Sunny future needs more clout

  • Business
  • Saturday, 16 Oct 2010

ENHANCING the existing feed-in tariff (FiT) programme under the National Renewable Energy (RE) Policy can encourage a steady growth of the solar energy sector in Malaysia, argues RE/Malaysia Building Integrated Photovoltaic Technology Application (MBIPV) national project team leader and chief technical adviser Ahmad Hadri Haris.

“We just need to increase the quota for solar power, for instance, by 1%, under the FiT programme, specifically and solely for solar energy, by 2013 to achieve a more dynamic growth of the sector towards 2020,” says Ahmad in an email.

FiT is a mechanism under the country’s RE Act that enables individuals or business owners to sell the electricity they generated from renewable resources to utility companies such as Tenaga Nasional Bhd and Sarawak Energy Bhd at a fixed premium rate for a specific period. The policy, if passed by the Parliament by the end of the year, is expected to take effect from the second quarter of next year.

(MBIPV is a national project under the Ministry of Energy, Green Technology & Water to promote the use of photovoltaic (PV) technology to tap solar energy and generate electricity for buildings.)

Annual quotas apply for each RE technology (such as biomass, biogas, mini hydro and solar PV) under the currently proposed FiT scheme to indicate the maximum amount of electricity generation cost that can be paid through the country’s RE fund, which will be put under the management of the Sustainable Energy Development Authority when it is implemented next year.

As it stands, the quota imposed on solar is significantly lower compared with other RE technologies due to its higher generation cost.

Ahmad believes that a higher allocation for solar energy under the proposed FiT programme would naturally encourage more private participants to invest in the technology. It is a more viable option to promote the sector, compared to what was suggested under the Economic Transformation Programme (ETP) outlined by Performance Management & Delivery Unit (Pemandu).

At the ETP open day in Kuala Lumpur last month, Pemandu revealed that the Government had targeted to have up to 1.25GW (gigawatt) of installed solar power capacity in Malaysia by 2020.

But it was suggested that solar capacity build-up would only be viable after 2015, as the National Key Economic Area (NKEA) laboratories assumed that international solar energy costs would only fall into grid parity – where the generation costs would become equal or cheaper than the cost of generating power from fossil fuel or nuclear – somewhere around 2017.

This assumption was based on the present trend of an annual cost reduction of 8% for solar technology.

Disputing the approach and assumptions used by the NKEA lab in arriving at the solar-power target for Malaysia, however, Ahmad argues that it is not possible to depend on international cost reduction alone, as local cost component usually contributes around 30%-50% of the overall solar system cost for every market.

“When solar energy is introduced in a new market, there will always be a disparity between local and international costs, whereby the local cost component is usually much higher,” he explains.

To support his argument, Ahmad pointed to historical facts as evidence that local market development significantly influences cost reduction of solar technology in each country. For instance, in Germany and Italy, solar system costs drop as local markets grew.

Cost reduction for solar technology was estimated to range from 15% to 20% for every doubling of market growth.

“There is a high risk of cost inflation if solar power capacity build-up were introduced in 2015 abruptly without any pre-conditioning and steady growth development of the local market,” he explains.

It was estimated that the suggested allocation for solar energy under the present FiT programme would encourage the sector to grow up to 65MW (megawatt) of installed capacity by 2015. However, such level of growth was still considered slow, and according to Ahmad, it would not contribute much to the learning curve to build a solar plant in the country.

He opined that the low allocation for solar energy under the FiT programme would limit the opportunity for the local sector to upgrade its knowledge and competency, or improve the supporting infrastructure, for the technology.

“So, the focus of the NKEA lab should have been on enhancing the allocation for solar under the FiT programme, instead of merely waiting for international solar costs to fall into grid parity after 2015 and then only build up solar power capacity in the country,” he argues.

“By waiting until then, I’m afraid Malaysia could lag behind other countries in the region, such as Thailand, Singapore, India, China, Taiwan and South Korea, that are already aggressively building up their solar power capacity through various incentive programmes,” he continues.

Malaysia is still at the moment seen as a leader in promoting the solar energy sector within the South-East Asian region, according to Suchitra Sriram, the programme manager for Frost & Sullivan’s Asia-Pacific energy and power systems team.

But when compared with other European countries, Suchitra says, “Malaysia is definitely falling behind as the governments there have better incentives and schemes to promote the solar industry and increase the technology’s generation capacity.”

Malaysia at present is the third-largest solar component manufacturer (behind China and Germany) in the world. But it is a given that international solar technology players would be drawn to countries with more attractive incentive programmes.

As such, it could be increasingly challenging for Malaysia to continue attracting foreign investments in this area in the future.

“There will be additional challenges in developing the local solar industry without the support of established players,” Ahmad says, stressing the need for the Government to be more aggressive in promoting the solar industry to maintain the country’s leadership and competitiveness in the industry.

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