As part of the Energy in ASEAN series, Datuk Badriyah binti Hj. Ab. Malek, Deputy Secretary-General (Energy), MESTECC, Malaysia, shares more on the important energy developments in Malaysia.
1. What are Malaysia’s most pressing energy priorities?
Malaysia’s most pressing priority in the energy sector is ensuring the reliability and security of energy supply at affordable prices. In the long term, sustainability issues also needed to be addressed as Malaysia’s current energy mix are fossil fuel based mainly from coal and gas. In line with the global concerns of climate change and to mitigate rising temperatures Malaysia has started the effort to increase the share of renewable sources in the energy mix and accelerating energy efficiency and conservation initiatives. Focus would be continued to ensure the adequacy, quality, security and sustainability of energy supply in pursuit of the country’s development.
Malaysia had set our energy mix policy to comply with HHI Index (Herfindahl-Hirschman) of less than 0.5, to avoid depending on only one type of fuel in the total energy mix. Coal and natural gas are two main resources of fuel for electricity generation in which coal (48.4%) is imported fuel whereas natural gas (37.5%) are mostly from domestic production. Hydro resources are quite limited contributing only 12.7% of the total mix.
Affordability is one of the most important pressing issues in the energy sector for Malaysia. The Government constantly needs to ensure tariff to consumers are affordable rate with minimum impact especially on the lower income group of the population. Currently to make certain the poor vulnerable groups are cushioned from the impact of rising fuel costs the electricity tariff for consumers using less than 200kWh has not been increased for the past 20 years.
In dispatching power, the least-cost fuel option will be the main criteria determining the type of fuel selected in generating electricity. In addition to least-cost option, generation development plan is also based on the following planning criteria:
(i) Loss of load expectation of not more than 1 day per year
(ii) Fuel diversity index of not more than 0.5; and
(iii) System reserve margin of not less than 20% to ensure adequate capacity.
The Energy Sector has been identified as one of the biggest CO2 emitter in the whole portfolio; Malaysia has also undertaken the efforts to deploy new and more efficient technology to ensure the country’s commitment to reduce CO2 emission in the power sector progressively. Apart from the adoption of higher efficient combined-cycle gas turbine (CCGT), all new coal power plant has been mandated to use clean coal technology such as Ultra-Super Critical (USC). Also in line with the pledge to reduce CO2 emissions, Malaysia have targeted 30% of our installed capacity would be from renewable energy (RE) by 2030 which includes solar, biomass, biogas and hydro. Currently Malaysia RE installed capacity is at 21%.
2. How does Malaysia plan to achieve 50 per cent renewable energy generation by 2050?
Malaysia is now revisiting the targets and action plans in its existing RE Policy and Action Plan introduced in 2010. We need a new RE policy taking into account current national and international trends in the sector. The new RE policy “Renewable Energy Transition Roadmap 2050”, is a new study which is currently underway when completed and approved by the Government will be the guiding policy for Malaysia to arrive at 50% RE contribution in the energy mix by 2050.
RE has gone through many changes in the last 18 years starting with the Small Renewable Energy Programme (SREP) followed by the Feed in Tariff (FiT) Mechanism which was introduced and implemented in Peninsular Malaysia and Sabah since 2011. The FiT mechanism has managed to catalyse the growth of RE capacity in the generation mix and development of related renewable energy industries in Malaysia. RE sources such as biogas (e.g. agro-industrial waste and landfill gas), biomass (e.g. agro-waste and municipal solid waste), small hydropower, and solar photovoltaic are alternative sources which make part of the fuel mix for power generation. The FiT mechanism obliges Distribution Licensees to buy electricity from renewable energy generations supplied to the electricity grid for a specific duration. By guaranteeing access to the grid at a premium tariff ensures RE becomes a viable and sound long-term investment for commercial, industrial and individuals too. Since its inception in 2011, a total quota of 1,237MW has been approved from which a total capacity of 548MW has been connected to the grid, with solar being the main source (60%) of the total renewables under the mechanism.
Consequently the Government has rolled out the Net Energy Metering, to complement the FiT Mechanism. The NEM is a mechanism allowing consumers to self-consume electricity that are self-generated through renewable resources, while also enabling them to sell excess energy back to utility companies. The NEM mechanism is an inclusive and win-win initiative which allows consumers to enjoy direct savings in their utility bills and at the same time encourages the participation of households and businesses in renewable energy generation. Implemented in the end of 2016, the ministry planned to have 500 megawatts (MW) of installed capacity for net energy metering by the year 2020.
As part of a wider strategy to strengthen Malaysia's electricity generation from renewable energy sources, the Ministry has also commission the development of large scale solar photovoltaic plants (LSS) throughout the country, to accelerate the growth and the contribution of renewable energy in the country’s power generation mix. Two open bidding exercises were conducted in Y2016 and Y2017 and both exercises were well received with more than 200 bidders participated. There are currently 66 approved LSS projects ranging from 1MW to 50MW and with an overall total installed capacity of 1,228MW expected to be commissioned in 2020. To date, 4 projects with a total installed capacity of 34.5MW have achieved commercial operation date. Another concept called solar leasing is now being examined before being implemented by Q3 of 2018.
3. How is Malaysia channelling its leadership in Islamic financing to increase green investments globally?
Malaysia has become a global leader in leveraging especially on Islamic finance for infrastructure development through the issuance of more than 60% of the world’s infrastructure sukuk in the global sukuk market.
Following the launch of its Sustainable Responsible Investment (SRI) framework in 2014, Malaysia has increased its focus towards environmentally friendly Islamic finance products such as the green sukuk. Under the SRI initiative Malaysia has introduced a package of incentives which include tax deductions on issuance costs on any SRI and green sukuk approved. In addition, a Green SRI Sukuk Grant (which is tax exempted) was introduced to finance among others the independent reviewer costs incurred by the issuer. With the development of this framework and infrastructure, it had created a more conducive market for the green sukuk and as such, is set to consolidate its leading position in the sukuk market enhancing its value proposition as a centre for Islamic finance.
Malaysia also became the first country in the ASEAN region to launch the adoption of the ASEAN Green Bond Standards (AGBS) during the ASEAN Capital Markets Forum (ACMF) in November last year, which outlined common guidelines for green finance within the region.
In July 2017, Malaysia pioneered the world’s first green sukuk through the issuance of a RM250 million Green SRI Sukuk by Tadau Endergy Sdn Bhd to finance a 50 MW large-scale solar project in Kudat, Sabah.
Subsequently in October 2017, Quantum Solar Park Malaysia Sdn Bhd issued the world’s largest green SRI sukuk worth RM1 billion to finance the construction of three large-scale solar photovoltaic plants, to be built in the states of Kedah, Melaka and Terengganu. In November 2017, Permodalan Nasional Bhd (PNB) announced to raise 15-year tenure secured Green Sukuk known as the Merdeka ASEAN Green SRI Sukuk programme of up to RM2bil. The proceeds will be utilized to fund an 83-storey office space, which forms part of the expected LEED Platinum certified Merdeka PNB118 Tower project within the Warisan Merdeka precinct in Jalan Stadium, KL.
In December 2017, Mudajaya Group Berhad through its subsidiary Sinar Kamiri Sdn Bhd had proposed to raise up to RM245mil green SRI Sukuk Wakalah to build a large scale solar photovoltaic (PV) energy generating facility of 49MWac in Sungai Siput, Kuala Kangsar.
4. How is Malaysia enabling and enhancing energy innovation through its Green Technology Master Plan?
Since 2009, the Government has been diligently pursuing the development of green technology through various policies, incentives and projects. The Paris Agreement adopted at the United Nations Framework Convention on Climate Change (UNFCCC) 21st Conference of the Parties (COP) in 2015 is a significant outcome where majority of the global community came together to address the issues of climate change and global warming. Almost all Governments who are Parties to the UNFCCC have pledged to reduce their carbon dioxide (CO2) emission. Malaysia intends to reduce its greenhouse gas (GHG) emissions intensity of GDP by 45% by 2030 relative to the emissions intensity of GDP in 2005. This consists of 35% on an unconditional basis and a further 10% is condition upon receipt of climate finance, technology transfer and capacity building from developed countries. Given our commitment to the environment and long-term sustainability goals and as part of the United Nations SDG, the 11th Malaysia Plan, includes a thrust focused specifically on green growth.
The Government had introduced many initiatives to strengthen the institutional framework and to provide conducive environments for the growth and development of Green Technology. The Green Technology Master Plan or GTMP (2017-2030) was launched at the 8th International Greentech and Eco Products Exhibition and Conference Malaysia or IGEM 2017 on 12 October 2017. The Master Plan outlines Malaysia’s green technology strategies to create a resource-efficient and low-carbon economy. GTMP aims to boost Malaysia’s green technology sector, with a targeted revenue of MYR180 billion, while creating more than 200,000 green jobs by 2030.
The GTMP sets targets and initiatives which cut across six key sectors i.e. Energy, Manufacturing, Transport, Building, Waste and Water. The targets and initiatives are designed to lay the foundation for a holistic shift in Malaysia’s socio-economic development adhering to the principles of sustainability. It aligns the existing green technology-related policies and action plans with the strategic direction of the 11th Malaysia Plan.
A summary of the key points describing the embedding of green technology in each sector is as follows.
(i) Energy sector – Renewable Energy mix in the Installed Capacity to be increased to 30% by 2030. The reduction in electricity consumption is targeted at 10% in 2025 and 15% in 2030 compared to 2014.
(ii) Manufacturing sector - aims to increase the numbers of manufacturers in green manufacturing to more than 15, 000 by 2030 from 3,400 recorded in year 2015.
(iii) Transportation sector - aims to increase the use of public transport to 40% in the Klang Valley and 20% in other cities by 2020. In 2030, the use of public transport is targeted at 40% in all cities in Malaysia. The number of energy-efficient vehicle usage is ambitious targeted at 100% in 2030. In addition, the use of biodiesel needs to be accelerated to 576,000 tons in 2030 compared to 230,000 tons in 2013. GTMP targets EURO5 petrol and diesel standards to be made mandatory by 2030.
(iv) Building sector - the building sector is going to embrace the Green Building principles wholesomely where the number newgreen rated buildingsis targeted to increase to close to 2000by 2030. GTMP also aims all public and private sector development projects worth RM10 million and above will apply the concept of sustainable construction by year 2020.
(v) Waste management sector - the number of sanitary landfills is targeted to be increased to 80% by 2030. Waste recycling rates are targeted to increase from 17.5% in 2016 to about 30% in 2030. A total of 500 palm oil processing plants throughout Malaysia will have biogas collection facilities by 2030.
Water management sector - raw water extraction rate will be increased from 2% in 2015 to 15% (2030). The loss of Non-Revenue Water (NRW) will be reduced to about 20% in 2030. The use of Rainwater Harvesting System would be enhanced to ensure efficient management of water resources.
5. What are your thoughts on the SIEW 2018 theme “Transforming Energy: Invest, Innovate, Integrate”?
The upcoming SIEW 2018 with the theme, ‘Transforming Energy: Invest, Innovate, Integrate’ is timely to provide a platform for discussion to enable the deployment and integration of new technologies in the energy landscape. To facilitate this transition, it is important to address capital market barriers and foster an enabling environment for infrastructure investments.
Hence, how does the government set policies to meet the rising demand of energy whilst ensuring security of supply, affordability and protecting the environment? The right balance must be secured by the energy players including the electricity industry in a sector which require huge capital investments whilst adhering to the principles of social, economic and environment. All these to be adhered to and at the same time keeping the cost to consumers down and affordable.
The energy landscape is facing a new set of challenges such environmental standards and rapid changing of technologies. New and innovative solutions are needed, and traditional utility way of doing thing is fast fading away. Technology and digitization have become main drivers for change and industry transformation to better serve the increasing demanding consumers.
With the increasing penetration of various alternative generation sources as distributed generation such as solar PV, existing power grid network needs to be modernized with solutions as smart grid, micro-grid, large scale battery storage, digitization and Advanced Metering Instrument (AMI). Electric vehicles (EV) are now fast changing the mobility forefront. With this new intervention, the grid must be ready for EV impact in term of both technical and pricing. Increasing EV penetration should not stress grid network while maintaining efficient pricing structure for EV consumers.
To ensure seamless integration of all the above technologies require modernization of the existing power grid while guaranteeing the reliable power supply at all time. In conclusion, this year theme of transforming energy sector is very relevant.
There will be new challenges for policymakers to balance between three competing objectives in the Energy Trilemma, namely security, affordability and sustainability.
The global energy sector is being transformed by three trends that are impacting demand and supply at an unprecedented pace: decarbonisation, digitisation and decentralisation.
In ASEAN context, energy demand is set to grow very rapidly with a substantial increase in installed power capacity which is almost 3 times of the level in 2015. This is to cope with the increasing electrification ratio and wealth with an estimated 65 million people remains without electricity.
To face these challenges the energy industry requires transformation towards greater diversity of market participants and technologies while keeping it secure and sustainable.
Decarbonisation is the main driver for technology innovation. From solar to smart meter, customers are empowered on how and when they consume energy. Policy makers must respond to this new behaviour of consumers. With the increasing penetration of various RE generation sources, distributed generation such as solar PV, existing power grid network needs to be more flexible and modernized.
To ensure successful transformation of the energy industry and seamless integration of all the new innovative technologies, policy makers, while navigating energy trilemma must also anticipate future energy industry that are more responsive, dynamic and resilient with the evolving customer needs and technological advances.