Media Statement by Darshan Joshi, Research Analyst at the Penang Institute in Kuala Lumpur, on 5 June 2018.
The Sustainable Energy Development Authority (SEDA) holds the mandate of boosting the share of renewable energy (RE) in national electricity generation. The Penang Institute in Kuala Lumpur (PI in KL) has produced a paper that seeks to evaluate and critique SEDA’s performance, and the RE policies enacted in Malaysia, since the conception of the Authority in 2011.
Key RE policy measures implemented and administered by SEDA, the feed-in tariff (FiT) and net energy metering (NEM), have fallen short of achieving the targets for RE power generation set within the National Renewable Energy Policy and Action Plan (NREPAP, 2009). As of 2015, Malaysia had achieved under 446MW (or 45.2%) of its target of 985MW of installed electricity generation capacity from renewable sources. Since then, the gap between ambition and reality has only increased.
Given that both FiT and NEM mechanisms have been implemented effectively in other nations, what are the factors that explain their failure in Malaysia?
Poorly-designed policy frameworks are largely to blame. The FiT has been plagued by a severe lack of long-term financial sustainability, with revenue collections from the RE Fund insufficient to cover payments to RE power producers participating in the program. High tariff rates offered to participants led to an oversubscription of FiT quotas, particularly for solar power producers. in 2016, this necessitated the shift to NEM for solar PV.
NEM, by contrast, has completely failed to incentivise investments in solar technology. Between extremely low compensation rates offered to independent power producers, a short rollover period, and the stipulation of expiring electricity credits, less than 5% of the available NEM quota for electricity generation has been taken up to date. For NEM to succeed moving forward, its incentivisation structures must be radically overhauled.
Policy weaknesses aside, another key factor behind the failure of Malaysia’s RE policies is the influence of distribution licensees (DLs) such as Tenaga Nasional (TNB). A natural conflict of interest exists between TNB, tasked with maximising profits and ensuring a steady supply of electricity, and SEDA, tasked with boosting the share of RE in electricity generation. As the share of electricity produced by REPPs increases, TNB’s market share falls. While this should be seen as a positive step towards the liberalisation of Malaysia’s electricity market, pushback from the DLs has played a part in the failures of both the FiT and NEM. In the future, the interests of these DLs must take a back-seat when it comes to the enactment of RE policies in Malaysia. It is imperative that the implementation and administration of these policies remain under the purview of a transparent SEDA, without the undue influence of external parties.
At the same time, accusations have been levelled at SEDA regarding a lack of transparency in quota allocations. There have been numerous cases of contracts awarded to connected individuals and entities, and special interests, through direct negotiations. This issue has not only afflicted the FiT, but also the initial stages of the push towards large-scale solar – which should be handled by SEDA rather than the EC – with contracts directly awarded to firms with no experience in power generation, including 1MDB. Open-tenders have been utilised for two of the most recent LSS auctions, and as a result, over 1GW of solar capacity is expected to be added to the electricity grid by 2020. This is a step in the right direction. The Pakatan Harapan government must act decisively to break the habit of engaging in direct negotiations, which open the door to corruption and cronyism.
Other issues detailed in this paper include the lack of a comprehensive green financing framework and how this has adversely impacted RE generation capacity, as well as the mixed signals engendered by the EC’s intention to increase the nation’s reliance on coal, at a time when we should be prioritizing mitigating greenhouse gas emissions and ensuring the long-term sustainability of life in Malaysia. Under the guidance of the new administration, KeTTHA and the EC should revise plans to increase the use of coal across Malaysia, which are clearly not in line with climate goals, and instead implement measures that are more RE-friendly. This includes phasing out old coal plants over time, and ending the approvals of new coal power plant projects.
This paper concludes by proposing key directions for SEDA over the coming years, as Malaysia’s principal expert in RE. Firstly, SEDA must position itself as a key stakeholder in all RE-sector issues in Malaysia. The Authority should actively recommend and advocate for policies and laws that boost the contribution of RE to electricity generation across the country.
Furthermore, SEDA should seek to put itself at the forefront of original research analysing the feasibility and suitability of a wide spectrum of RE technologies in the Malaysian context. It should encourage the development of necessary human capital within the field in order to raise the standard of intellectual debate on this topic. Finally, SEDA should promote public awareness of the importance of climate change mitigation, and the subsequent need to decarbonise the Malaysian economy through an increased emphasis on RE.
The author hopes that the recommendations for SEDA and RE policy in Malaysia that have been proposed in this paper will be taken into consideration under the Pakatan Harapan government, as the nation renews efforts to implement climate-friendly measures and policies that will benefit current and future generations of Malaysians.