KeTTHA FiT Booklet

8/3/2019 KeTTHA FiT Booklet

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Its a billin dlla qustin whetherMalaysias newly-minted feed-in tariff(FiT) mechanism is designed wellenough to fully unlock the renewableenergy (RE) potential of the oil-and-gas exporting country that has longsubsidised natural gas for electricitygeneration.

Certainly, the political will hasbeen demonstrated. The two laws thatwill enable the FiT the RenewableEnergy Act 2011 and the Sustainable

Energy Development Authority (SEDA)Act 2011 were passed by Parliamentend April, and are being gazetted.Certain processes will take their coursenow before the FiT is finally imple-mented, probably by next month.

Even funds to support thefirst-year targets at RM189 million(US$62.3 million) have been setaside.

On top of that, it is interesting tonote that the governments economictransformation programme has lately

churned out entry-point projects (EPP-10) that include solar power plants ofhigher capacities than those originallyplanned under the Renewable EnergyPolicy. These have been injected intothe RE targets for the FiT, significantlyraising them (see table on page 15).

Theres a lot riding on thisscheme. By 2020, RE is touted to cre-ate a host of spin-off benefits, includ-ing: Savings of RM2.1 billion in external

costs to mitigate CO

emissions

At least RM19 billion in loan valuesfor RE projects (at 80% debt financ-ing)

RM70 billion of revenue from REpower

RM1.75 billion in tax income to thegovernment and

52,000 jobs to construct, operateand maintain RE power plants (at 15to 30 jobs per MW).

These were the projections thatAhmad Hadri Idris, the chief technicaladvisor to the National RE/Malaysian

Building Integrated Photo Voltaic(MBIPV) project team, presented to theindustry in recent months. The successof the national green policy will bemeasured by the RE quotas uptake,and the realisation of the projections.

Many businesspeople are placingexpectations on the FiT: power produc-ers, photovoltaic manufacturers, dis-tributors and installers, palm oil planta-tions set to make money from theirempty fruit branches, logistics provid-

ers, bankers and insurers, traininginstitutions and trainers, consultantsand even colleges and universities whoare heavily into research.

The bees are buzzing around the honeypot, and from what Green Purchasing

Asia has learnt, the frenzy of economicactivities will start as early as nextmonth. Industry circles and even thelawmakers themselves, however, thinkthe effects will only be felt in a year or

so. People need to be trained to set upelectrical systems and to handle ma-chinery. Bankers need to be engagedto fund the RE projects as they still seeRE as risky projects.

Hadri calls for patience, sayingthose interested will need to be familia-rised with the application process anddo their math and some may want tosee how others do it before wading in.

As usual, there are some early birdswho want to catch the action early andhave long been prepared.

Based on enquiries received sofar, Hadri expects 20 to 25 applicantsfor biomass, biogas and small hy-dropower. But the biggest attractionis solar, where there will be about50 corporate players and hundredsof individuals. More than 40 solarphotovoltaic installers were listed onthe MBIPV website (www.mbipv.net.my) as approved installers. They willnow have to seek relisting in the SEDAwebsite after June 30th.

There is this over-excitement in


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the market, and some people are goingto be frustrated, but thats the beautyof it because you have competition,and competition means better costs. Atthe end of the day, its an open market,and the market will balance itself, hesays.

The roadmap is simple. SEDA will

be set up, probably by next month,after the chairman and CEO and boardmembers have been appointed. TheRenewable Energy Fund details wouldalso have been sorted out by then.Next comes the information mecha-nism the website that the publicwill refer to for guidance on the FiT.Enough time will be given for them tobecome familiar with it.

ried forward to next year. The figure islikely to be just over half of the originaltarget depending on when FiT actuallystarts. This has to be shared amongfour sectors: biogas, biomass, mini-hydro and solar PV (see table on page15 for the quotas).

There is market fear that the quo-

tas will hinder the development of REand the creation of related economicopportunities. Detractors accuse thosebehind the quotas of paying lip serviceto RE to protect fossil fuels in thepower mix. However, if one studies theexperience of countries that success-fully carried out the FiT and also thosethat failed, the quota system seems asensible way for controlled develop-ment of RE. This is more so whenthe Malaysian experiment of renew-able energy, via the Small Renewable

Energy Project (SREP) that started in2001 has been at best a good experi-ment and learning opportunity, and atworst, a dismal failure.

The target set by the 9th MalaysiaPlan in 2005 targeted 350MW of REconnected to the grid (or 1.8% of thepower generation mix) by 2010. Whatit got was one-sixth of that, 62.3MW,or a mere 0.4% of the energy mix. Giv-en this poor record, setting a quota willgive the planner a chance to prepare astrong foundation in the initial years.

It is learnt that the government isconsidering passing on the unusedquotas for 2011, to 2012, since it isalready mid-year. It is also consider-ing not imposing the degression for2012. (Read interview with Energy,Green Technology and Water Ministeron page 16.) This will please investors,especially those in the solar PV sectorwhich faces the highest degressionrate.

Malaysian Photovoltaic IndustryAssociation president Shamsudin Kha-lid is concerned about the degression,saying the FiT and degression have tobe business-friendly to encourage takeup. If they (the investors) dont bite,we cannot achieve our target of 5.5%for RE by 2020, says Shamsudin, who

is also marketing manager for SharpSolar at Shap Rxy Sals and SiCmpany.

The degression principle is based onthe expectation that RE technologycosts will go down over time, as in thecase of solar PV. That is why there isno degression for mini hydro whichis a mature technology. However,the Fukushima nuclear plant crisis inJapan may alter the scenario, as some

countries have put on hold plans topursue nuclear and are opting for solarenergy, at least for now. This bringsup demand for solar PV, which mayincrease prices.

These concerns were expressedduring an industry dialogue conductedby the Ministry of Energy, GreenTechnology and Water for some 300stakeholders in April, and echoed by

Malaysias FiT is based on the Germanmodel (and has reportedly received ac-colades from the German pioneers) butwith a big difference: there is a quotasystem which will effectively limitthe growth of each RE source. Thequota system means interested energyproducers will have to vie for limitedmegawatts yearly when they apply tobe feed-in approval holders.

The good thing is once the quotais allocated to a company or individual,it is licensed to make money for the

next 20 years, backed by a fixed pay-ment scheme that does not dependon subsidies or economic vagaries.The direct licensee (the main powergenerator and distributor), which isTnaga Nasinal, is obligated by lawto buy the RE from these producers.

That said, 219MW was originallyup for grabs this year when FiT wasanticipated to start in April 2011 butbecause the FiT has been delayed, thequota for this year will probably bereduced, and the unused portion car-

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a potential major player privately toGreen Purchasing Asia. However, theselegitimate fears may be short-term.If there is a shortage of solar panels,prices may not drop that quickly, but inthe medium term, economies of scalewill even things out.

Hadri is optimistic the FiT will de-liver. Theres a difference today. When

we did the SREP, they just providedthe targets without the means. Its likeproviding the food without the tools toeat. Now we provide not only the food,but also the cutlery to enjoy the food,he says. He credits the willingnessand openness of the industry players,especially those who started with theSREP, in sharing their views and evenconfidential business information withthe authorities when the latter devel-oped the laws and the FiT.

Engaging Tenaga Nasional took

two full years and industry discus-sions were sometimes heated. The endresults, however, seemed pleasing toHadri. Hans-Josef Fell and the late DrHermann Scheer, both pioneers of FiT,came to Malaysia to understand whatwe were doing and they said we wereon the right track. That gives us confi-dence. Of course, there are limitations,

like the quotas, but Hans-Josef saidthats fine. You are starting from a zerobase, or even negative base. Its okayto start slowly.

If the people want renewableenergy badly enough, they will be will-ing to pay more, the RE fund will beexpanded and then the sector will trulysoar. For now, the target is 1.2GW by2015, and 3.1GW by 2020. These alonewill mean RM70 billion in revenuefrom RE power for companies andindividuals by 2020.


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Insts lking at Malaysias fd-in taiff (FiT) mhanism as a busi-ness opportunity should find comfortin the initiatives the government hastaken to ensure the potential problemareas are adequately addressed. Thegovernment may be cautious in ap-proach, but it is not short on ambition.

To ensure the fund is kick startedwithout a hitch, the government has

agreed to inject RM189 million intothe Renewable Energy Fund to fundthe RE targets for a year, Datuk SeriPeter Chin says. The advance wasgiven via the Performance Manage-ment & Delivery Unit (Pemandu), a uniunder the Prime Ministers Departmenwhose role is to oversee implementa-tion of the countrys Economic Trans-formation Programme and GovernmenTransformation Programme.

In the long-run, however, the REFund will be fed by a 1% electricity

tariff increase. (At press time, Chinheld a press conference to say that the1% increase will take effect from Sept1st. He also announced an average7.12% increase in electricity tariffbeginning June 1st, partly because of agas subsidy reduction exercise. How-ever, domestic users who use less than300kWh per month will be exemptedfrom these increases).

Chin says that because there hasbeen a delay in the onset of the FiT,the amount in the RE Fund that is not

used for this year will likely be carriedforward to 2012. He indicates

the FiT will start in Julywith the set up of theSustainable EnergyDevelopment Author-ity (SEDA) at an officein Putrajaya.As for requests fromstakeholders that the

degression of 8% for2012 be postponed for

the same reason, Chin

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says: This seems to be the case; thatwe have to adjust. This indicationfrom the minister will please industryplayers as whatever tariff that has beenagreed on will last for the duration ofthe agreement 21 years in the case ofsolar photovoltaics.

The minister touched on a num-

ber of other issues in the interview.

On whth RE ly will b inasd2% 3% t bst th RE stIf we want a larger role for RE, wehave to promote it. We can increasethe RE levy to boost the pool fund.However, there are other mechanismswe can use to promote RE, like doublededuction for investments or (reduc-ing or abolishing) import and exciseduties. Dont forget that electricity con-sumption grows over time and the 1%

levy will translate into a larger amount.It all boils down to the size of the

RE fund. For the first year, I am get-ting RM189 million from Pemandu asadvance. As I collect more, and if thepool is big enough to sustain higherquotas, I will do it. After all, the moneyis earmarked for this purpose. If it isgrowing the green economy, why not?If we invest a small amount and get bigreturns from it, why cant we do it?

If you invest a certain amount togrow the economy and it is successful,

why cant we do some more? Thosefunds can be from other sources, not

just from the 1% tariff hike. If the gov-ernment feels it is a good deal, it caninvest. However, if it falls flat, I cant

justify asking for more.The existing quotas are to prevent

overheating of the RE industry, butthey are not carved in stone. They willbe revised accordingly, depending onthe funds available.

Assuan f plays in Malaysias

FiT shm, gin th flip-flp insm untisThe law is explicit. We are applying alaw passed by parliament. If we renegeon it, any of the players can use thelaw to sue the government. It is assimple as that. The agreements that wesign is part and parcel of the regula-tions that will come. I am using the lawto guarantee you. Which governmentwants to be sued? This is the inbuiltsystem. Everything depends on thetotal amount we can collect, and it will

be disbursed. We dont want to keepthe money.

On th atinal f qutas in th FiTI met investors at the Malaysia-Europe-an Union Forum in Vienna, and amongother things, they want Malaysia toremove the cap on annual capacity tar-

gets. They want a free-for-all as is be-

ing done in some European countries.

We know however that some havefailed when the funds ran out becausethere were too many players.

We cant be too bullish from thebeginning. I would like to see SEDAtaking a cautious approach. We startsmall. This is something new. We dontwant to fall into the trap that somecountries found themselves in becausethey went overboard.

On whth fign patiipatin isuial t th suss f th FiT

For the amount of money we have(in the fund), I think locals can takeup the quotas. I have many peoplewriting to me. I say you have to bid;I cant promise you. I think foreignparticipation will be in providingtechnology. You have one or twoChinese companies keen to do solar

farming here.In the solar sector, Malaysia has

the best opportunity to position itselfand become a global leader in solar PVmanufacturing. Four leading multi-national PV companies Fist Sla,Q-Clls, Sunpw and Tkuyama have either set up operations here orhave announced their FDIs equivalentto RM14 billion. They provide busi-ness opportunities for local playersto understand, build capacities, enterthe PV business and benefit along the

supply chain.

On finaning f RE pjtsAs of now, there is a lack of awarenessamong financial institutions becauseRE projects are still being consideredhigh-risk investments, which makes itdifficult for RE developers to sourcefor funding. SEDA and the ministry willlook at this issue thoroughly so thataction is taken to ensure support fromfinancial institutions in RE develop-ment.

On th imptan f a tanspantnlin FiT appliatin pssBecause the process is transparent, itwill avoid all sorts of talk on whetherso-and-so was selected because of hisconnections. You can see the quotasonline and can see who has beenselected at any point of time.

On withdawal f gas subsidy fltiity gnatin within fuyas

Yes, this is the plan. The governmenthas only this pool of money. You canuse it to subsidise fuel (to preventinflation) but it is non-productive anddoesnt grow the economy. Or you canuse it to invest in many productiveareas, to build incomes and eventuallyto build a bigger pool of funds. This isa policy choice. And the choice is thatwe need to transform our economy.

We will increase the electricity tariff.But we will all learn to be more energyefficient.


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Th fd-in taiff (FiT) is an incentiveto encourage the private sector to gointo green power generation. Renew-ables make up only 0.5% of Malaysiasfuel mix. It is hoped that with the FiT,renewal energy (RE) will make up5.5% of the mix by 2015.

Malaysia uses Germanys FiT asits model, but imposes annual quotasbased on the rationale that they will

promote orderly development of RE,and will prevent overheating of themarket. The quotas also ensure thereis enough money to honour powerpurchases. The government is alsocautious about raising electricity tarifftoo much to fund the growth of RE.(FiT will be paid from consumer elec-tricity tariff.)

Malaysias FiT are fixed tariffspaid for RE-generated electricity that

is fed into the national grid. How muchis paid depends on the type of technol-ogy, the year the plant starts operatingand the size of the plant. In Malaysia,four types of RE are eligible: biomass,biogas, small hydropower and solarphotovoltaic (PV). Solar PV enjoys the highest tariff,

as high RM1.78 (US$0.59) if oneincludes bonuses for using local

products, if it is used as a buildingmaterial, and if the capacity is up to4kW. However, an annual degres-sion of 8% is built into the solar FiT.The tariff is fixed for 21 years.

Hydropower enjoys the lowest rateof only 23 to 24 sen, also for 21years, but there is no annual degres-sion. This is because the technologyis mature and will not see drasticprice changes.

Biomasss basic tariff is between27 and 29 sen, excluding bonusesfor efficiency, use of local productsor the use of municipal waste (10sen, or more than a third of thebiomass basic tariff).

Basic biogas tariff is between 28and 32 sen. The FiT for biomassand biogas are for 16 years.

Other aspects of the Malaysian FiT:

Almost anyone can be a power gener-ator if they have the capital. However,foreigners and grid system opera-tors, technically referred to as directlicencees, can only own up to 49% ofany plans. Entities like cooperatives,municipal councils and managementbodies of common properties like

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condominiums may also apply.Participants of the Small Re-

newable Energy Programme (SREP)launched ten years ago and othergovernment-subsidised programmeshave to go through the same applica-tion process. Those who have renew-able power purchase agreements withdirect licencees have to terminate them

first.Application is only available

online. Once approval is given, alsoonline, the quota is immediately al-located.

Bonus tariff is given for a host of thingslike solar PV installations on build-ings or as building structures (26 senfor every kWH; a generous sum whenthe tariff for small hydropower is only23 sen), and locally manufactured PV

panels and inverters. There are alsoincentives for efficiency, like an extra 1sen for steam-based systems (biomass)with efficiency above 14%.

Annual degression refers to the annuallowering of tariff for new power plants.The operative word is new. For in-stance, with a 10% annual degression,Company A which is commissioned

this year may enjoy RM1/kWh tarifffor the next 21 years, but Company Bwhich is commissioned next year willonly get 90 sen (RM1 minus 10%) forthe next 21 years.

The degression takes into accountmarket conditions, and the maturityand cost of technology. For instance,the cost of PV systems dropped from

RM31,000/kW in 2007 to RM26,000/kW in 2009. Today, the cost is onlyRM18,000/kW. The law provides for re-visions at least once every three years.

The Renewable Energy Act guaranteesaccess to the grid on a first-come-first served basis, based on a prede-termined quota. If you get approval,access duration to the grid is fixed: 16years for biomass and biogas, and 21years for small hydro and solar photo-

voltaics.

Every year, quotas are available forapplication. For instance, a total of111MW capacity is up for grabs thisyear (if the FiT starts in September2011), to be shared among biogas, bio-mass, small hydro and solar. The quo-tas will be reviewed every six monthsvia a computerised system. Unused

balance will be offered to sectors withhigher demand.

Malaysia uses the shared burdenprinciple. This means the cost of RE-generated electricity is shared by allelectricity consumers (except thosewho use less than 300kWh per month).

As electricity from RE is more expen-sive than that from fossil fuels (at leastfor now), consumer electricity tariffwill be increased to fund the FiT viathe Renewable Energy Fund.

SEDA will be the statutory body thatadministers the RE Fund and managesthe FiT. It will review the FiT at leastonce every three years.

Malaysia has had a Renewable EnergyPolicy since 2001, launching it withthe Small Renewable Energy PowerProgramme (SREP) that covered powergeneration plants of up to 10MW. How-ever, SREP failed due to the lack of asupport system.

The targets set by the 8th and9th Malaysia Plans were not met andeven revised downwards in the latter.The 8th Malaysia Plan (20012005)envisioned 5% renewable energy in

the energy mix by 2005. The targetwas revised downwards to 1.8% inthe 9th Malaysia Plan (20062010).But as of December 31st 2010, the REconnected to the grid was only 0.4%or 62.3MW. With the FiT, the targethas been revised upwards again to5.5% (1.27GW) by 2015 and 3.14GWby 2020. By 2030, it should more thandouble to 7GW.

Aside from the Renewable Energy Act

2011 and the Sustainable Energy Cor-poration Act (SEDA) 2011, there will beseven subsidiary laws which have beendiscussed with the industry.

These will be uploaded onwww.seda.gov.my once SEDA is setup. For now see www.mbipv.net.my fordetails on tariff and other information.

The Energy Commission is theauthority that licenses power genera-tion. Laws that affect electricity supplygeneration must be complied with. Ap-proval by SEDA is only for the FiT.


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KeTTHA FiT Booklet

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