Collaboration and Policymaking are Paramount
In relation to grid parity, Tenaga has participated in the bidding process for the development of the Large Scale Solar Photovoltaic Plant (LSS) due to be constructed in West Malaysia and Sabah. What was noticeable about this process was that bids were very competitively priced. Tenaga has also been involved in an LSS bidding process in Abu Dhabi, where prices have been decreasing. These falling prices are attributable to a number of causes, including pre-identified land located close to urban populations, the ready completion of interconnection facilities, and a series of government tax incentives.
Clearly, each country is only able to act according to its own particular reality in terms of infrastructure and government circumstances, among other factors. Nevertheless, best practices from abroad will be useful to Malaysian energy stakeholders moving forward.
Dr Zaini Ujang
Indeed, the Malaysian Government is actively pursuing opportunities to learn from the examples of Sweden and Denmark, both of which are leading green energy players.
One aspect of this relates to the availability of resources from which to generate energy. Sweden, for example, is very strict on this issue and since 2005 has implemented a landfill ban on organic waste, thus ensuring a continuous supply of solid organic waste that can be turned into energy. This is one potential policy shift that, if replicated in Malaysia, would help to guarantee the security of supply of resources to be used for the generation of green energy.
Ahmad Jauhari Yahya
Policymaking is indeed critical in helping to encourage the long-term growth of the green energy sector in Malaysia. For example, in approximately 20 European Union countries, passenger vehicles are taxed partially or totally based on their carbon emissions. In Malaysia, they are taxed based on their engine size, and this exemplifies the kind of outdated policy that needs to change as part of wider efforts to create an environment truly conducive to a low-carbon future.
Cypark Resources Berhad
To create a healthy green energy landscape in Malaysia, greater clarity is required in terms of the direction in which the energy sector is advancing. This will be particularly useful for private sector companies such as Cypark in defining key priorities moving forward, including strategic objectives.
For example, it is essential to have clarification regarding how grid parity is calculated. As the minister explained, the average green energy tariff through the FiT is based on a fixed rate, whereas the equivalent fossil fuel tariff varies according to the Automatic Pricing Mechanism, which is a managed float system linked to international market prices. The likelihood is that fossil fuel prices will rise over the next 20 years, in contrast to the fixed rate under the FiT, in which the tariff will remain constant for the next 16 to 21 years, depending on the energy source in question.
Therefore, the system is not like-for-like and this presents challenges by limiting room for manoeuvre in the sector. It also complicates matters in terms of planning for the short and medium terms. Thus, if making fossil fuels it is important to discuss how the tariff system works, what green developers should expect in the future, and the state of play in regard to fossil fuel subsidies.
Dr Maximus Johnity Ongkili
Related to the issue of energy pricing is energy generation. Daud previously raised the idea of a paradigm shift in terms of relocating biomass power plants closer to demand centres. This kind of step is something I would like to explore further.
Roslina, what is the view from Tenaga in terms of possible paradigm shifts?
Tenaga is open to feasibility studies being conducted into bringing green power plants closer to energy demand centres. In fact, this move makes sense since approximately three quarters of the energy supply in Malaysia is located in the Klang Valley, whereas green energy generation plants are located all over the country, including in rural areas. This leads to high transmissions costs in bringing energy from the latter to the former.
Another related paradigm shift could include reassessing the optimal size of power plants. Malaysia has a number of large plants with capacities in excess of 1,000 megawatts and this presents certain challenges in terms of security of supply; experience shows that if one plant goes down, one or two more usually follow, causing large-scale problems across the grid.
One way to reduce the risks associated with these issues is to prioritise the construction of smaller green energy plants with capacities of 200 to 400 megawatts, for example. Accordingly, if one of these smaller plants happened to go offline, the consequences would not be as severe.
Another relevant aspect, and one that is directly linked to discussions about achieving grid parity, is the question of the quality of energy being generated. As has been mentioned, green energy generation is sometimes intermittent and so more work is required to improve energy storage systems in which power can be controlled. Once this is achieved, it will be far easier for green energy to reach parity with fossil fuel.
PETRONAS is interested in maximising its existing transmission infrastructure across Peninsular Malaysia, and this could include a shift in standard practice by expanding reticulation systems that lead to cogeneration right in the heart of urban environments. Importantly, gas can be used to power some of the medium-scale plants of between 200 and 300 megawatts, as suggested, and this will contribute towards the greening effect we have been discussing.
Torstein Dale Sjotveit
I am sympathetic to the call for smaller power plants, for example, of 300-megawatt units. However, any moves in this direction must factor in the efficiency and price equations because scaling down in size like this traditionally results in a loss of efficiency. In turn, this means the cost of the energy being produced is higher.
Dr Maximus Johnity Ongkili
Most red alerts in the energy grid are due to outage at 1,000-megawatt, or larger, power stations. More and smaller plants would therefore have a positive impact on the stability and security of the grid. The government is aware of this issue and will be doing more to assess its feasibility in the future.
The construction of new and smaller green power plants is dependent on a number of factors, from energy security to financial backing. On that note, I want to turn to Rafidz and get a better understanding of the funding perspective of green energy projects.
Mohammed Rafidz Ahmed Rasiddi
While discussions about policy direction are clearly important, from the banking perspective one of the major issues to resolve relates to identifying ways to improve both the implementation and execution stages of green projects. This is because at BPMB, where we fund a range of green energy projects, we are seeing high rates on non-performance in terms of loan repayment. Despite the fact that financing from right across the banking sector is being directed towards fully licenced companies to implement these projects, many are simply unable to deliver the goods.
What is needed as a result is to submit the applicant companies to more rigorous due diligence to distinguish the strongest candidates with the most experience in the field. This includes risk analyses in relation to proposed construction and technology.
Past experience shows that applicants frequently budget for the cheapest technology, rather than the most reliable and long lasting, and it is not infrequent for projects to cease even before they reach the energy-generation stage. Moreover, numerous successful applicants that actually begin producing energy subsequently encounter problems regarding connectivity to the grid.
Therefore, it is essential from the funding perspective that the banking sector receives additional assistance from all parties to improve the viability of applicants and their projects prior to the deployment of funds.
Cypark Resources Berhad
Directly related to what Rafidz said, one of the biggest challenges from our perspective as a large borrower of renewable energy funds is the lack of quality of other applicants.
There are increasing numbers of applicants entering the field and each one is trying to out-do the other to secure the funding in question. Specifically, they are competing in relation to the LCOE, and the quality of assumptions being used to derive this cost varies depending on the applicant. Some wish to submit more ambitious applications to secure the funding, but due to a lack of experience or limited expertise they may not even get the project off the ground.
Thus, it is important that the government in particular plays an active role in ensuring the quality of licenced energy producers applying for funding. This will help to consolidate efforts aimed at forging a green energy landscape conducive to the development and conclusion of long-term generation projects.
Dr Maximus Johnity Ongkili
I want to move on to discuss what can be done in terms of policy and resource costs, and how the public and private sector may reach a consensus on priority issues moving forward. What are the key focus areas that will drive public-private collaboration initiatives?
One pertinent place to start is for the energy industry to fully understand its responsibilities in relation to the COP 21 initiative. The agreement was ratified by the Malaysian Government in November 2016 and commits the country to a 45 per cent reduction in carbon emissions by 2030, relative to the emissions intensity of GDP in 2005.
It is particularly important that the government sets clear, well-defined targets which outline the respective responsibilities of each sector within the energy industry. This guidance can then be cascaded to all relevant industry segments from which different parties, both public and private, can begin to formulate their own strategies and begin working together to meet this ambitious goal.
Dr Maximus Johnity Ongkili
Since the ratification of COP 21, the government has been devising a plan to fulfil our international obligations, as Adif suggests. This will include the setting of both medium- and long-term targets. When the content of this plan is finalised, it will detail the responsibilities of multiple sectors and subsectors, and place the green energy space, especially energy efficiency, at the heart of efforts to reduce carbon emissions. The proposals are due to be put before the Malaysian Parliament in the coming months.
Dr Sanjayan Velautham
ASEAN Centre for Energy
It is positive to hear that the government’s COP 21 plan will emphasise the importance of energy efficiency. It is essential to address this topic on the demand side because, according to research conducted by the Energy Commission, energy efficiency can contribute up to 2,500 megawatts of avoided costs in terms of plant upgrades.
In regard to Malaysia’s COP 21 pledge, it is important to understand what this means given the country’s move towards coal over the next decade. In particular, this involves engaging in clean coal technologies, including carbon capture and storage (CCS) facilities. Accordingly, and to return to the minister’s question about joint initiatives, the ASEAN Centre for Energy would be happy to collaborate with parties such as Tenaga, to this end. These kinds of opportunities are particularly important because mutual understanding and best-practice exchange are fundamental parts of the energy efficiency debate.
Regarding joint regional initiatives and energy efficiency, the September 2016 signing of a Memorandum of Understanding by the minister and his counterparts for the Lao PDR, Thailand, Malaysia and Singapore Power Integration Project (LTMS-PIP) was a catalyst that will help to make the ASEAN Power Grid a reality. Under the terms of this agreement, Malaysia will buy 100 megawatts of hydroelectricity from Lao PDR, via Thailand’s national grid. This is significant because Lao PDR is expected to generate 10,000 megawatts by 2020, of which approximately 75 per cent will be exported.
Steps such as the LTMS-PIP project are a tremendous boost to regional efforts to ensure parties make more efficient use of their indigenous and renewable sources of energy as a collective and move towards the multilateral trade in power. Therefore, the incorporation of energy efficiency on the demand side, CCS technologies and more integrated regional efforts to maximise existing renewable sources will ensure that Malaysia is firmly set to fulfil its COP 21 pledge.
Essentially, CCS technology captures the carbon emitted during the burning of fossil fuels and stores it deep underground. While this technology is positive in reducing the amount of carbon dioxide emissions entering the atmosphere, it is important to stress that studies relating to its long-term effects on ground water supplies in areas in which it is stored remain ongoing. This is something to consider as things move forward.
In relation to the LTMS-PIP project, the expectation is that it will lead to additional interconnections across the region. This will allow Malaysia, and other countries to access green and renewable energy, for example geothermal potential from places such as Indonesia and the Philippines. This is a positive step in terms of collaboration efforts at the international level.
In our most recent edition of the Asia Pacific Economic Cooperation (APEC) Energy Demand and Supply Outlook, from May 2016, three different energy scenarios were posed: the high-efficiency scenario, the renewables scenario, and the alternative power mix scenario.
To follow up on what Sanjay said about energy efficiency, one interesting aspect about Malaysia is that unlike most countries, it is the transport sector that is the greatest consumer of energy, whereas elsewhere it is traditionally the industrial sector. I know that Malaysia is doing a lot of work on city planning and reducing the emissions of public transit systems. Nevertheless, in the high-efficiency scenario in the APEC Outlook, we saw that additional savings could be made in Malaysia in the construction sector, in particular on improvements to building shell efficiency and appliance efficiency, which would feed directly back into electricity demand-related savings.
Cypark Resources Berhad
At Cypark, we recognise the importance of promoting the principle of sustainability and that is part of the reason why we work on regenerating brownfield sites. This includes converting certain areas into renewable energy generation projects, particularly using solar energy.
As such, an important area in which public-private sector collaboration is required is the location of solar projects in Malaysia. In some places such as Abu Dhabi, Dubai or the U.S., most solar developments are located on disused land. However, in places including Italy, some solar installations are merged into existing agricultural land. This is important because simply replacing agricultural land with solar projects, as is common practice in some countries, has a large economic and social value displacement cost in terms of lost commodity and employment.
Accordingly, Cypark has been working with the Malaysian Government, including the Ministry of Plantation Industries and Commodities, to develop the Italian style ‘agri-solar’ approach. To date, installations of this type in Malaysia remain small-scale so there is a possibility to expand the concept.
These kinds of public-private initiatives that focus on innovative approaches to energy generation are essential for maximising the potential of not only solar developments, but also all types of green energy.
Dr Zaini Ujang
Regarding innovation, in November 2016 the government introduced the Net Energy Metering (NEM) programme as part of its efforts to liberalise the energy market and encourage the use of new energy sources. The NEM enables consumers, whether industries or individuals, to install solar photovoltaic systems for their own use and to sell any excess energy generated back to the grid in the form of reductions from their electricity bills.
The objective is to generate approximately 500 megawatts from the NEM by 2020. In the future, the idea is to incorporate this kind of mechanism into to a smart grid, which will contribute directly towards the energy efficiency we have been discussing.
Smart grids have not yet been introduced in Malaysia, but they have excellent potential to contribute to the greening process. This is because they can help to integrate sources of renewable and green energy into a network, for example in terms of automatic frequency control. In addition, they enable individuals to use energy when it is at its cheapest and this kind of empowerment is particularly useful for improving demand-side energy efficiency.
Mohammed Rafidz Ahmed Rasiddi
In terms of public-private collaboration initiatives from the banking perspective, the key is to expand the green energy space in Malaysia while simultaneously harnessing existing interest from foreign investors. However, this must be done in such a way that does not reduce the rate of return on green projects, which may discourage potential investors. As such, it is crucial that public and private actors take collaborative steps to remove existing hurdles in implementation and execution, reduce the financing rate, and expand the scope of the GTFS. Addressing these issues will help to maintain a positive rate of return for investors and facilitate the arrival of increasing capital and expertise to the green energy sector.