Media Statement by Darshan Joshi, Research Analyst at the Penang Institute in Kuala Lumpur, on the 21st of May 2018
Recommendations for the Incoming Minister of Energy, Green Technology, and Water:
New Directions for the Sustainable Energy Development Authority (SEDA) and Renewable Energy in Malaysia
In line with its manifesto promise to reform institutions and policies, the Pakatan Harapan government needs to scrutinize and, where necessary, revamp policies and regulations that have proven unsuccessful and inefficient in meeting set targets. One space that is in dire need of policy reform is renewable energy (RE), and the development and deployment of such technology in Malaysia. In 2015, Malaysia had achieved under 446MW (or 45.2%) of its target of 985MW of installed electricity generation capacity from RE sources. Since then, the gap between ambition and reality has only increased.
In analysing the key RE policies implemented since the gazetting of the RE Act in 2011, the Penang Institute in Kuala Lumpur (PI in KL) has identified numerous issues that have contributed to the slow pace of RE growth in Malaysia, and proposes six solutions that would improve existing policy mechanisms and set strong foundations for effective RE legislation moving forward. These are listed and briefly explained below:
1. Mitigate the influence of distribution licensees such as TNB
A natural conflict-of-interest exists between Malaysia’s DLs – TNB and SESB – and SEDA. A rising quantity of electricity produced by renewable energy power producers (REPPs) reduces the electricity market share, and profitability, of the DLs. This, as a step towards liberalising the domestic electricity market and diversifying our energy mix, is a positive and encouraging development. Yet, pushback from TNB and SESB played a part in the imposition of quotas on the FiT, and is a critical explanation for the failure of the net energy metering (NEM) scheme adopted in 2016.
Incentives offered to NEM participants must be adjusted, to encourage further uptake of the program. Compensation rates must reflect true costs of electricity generation, and allow participants healthy returns on RE investments. Electricity credits must either roll-over in perpetuity, or be exchangeable for monetary compensation at the end of a stipulated roll-over period. With these changes, the whims and wishes of TNB and SESB will take a back seat and participation in the NEM scheme will be strongly incentivised.
2. Monitor, and enforce ‘Commercial Operations Deadlines’ for approved projects
Had all approved FiT projects achieved commercial operations the same year they were approved, Malaysia would exceed its official RE targets. While impossible, this illustrates the fact that any reductions in turnaround time between project approval and operationalisation increases RE generation capacity in every given year. Meeting set deadlines for commercial operations should be a contractual obligation for REPPs, with levels of stringency varying by RE source. Missing them should result in a review, and possibly an annulment, of contractual terms.
3. Develop a ‘Green Financing Framework’ for Malaysia
Project financing has proven to be a central concern for prospective REPPs across many of Malaysia’s RE policies to date. Investments in RE technology – still at the early stages of development and adoption – feature high upfront costs.
The development of a formal ‘green financing framework’ that includes provisions for green bonds, loans, and sukuk, amongst other financing options, would play a major role alleviating the fiscal burdens faced by prospective REPPs. SEDA would be well placed to assist the development of such a framework. Dialogue should commence between SEDA, the Ministry, Bank Negara and local financial institutions and private equity funds, seeking comprehensive solutions that would bridge the funding gaps in RE project development.
4. Ensure fair and transparent application processes for RE projects
Echoing the recent call by Minister of Economic Affairs Azmin Ali, all contract awards, across the FiT, NEM, LSS, and future RE policies, must be conducted through open-balloting. There have been numerous cases of contracts awarded to connected individuals and special interests through direct negotiations. These contracts must be reviewed, and old habits kicked. Open-balloting should be the only way forward; it ensures the awarding of contracts is based on merit, technical competency, and competitive pricing, in a fair and transparent manner.
5. Develop a plan to significantly decrease the use of coal in Malaysia
Concurrent to Malaysia’s RE ambitions are sharply rising projections of the nation’s reliance on coal-powered electricity generation. The coal share of electricity generation increased from under 12.5% in 2001, to 46.7% in 2015. The Energy Commission (EC) forecasts the coal share to reach 62% by 2019, and peak at 66% in 2023. This reliance on coal acts directly against the ambition of reducing emissions, and casts an enormous shadow on efforts to integrate RE into electricity generation. With Malaysia well behind targets for RE capacity, emphasis on coal must stop. The Ministry should review these projections, phase out old coal plants, and put an end to approvals of new coal-fuelled power plant projects.
6. Respect SEDA’s role in implementing and administering RE policies
It is imperative that current and future RE policies are implemented and administered by SEDA, without the undue influence of special interests, GLCs (including the DLs), and private-sector actors. That the NEM scheme is operating under the regulatory capture of TNB, and the push to Large Scale Solar (LSS) handled by the Energy Commission (EC), is disappointing. This runs contrary to the RE and SEDA Acts. SEDA, as a statutory body, should be afforded independence in performing its functions, which are aimed at contributing to a better future for Malaysians.
Further, it is important that SEDA does more to attain recognition as Malaysia’s principal RE expert. The Authority should be at the forefront of the conduct of studies of suitability and feasibility of RE across Malaysia, to aid the progressive deployment of these technologies – and set the stage for future diversification. SEDA should also play a role promoting public awareness of climate change. Comprehensive studies must be conducted on the projected impacts of climate change on Malaysia and Malaysians, so that the economic value of RE investments is made clear.
In the coming months, as the new government works to fulfil its promises to the Rakyat, strengthening policy frameworks and institutions will be paramount to ensure the delivery of reforms that impact the lives of Malaysians for the better. Robust and effective climate-friendly policies are a concrete step towards realizing this vision.