Solar Ambitions

Progress under Malaysia’s utility-scale programme

In January 2020, Malaysian energy regulator SuruhanjayaTenaga awarded 491 MW of solar projects to five shortlisted bidders under the final phase of ProjekLoji Jana Kuasa Solar BerskalaBesarPusinganKetiga (Large Scale Solar (LSS-3), the third round of the national procurement programme for utility-scale photovoltaic.

The LSS tender programme was introduced by the Malaysian government in 2016 to replace the feed-in tariff (FiT)-based mechanism of project allocation. In the first round of the LSS, held in 2016, the government allocated 200 MW of generation capacity in peninsular Malaysia and 50 MW in Sabah, northern Borneo. In the second tender, held in 2017, 360 MW of capacity was allocated in the peninsula and 100 MW across Sabah and the islands of Labuan. A project size limit of 50 MW in the first round was reduced to 30 MW in the second tender, which attracted bids for 1.6 GW of solar capacity at prices of MYR 0.33-0.53 per kWh.

However, the response to the third round of the programme has been the largest. The tender was issued in February 2019 by SuruhanjayaTenaga to develop 500 MW of large-scale solar projects, which could range between 1 MW and 100 MW. In September 2019, the auction attracted 112 bids for more than 6.73 GW of generation capacity, over 13 times the planned capacity. The lowest solar energy price offered in the tender has been MYR 0.177 per kWh.

Amongst the winners, four bidders have pitched proposals for 100 MW facilities and the fifth for a 90 MW project, making the 500 MW exercise slightly undersubscribed. One of the four 100 MW projects – to be developed in Marang in the state of Terengganu – was submitted by a consortium formed by the German developer ib Vogt and the Malaysian company Coara Solar; and a second 100 MW project in Marang was offered by Cypark Resources Bhd and ImpianBumiriaSdn Bhd.

The third shortlisted 100 MW project is being planned in Kerian, in Perak state, by a consortium led by French energy giant Engie and a Malaysian company, TTL Energy Sdn Bhd. The fourth 100 MW facility – planned in Pekan in the state of Pahan – has been submitted by a local company, KonsortiumBeseri Jaya SdnBhd and the Singapore unit of South Korea’s Hanwha Group.

The fifth, a 90 MW project was offered by Spanish developer Solarpack with Malaysian clean energy outfit JKH Renewables in Kuala Muda in Kedah state.

Once commissioned, these projects will be connected to the grid and sell energy to TenagaNasionalBerhad (TNB) under a power purchase agreement. These five projects are expected to be commissioned by 2021.

Solar power outlook

Malaysia is a growing economy with rising energy demand. Renewable energy in Malaysia has come a long way since 1980 when the country embarked on the Four Fuel Diversification Strategy, with the aim of balancing the utilisation of oil, gas, coal and hydro in the energy mix. It was only in 2011 that the country’s Renewable Energy Act was gazetted and also the FiT mechanism was implemented to expedite growth in the renewable energy sector. Finally, in 2018, the government set a target of achieving 20 per cent of renewables in the energy mix by the year 2025. The evolution of renewable policies during this period shows the commitment of the government towards implementing renewable energy capacity in the country.

Amongst various sources of renewable energy, solar power currently dominates the government’s policy agenda. And within the segment, utility-scale and mid-tier projects predominate in Malaysia’s solar power market.

However, of late, small-scale and rooftop projects too have started gaining traction. Recently, the launch of leasing packages for rooftop solar has attracted customers to install solar panels on the rooftops of their buildings. Signing up for attractive packages such as those requiring zero capital can promote and incentivise buyers to invest in such plans that will offer benefits in terms of bill savings to customers. With the introduction of the 500 MW Net Energy Metering (NEM) scheme in 2018, the Malaysian government appears committed to expanding the country’s small-scale solar energy market as well. The scheme applies to all domestic, commercial, industrial and agricultural customers as long as they are TNB consumer. The Ministry of Energy, Science, Technology, Environment and Climate Change has allocated 450 MW for commercial and industrial buildings and the remaining 50 MW for residential buildings. The country has over 4.12 million buildings with solar rooftop potential in the peninsula. But progress under the scheme has been slow, with a high capex as the primary hurdle.

Overall, the replacement of the solar FiT with the NEM scheme and LSS bidding rounds, in particular, are seen as a positive approach. Not only has it driven tariffs down and increased competitiveness in the market, but it has also brought about significant growth in the country’s solar power industry.

That said, Malaysia’s energy sector remains tightly controlled and is yet to be fully liberalised, constraining solar and renewable energy market growth and industry development. Foreign entities are generally only allowed to own up to 49 per cent of the controlling interest in project entities. This reduces the attractiveness of the market to many international solar energy independent power producers, which in turn reduces competition. In fact, limitations on foreign participation extend to engineering, procurement and construction (EPC) services as well. For instance, under the LSS-3 request for proposal, the role of the EPC contractor and onshore EPC works are reserved for the local contractors.

Further, only TNB has so far been authorised to offtake power from large-scale and small-scale solar projects, restricting developers to explore any other options. Going forward, the implementation of the Malaysia Energy Supply Industry 2.0 (MESI 2.0) plan could drive the country to achieve the solar target. According to the plan, renewable energy generators do not need to sell electricity to the national utility company, TNB. Green energy trading could be done through the grid, which would bring in greater competition.

Meanwhile, local financial institutions still take quite a conservative view of solar energy projects and bank financing is neither as readily available nor is it quite attractive, especially for small- to mid-sized solar power plants. Larger projects face fewer challenges.

Summing up, with a series of measures taken up by the government to increase public-private partnership and private financing, the country might witness more investments coming from private players in the renewable energy space, including the solar power segment, which could ultimately propel the growth of this sector to enable the country to achieve its 2025 target.

By Dolly Khattar

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