events moving forward. Indeed, solar has the potential to play an enormous role in the security and sustainability of Malaysia’s energy future. – July 10, 2018.

* Darshan Joshi is an analyst at Penang Institute in Kuala Lumpur. He holds a bachelor’s degree in economics from the University of New South Wales, and a master’s degree in public policy from the University of Chicago. His true passions lie in the analyses of global energy and environmental-related issues. He views climate change as the most significant issue to face contemporary society.

* Darshan Joshi is an Analyst at Penang Institute in Kuala Lumpur. He holds a Bachelor’s degree in Economics from the University of New South Wales, and a Master’s degree in Public Policy from the University of Chicago. His true passions lie in the analyses of global energy- and environmental-related issues. He views climate change as the most significant issue to face contemporary society.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.