Investing in renewable energy

RE-new and RE-charge: Solar panels can be an excellent source of renewable energy in our nation.

Malaysia must look at increasing participation in renewable energy to reduce dependence on expensive fossil fuels.

THE reality for consumers in Malaysia is that we will soon be faced with market-adjusted electricity tariff rates. This is due to the extensive use of natural gas in many industrial activities, making it now a very expensive fuel to burn.

And being an oil-producing country does not give us the licence to waste.

The realities for the many environmentalists out there are that:

a) Malaysia’s current annual generation of Renewable Energy (RE) is only 194.9MW, which represents less than 1% of our fuel mix,

b) RE and Energy Efficiency (EE) proposals are capital-intensive long term investments, and

c) A good system of RE usage will require the acceptance, involvement and support of the people.

An annual generation of only 194.9MW of RE is hardly enough to showcase Malaysia’s commitment to RE usage.

Let’s look at the Singapore model, where 78% of Singapore’s electricity consumption of 7,510MW is generated by natural gas. RE makes up 4% of its fuel mix.

This is despite Singapore’s small land area limiting the sources for RE generation such as solar, wind, geothermal and hydro. Despite the challenges, it has invested more than S$170mil in the National Research Foundation.

Its mandate is to encourage innovation and integration of solar photovoltaic (PV) panels into buildings by boosting the capabilities of its designers, architects, and system integrators in solar energy companies.

The government also provides financial support to those who can come up with suitable market mechanisms and infrastructure to enable the implementation of new RE solutions.

Thailand is also fairly advanced in terms of driving RE. It has the most developed RE policy among Asean countries due to the many incentives provided.

In particular, it has established a revolving RE Fund to provide low interest loans for energy conservation and RE projects.

The Thai government also provides tax incentives to manufacturers of EE equipment and operators of RE projects.

Corporate tax exemptions of up to eight years are given to manufacturers of solar cells or energy saving equipment, as well as those involved in energy-related consulting services.

What should be Malaysia’s RE Strategy?

There are three big hurdles that the Malaysian RE policy must take on. These are:

a) The current RE Fund contribution by consumers, at 1.6% of electricity bill, to the Feed-in-Tariff (FIT) Program is not sustainable, and will never be enough to take on the investment required to drive our RE initiative,

b) Malaysian expertise in RE is still at an infancy stage and is grossly inadequate, and

c) More importantly, it is politically untenable to continue to collect the RE contribution from the public without showing real impact on the ground in the near future.

The reality is not the inability of agencies like the Sustainable Energy Development Authority (Seda) in handling and managing the RE Fund. Instead, there is a mismatch in policy goals and expectations of the people.

When you collect money from manufacturers and households, the payers expect that they can participate in mini/micro RE projects (e.g solar PV panels on roof-tops) with some “reasonable” time frame to recoup their RE investments.

However, RE investments are long-term initiatives that require pay-back periods of 20 to 30 years.

It is technically impossible to match the public’s expectation for almost universal participation in RE projects (with short-term pay-backs periods of about five years) just from their contributions to the FIT Fund.

Currently, under the FIT Programme, about 30% of the nation’s 8.3 million electricity consumers (or about 2.6 million enterprises and individuals) are required to contribute to the FIT Fund.

In order to enable project holders approved under the FIT Fund to recoup their investment within a “reasonable” period of six to seven years, payments to these project holders are highly subsidised.

Hence, only a small number of RE projects can be approved.

The way forward in managing RE

First, we must face the fact that extensive use of RE is a long-term dream for humankind at this stage of scientific discovery.

What is technologically achievable in Malaysia is that, with a transparent system, we may be able to achieve generation of 2,080MW of RE, or 11% of our demand by 2020.

However, this can only be achieved by:

i) A special excise duty on Independent Power Producers (IPPs), in lieu of further increases in contribution from electricity consumers, for the support of RE projects, and

ii) Using Net Metering, a system under which solar PV and other RE generators are connected to a public-utility power grid.

The self-generated energy is consumed internally with the surplus power (if any) being transferred onto the grid, selling to the public-utility at pre-agreed tariff rates.

With RE production costs declining and approaching that of fossil fuel production cost, Net Metering is really the way forward especially for a tropical country like Malaysia.

Although RE currently makes up only a small portion of the world’s energy supply, nevertheless it will be the world’s fastest growing source of electricity generation over the next two decades.

This is because the growth in RE production will be supported by the expected high prices for fossil fuels and by government incentives for the development of alternative energy sources.

Besides that, RE will also help to cushion the rising cost of electricity in the medium to long-term.

Malaysia’s average electricity demand is expected to increase at the rate of 3.3% per annum over the next five years. In 2013 alone, Malaysians consumed 16,562MW and this is expected to rise to 19,000-20,000 MW by 2020, according to Tenaga Nasional Bhd’s projections.

While challenging, it is imperative that Malaysia retains its confidence in RE.

Malaysia is already a major manufacturer of solar PV cells and panels for the world market.

Our own success in generating RE acceptance and usage among the people will go a long way in propelling Malaysia into centre stage of the current fashionable RE era.

Tan Sri Dr Fong Chan Onn was Prof of Applied Economics and Dean of Faculty of Economics and Administration, Universiti Malaya. He served in the Government as Deputy Minister of Education (1990-1999) and as Minister of Human Resources (1999-2008).

Research done by the Centre of Strategic Engagement (CENSE).