Strategic Review

Cultivating a Green Energy Landscape

How to Define the Green Energy Outlook?

Dr Maximus Johnity Ongkili
Ministry of Energy, Green Technology and Water (KeTTHA)

I would like to welcome everyone to the International Investor Green Energy Strategic Review No. 1. This meeting forms part of a wider strategic review process taking place between International Investor and KeTTHA that focuses on energy landscape transformation.  Therefore, I suggest that participants take this opportunity to reach consensus on priorities and actions in relation to green energy and develop a clear path towards the creation of more effective industry-wide strategies.

Participants on this panel come from a broad variety of backgrounds, including regulatory, operator, financial and supply sides. To reflect this diversity, our discussion will cover a number of important areas, from the framework for sustaining green energy resource development and its integration into the energy mix, to energy landscape transformation and the role of private sector investment. However, I would like to start by addressing the vision for and definition of green energy in Malaysia, as well as the broader outlook for the national sector. Torstein, let’s start with you.

Torstein Dale Sjotveit
Sarawak Energy

Malaysia is facing tremendous energy challenges in which green energy is set to play a crucial role. The majority of the country’s energy mix is generated from fossil fuels, with approximately 47 per cent stemming from natural gas and 38 per cent from coal. Studies have suggested that the country has only about 33 years of adequate natural gas reserves remaining, and just 19 years of oil. It is therefore essential that alternative sources, which are still largely peripheral, become mainstream.

Beyond oil and gas, approximately 16 per cent of the Malaysian energy mix is due to come from hydropower by 2020, which is relevant to the question about definitions. Hydro is frequently the subject of debate as to whether it actually constitutes green energy. Many environmental groups point out that large hydropower is not always ‘green’ due to the extensive carbon footprint of large dams, and as a result it is commonly defined as a separate segment. Nevertheless, it is undoubtedly ‘renewable’ and is classified as such by numerous States and prominent international institutions. For example, the Intergovernmental Panel on Climate Change Fifth Assessment Report, which was presented in Paris in November 2015, acknowledged hydro as part of the renewable energy future. Therefore, it is essential that Malaysia takes this into account and includes hydropower as part of its renewable energy portfolio moving forward.

Beyond hydro, the options for renewable and green energy generation in Malaysia are multiple. That is why Sarawak Energy is developing a number of sources, with particular emphasis on solar and biofuel. Our preliminary testing of wind proved challenging because the intensely tropical conditions in Sarawak generate strong and highly unstable air flows that are difficult to harness.

Regarding categorisations, the company defines its own green energy generation in terms of solar, biofuel, mini-hydro, as well as wind. The goal moving forward is to take particular advantage of the enormous potential offered by biofuel and, despite the challenges posed by wind, the focus over the next decade will be squarely fixed on all four green energy sources.

Ahmad Jauhari Yahya
Cenergi SEA

In terms of the vision for the green energy sector in Malaysia, I would like to raise five points. The first relates to understanding the potential of the green energy space, which necessarily requires it to be broken down into its constituent parts. Given the instability of wind generation in Malaysia, as mentioned by Torstein, and similar issues regarding solar, the future lies in the direction of bioenergy, particularly biomass and biogas.

To harness the potential of bioenergy, it is important that stakeholders collaborate to overcome a number of obstacles that are hindering the growth of the segment. First and foremost, potential developers struggle to connect power generated from biomass and biogas to the grid, primarily due to the rural location of the resources themselves that are situated far from existing energy distribution infrastructure.

Potential quick wins in this area include resolving structural rigidities in regard to regulations. These rigidities mean that initial baseline projections for the megawatt potential of a particular project must be adhered to, even if this initial baseline is found to be an underestimate of the true energy potential. The removal of these kinds of obstacles will encourage the growth of green developers and help to bring about the generation of energy from existing and future biomass and biogas sources.

Second, it is important to reformulate national targets in this field in order to facilitate step-by-step progress. One possible solution is for industry stakeholders to draw up short-term goals that can be reassessed every 12 months. This will help in terms of monitoring the ongoing progress, rather than simply working towards what could currently be deemed an abstract endpoint.

Third, a positive move would be for green energy suppliers to build relations with some of the large multi-national corporations (MNCs) that operate in Malaysia, including Google, Microsoft and Intel, among others. The energy policies of many of these MNCs stipulate that certain proportions of their electricity must be generated from green sources. Formulating working agreements with MNCs to provide them with green energy would be a tremendous fillip for the green energy space in the country.

The fourth area essential to the long-term success of the sector is for green energy to achieve grid parity with fossil fuels in terms of prices. This would mark a particularly important milestone on the demand side because it would facilitate the widespread acceptance of green energy as a viable alternative to coal, oil and gas.

The final point is to ensure that all new policies and amendments aimed at engendering the growth of the green energy space are brought about in conjunction with firmer regulations and the monitoring of compliance. This may necessitate the creation of a specialised government division.

Adif Zulkifli

The three main fossil fuels extracted and burned on the global level are oil, gas and coal. The business of PETRONAS is largely related to the first two, oil and gas, and from our perspective of green energy, we look at the issue in terms of which is the ‘greenest’. The answer, of course, is gas and that is the reason why we are keen to promote its place in the market.

PETRONAS sees gas as a bridge between traditional fossil fuels, especially coal, and new alternative resources, including green energy, due to its reduced impact on carbon dioxide emissions and greater efficiency when burned.

It is important that the energy industry takes advantage of the fact that gas is abundant, accessible and affordable as part of its efforts to reduce carbon emissions. Technological advancements such as the combination of hydraulic fracturing, more commonly known as fracking, and horizontal drilling to recover oil and gas from shale rock, in addition to floating storage and regasification units and static regasification plants, are making gas even more accessible worldwide, including in hard-to-reach locations. In addition, global gas resources are plentiful, with more than 200 years of supply still available. These market realities and developments are creating an ecosystem in which gas is set to become a significant force in the global fight to reduce carbon emissions. It is therefore essential that Malaysia takes full advantage of what gas has to offer and includes it as part of the national energy debate.

As is always the case with commodities, economic factors play a central role. Since gas is becoming more economical to extract, we are seeing the increasing emergence of new suppliers which, in turn, are making prices more affordable and competitive. With regard to pricing, gas can be competitive, especially in terms of comparisons with coal and the levelised cost of energy (LCOE), the metric used to measure the cost of electricity produced by a generator. Similarly, the development of a gas power plant involves only half the capital expenditure required for a coal power plant, so the economic benefits of using gas are clear.

Overall, gas offers a number of benefits due to its competitive pricing, and is less harmful and more efficient than coal and oil. Therefore, it can help Malaysia reduce its carbon emissions in the long term.

Dr Maximus Johnity Ongkili

Adif has raised some interesting points in terms of gas being readily available and at competitive prices. In terms of the national energy mix, the share of gas is expected to decrease from 52 per cent in 2010 to 29 per cent in 2020. This is largely due to the share of coal rising from 42 per cent to 53 per cent over the same period. From what Adif has said, it may be necessary to consider strengthening the gas sector in an effort to reverse this trend.

To return to the topic at hand, Zaini, what are your thoughts on how Malaysia should define green energy?

Dr Zaini Ujang

There are essentially four components to the ‘green’ perspective. First, the source must be renewable. In this instance, renewable means that no second instalment is required, that concerns regarding operating expenditure are moderated, and that no new supply of feedstock is necessary.

The second component involves the reduction of carbon emissions. At the 2015 United Nations’ Paris Climate Change Conference (COP 21), governments agreed to submit emission reduction targets and to regularly review their emissions goals. This is a positive development and it is essential that, in addition to overseeing the growth of the green energy sector, ongoing and dedicated efforts are also undertaken to improve the performance of existing fossil fuel sources, rather than simply discarding them en masse.  The notion of maximising fuel efficiency and existing lifecycles of fossil fuels, particularly coal and gas, is something that the Malaysian Government is keen to look into further. That is why Adif’s remarks about the potential of natural gas over the medium term are pertinent to the debate about green energy.

Third is affordability. One of the reasons that Malaysia is increasing its consumption of coal is because of its affordability. Although less pollutant sources are available, many are prohibitively expensive. Consequently, it is sometimes necessary to buffer the move from one energy source to another with an option such as coal that entails affordable feedstock.

The final component is the process of ‘greening’, in which improvements to move to green energy and technology are made gradually over time, rather than making the energy industry definitively ‘green’ in one go, which would be impossible. That is precisely why research and development (R&D) initiatives are so important, since they help to improve the way an industry performs over long periods of time. For example, certain nations, particularly Nordic countries, are not content to simply incorporate and utilise advancements in the green energy industry. Rather, they prioritise the development and sale of green technology themselves. The benefits to this approach are obvious and efforts to ensure that Malaysia becomes a developer of green and greening technology will be crucial moving forward.

James Kendell
Asia Pacific Energy Research Centre (APERC)

I have spent much of my career focusing on the gas sector and am sympathetic to what Adif said in regard to the development of natural gas. However, in terms of reducing carbon emissions, it is incredibly important to focus on renewables. Natural gas and renewables are not mutually exclusive and gas can play a significant role as a backup to wind and solar, but priority must be on the development of renewables.

Zaini mentioned the significance of boosting R&D and one area that is important in regard to reducing carbon emissions is vehicle efficiency, specifically diesel fuel. Accordingly, it is tremendously important to address the penetration of bioethanol and biodiesel in the transport sector, in Malaysia and beyond.

In 2014, the Malaysian Government began introducing the B5 and B7 biodiesel programmes in which blends of petroleum diesel consisting of 5 and 7 per cent palm oil, respectively, were made available nationwide across subsidised sectors such as petrol stations. However, research shows that penetration is low compared to other countries in the region, such as Thailand, and it is therefore essential that stakeholders come together to identify ways to improve this situation.

Roslina Zainal
Tenaga Nasional Berhad (Tenaga)

From the point of view of Tenaga, there are two noteworthy aspects in relation to the green energy outlook. The first relates to electricity supply and the importance of driving the development of green energy. The Malaysian energy mix in 2016 was dominated by coal, gas and large hydro, so, going forward, we must establish how to facilitate the move from the low participation of green energy to a very high amount while simultaneously securing reliability of supply.

Options such as bioenergy and solar, among others, are viable although most have a maximum output value. For that reason, it is important to consider the viability of nuclear energy as an option, due to its reliability and low carbon emissions.

The second aspect is the need to emphasise energy efficiency. Increasing energy efficiency will contribute to large-scale energy savings and directly impact efforts to improve sustainability. Moreover, it will create a virtuous cycle in which carbon emissions are reduced, energy supply is more stable and fewer additional power plants are required to meet the nation’s energy demand.

Dr Maximus Johnity Ongkili

It is interesting to hear that Tenaga is open to the idea of nuclear energy. Formal considerations about nuclear power formed part of the government’s strategic planning in 2010. Accordingly, feasibility studies targeted the construction of two nuclear power plants to meet the rising energy demand, one by 2021 and the other in 2022, with the objective for nuclear energy to contribute to approximately 10 per cent of the country’s electricity needs by 2030. However, these plans were delayed following the 2011 earthquake and tsunami in Japan and the consequent disaster at the Fukushima nuclear power plant.

Nevertheless, the government remains open to the potential role of nuclear power in Malaysia because it is seen as a way to meet the rising energy demand in a secure manner, while simultaneously reducing carbon emissions. As a result, the Eleventh Malaysia Plan 2016-2020 (11MP) announced the formation of the Malaysia Nuclear Power Corporation, which will spearhead efforts to investigate the possibility of deploying nuclear energy to meet future demand and diversify the energy mix for Peninsular Malaysia.

Ahmad Fauzi Hasan
Energy Commission

To briefly address the role of gas in the green energy space, it is undoubtedly important to consider it as a bridging fuel towards a green future. Nevertheless, in order to drive the development of the green energy sector, it is essential to concentrate efforts on the genuinely green and renewable sources of energy: biomass, biogas, solar and wind.

In terms of the former, and as mentioned previously, Malaysia has tremendous potential to generate energy from biomass, largely because of its equatorial climate that is ideal for dense tropical forest growth and agricultural vegetation.

The National Biomass Strategy 2020, devised by the National Innovation Agency Malaysia, sets the target of reaching 1,340 megawatts of energy from biomass by 2030, with an interim target of 800 megawatts by 2020. Furthermore, the 2030 target it sets for biogas is 410 megawatts, in addition to 490 megawatts from mini-hydro and 60 megawatts for geothermal. A further target of 360 megawatts is set for energy generated from municipal waste, which, although not green, is renewable.

Consequently, there are approximately 2,660 megawatts of energy potential in Malaysia for these four renewable energy sources alone, without the inclusion of solar or wind. Thus, there is plenty of scope for stakeholders to focus their efforts on the installation of these green and renewable sources of energy without the need to pursue the further expansion of traditional fossil fuels.

Dr Maximus Johnity Ongkili

We have discussed things from the generation and distribution side. What is the perspective from the banking and investment sides, and what are the associated challenges and opportunities with regard to the green energy sector?

Ahmad Farouk Mohammed
Khazanah Nasional Berhad (Khazanah)

There is a great amount of interest from local and foreign investors in the green space. This trend has progressed over time from something that was traditionally seen as merely fashionable to a genuine recognition that advancing the green energy space is essential for the long-term sustainability and wellbeing of communities around the world.

For example, two of the recent utility mergers and acquisitions in the region in 2016, both in Indonesia, involved the sale of a gas company and a geothermal company. In terms of the former, as has been discussed, gas has a role to play in contributing to carbon emission reductions moving forward, although it is neither renewable nor green. As for the latter, the attention placed on geothermal assets, while still a very young segment of the industry, is significant and highlights the growing interest in green sector opportunities.

Similarly, interest exists among investors in terms of entering the wider green energy space in Malaysia, which goes hand-in-hand with the issue of increasing investment flows into the country. At present, Malaysia receives high amounts of foreign direct investment (FDI), especially compared to regional competitors. In terms of FDI in green energy, however, the country is falling behind other nations in Asia. It is therefore important to understand why this is occurring and how the investing ecosystem can be improved to attract greater investment, which will help to boost the national green energy market.

Mohammed Rafidz Ahmed Rasiddi
Bank Pembangunan Malaysia Berhad (BPMB)

BPMB has extensive experience of lending to green energy projects and the bank is one of the largest financiers of this space in Malaysia. As such, we know that one of the biggest challenges from the perspective of financiers is that many projects receiving funding in the green energy space, including mini-hydro and biomass, are simply not performing in a viable manner. The exception to this rule has been solar, which has generally performed well, but there is definite room for improvement in terms of the commercial viability of green energy projects that are applying for financing.

The priority, therefore, is to identify why these issues are occurring, particularly given the extensive funds at our disposal for deployment in this sector. In addition to BPMB’s approximate MYR450-million outstanding loan portfolio of green energy projects, we are also one of the participating financial institutions in the government’s Green Technology Financing Scheme (GTFS), a soft loan programme that was introduced by federal authorities in 2010 to support the development of green technology in Malaysia. The GTFS has a total fund size of MYR3.5 billion, so the potential is tremendous, although the amounts being deployed are modest.