Malaysia's potential for renewable energy generation is substantial. Its equatorial location is superb for solar, and its extensive tropical forests can supply large quantities of biomass. Hydropower already plays a significant part of the nation's energy mix, particularly on the island of Borneo, and mini-hydropower from streams and rivers has boosted the electricity supply in rural areas.

The potential for energy from palm oil waste is widely discussed. Malaysia produces around 18 million tonnes of palm oil per year, most of which is exported. Oil palm plantations cover 15 percent of the country (4.7 million ha) and produce significant amounts of combustible waste – both biomass, including empty fruit bunches, tree fronds, trunks, fibres and shell; and biogas from methane capture of palm oil mill effluent (POME) – which, according to some estimates, could generate up to 20 percent of the country's electricity by 2020.

Electricity Market

The country's electricity generating capacity increased by 20 percent between 2000 and 2009, and is projected to increase further by almost three percent per year, from 66 million tonnes of oil equivalent (Mtoe) in 2005 to 131 Mtoe in 2030. Per capita electricity demand is on the rise, and is expected to reach or exceed the OECD average by 2030. While total installed capacity for the entire country was estimated at 24,187 MW in 2010 and peak demand was anticipated at 16,332 MW, offering a comfortable margin of capacity over demand, utility Tenaga Nasional Berhad (TNB) projects that peak demand will stand at 20,669 MW by 2020.

TNB currently maintains a generation reserve margin of 31 percent, but it predicts that this margin will drop to 20 percent by 2015 if no new power plants come online by then, which is likely as there are no new plant projects scheduled for the next four years. Indeed, there were power shortages in 2009 due to rising demand and aging generating units.

Energy Policy

According to government targets, renewable energy should contribute at least 5.5 percent to the country's generation mix by 2015. Surveys indicate that the public supports renewable power as a remedy for high levels of pollution – such as the "Malaysian haze' of 2005, a weeklong choking, smog-like haze over Peninsular Malaysia which almost brought the region to a standstill.

Nevertheless, the development of renewable energy projects has to date been very slow, and government officials confirm that renewables can account for only a small part of the mix in the foreseeable future. Even with its "five fuels" policy – which adds renewable energy sources to the national mix of oil, gas, coal and hydropower – renewable capacity excluding hydropower was only 53 MW at the end of the 8th Malaysia Plan in 2009.

The 9th Plan, which set targets of 300 MW of renewable energy in Peninsular Malaysia and 50 MW in Sabah, was implemented from 2006-2010 with a focus on reducing dependency on imported petroleum and further integrating alternative fuels. (The 10th plan, effective from 2011-2015, places greater emphasis on energy efficiency.) There has also been a national biomass initiative, and the government has committed to a 40 percent reduction in carbon intensity.

The National Renewable Energy Policy and Action Plan, effective since June 2010, aims to draw more of the nation's electricity supply (11 percent by 2020) from renewable energy. The Ministry of Energy, Green Technology and Water's Green Technology Financing Scheme, worth Rm1.5 billion (about US$500 million) offers incentives to green technologies.

Small Renewables Programme

The Small and Renewable Energy Programme (SREP) was first launched in May 2001, with the coordinating and oversight Special Commission on Renewable Energy (SCORE) also established at that time. SREP allows renewable projects of up to 10 MW to sell their output to the utility, under 21-year licence agreements. Any renewable energy plant (including biomass, biogas, municipal waste, solar, mini-hydropower and wind) may apply to sell energy to the grid on a "willing seller and willing buyer" basis. The first renewable energy purchasing agreement (REPA) between TNB and a plant owner was signed in 2001.

The program is, however, limited to 219 MW in 2011, but will increase to nearly one GW in 2015. The bulk of the generating capacity to be installed is set aside for biomass and mini-hydropower. While participation has steadily increased and the results have been encouraging, the total volume of electricity generated is still small.

Issues with Renewables

Malaysian energy providers are focused primarily on planning to meet rising short- and medium-term demand. Since renewable energy projects thus far have been developed on a relatively small scale, the problem of diminishing natural gas is forcing the utilities toward using more coal in order to meet their immediate needs.

Palm oil, Malaysia's largest export and a potential renewable energy source, is also proving problematic. Critics say the government's conversion of over one million ha of forest land into oil palm plantations threatens to create substantial carbon emissions, which will essentially negate the carbon reductions represented by the use of waste from palm oil production in renewable energy projects (and by the government's carbon reduction programme).

While the EU-Malaysia Biomass Sustainable Production Initiative (Biomass-SP) claims that there are investors from a number of countries such as Germany, France, Ireland, the UK, Korea, Thailand and Hong Kong who want to fund biomass projects, thus far there has been little interest from Malaysian palm oil millers.

Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron believes that palm oil millers would be interested in partnering with foreign investors, but have not yet heard about these opportunities. However, Biomass-SP technical adviser Datuk Leong Kin Mun reportedly told the Business Times that palm oil millers are afraid that such investment would disrupt the daily running of their plants, and so see it as risky. Leong also believes that many palm oil millers are simply not interested in renewable energy.

"At the current rate of 21sen/kWh (7 US cents/kWh) TNB is buying renewable energy, the potential of electricity sales is worth RM394.8 million (US$XX million). Upon implementation of the feed-in tariff system, the higher renewable energy purchase price could be an added incentive for palm oil millers to convert their POME biogas to electricity," Leong apparently said.

The Future for Renewables

April 2011 saw Malaysia adopt an Advanced Renewable Tariffs system and further renewable energy targets. A Renewable Energy bill (RE Bill) and a Bill for Sustainable Development Authority (SEDA Bill) were passed by the House of Representatives on 28 April, and a one percent feed-in tariff (FiT), which will pay into a renewable energy fund, will be effective as REW goes to press in September 2011. Among the current eligible resources for the FiT program are biomass, biogas, mini-hydropower and solar energy.

Like successful policies elsewhere, the Malaysian tariff differentiates by technology and derives tariffs based on the cost of generation. The tariffs have apparently been received enthusiastically.

Indeed, projects currently in the planning stages includes a move by EQ Solar Technology International Sdn Bhd, a subsidiary of China's Hangzhou Energy Solar Co. Ltd, which intends to manufacture solar modules, cells and wafers in Senai Hi-Tech Park in the southern state of Johor. According to EQ, it is planning to invest Rm1.6 billion ($500 million) in the project which will have a peak annual production of 50 MW of modules, rising eventually to 200 MW.

Meanwhile, Berjaya Corp Bhd's (BCorp) subsidiary Berjaya Solar Sdn Bhd plans to invest RM180 million ($61 million) in a 10-MW PV plant at Bukit Tagar, Selangor, on the west coast. BCorp said the plant is a precursor to its proposed 50 MW PV plant.

Also in the pipeline are the Hulu Terengganu (250 MW) and Ulu Jelai (372 MW) hydro projects, a pilot 5-MW solar PV project in Putrajaya, and projects encompassing 51 biogas plants by plantation conglomerate Felda Holdings Bhd which will use biomass waste including empty fruit bunches and palm oil mill effluent.

Moving Forward

With an attractive FiT rate and abundant natural resources, Malaysia is ripe for foreign investment in renewable energy projects. Renewable power solutions could help the country avoid becoming a net fuel importer in the next 30 years, reduce its carbon emissions and make a difference to rural quality of life. However, stakeholders in the development process need to plan carefully for the long term in order to avoid simply replacing one short-term problem with another. Careful and responsible development which addresses sustainability issues will prove more profitable in the long term.