Energy Policy - PDF document

1 Energy Policy Ref. JEPO - D - 13 - 01
Energy Policy Ref. JEPO - D - 13 - 01251 Title: Feed - in Tariff in Malaysia: An Economic Assessment of Renewable Energy policy Dear Editor, Thank you for your kind attention. We have modified the manuscript accordingly, and detailed corrections are listed below point by point: 1) Abstract and keywords should be provided within the manuscript. 9 We have provided the abstract and keywords within the manuscript. 2) Footnotes to tables should be indicated with superscript letters. 9 S uperscript letters is added to table footnotes. 3) Provide the tel./fax numbers (with country and area code) of the corresponding author. 9 The tel./fax numbers has been added. 4) Pages should be numbered sequentially. 9 Manuscript ’s pages has been numbered. The manuscript has been resubmitted to your journa

2 l. We look forward to your positive res
l. We look forward to your positive response. Sincerely, B. Bakhtyar Highlights (for review) 1 Feed - i n Tariff in Malaysia : An Economic Assessment of Renewable Energy policy B Bakhtyar ¹ , O Saadatian², MA Alghoul² , Y Ibrahim¹, K Sopian², ¹School of Economic, Finance and Banking, Business College, University Utara Malaysia ² Solar Energy Research Institute National University Malaysia Corresponding Author: B. Bakhtyar , Tel: +60 176224202, Fax: +603 8911 8574 bakhtyar11@gmail.com Abstract Malaysia’s Renewable Energy (RE) Feed - in Tariff (FIT) (REFIT) is a new incentive for energy producers, which is not clear enough for investors. This study utilizes an archival research method on the current Malaysian policies, plans, strategies, and action plans to present a comprehensive view of the Mala

3 ysian solar part of the FIT policy. Th
ysian solar part of the FIT policy. This paper discusses the Malaysia’s REFIT scheme and the economic benefits of implementing FIT in the solar sector. The Malaysian solar energy sector can preserve the country’s oil and gas reserves, thus reducing carbon production a nd stopping environmental degradation. Investors in Malaysia and policy makers in other countries, especially those in the Association of South East Asian Nations, can use this FIT experience and trend in the solar sector. Keywords: Feed - in Tariff, Renewable Energy, Solar energy. 1. Introduction Malaysia is a tropical country , which is hot throughout the year. The average solar sunshine in this country is approximately 12 h in most areas [1]. The solar irradiance is between 1 , 400 and 1 , 900 kW · h/m 2 per annum [2]. Typically, certain lo

4 cal parameters must be considered for
cal parameters must be considered for the installation of solar systems in this country to harvest the maximum possible energy . In addition, Malaysia has a remarkable capacity for electricity generation from solar energy [3]. In 2012 , the amount of electricity production was estimated to be 1 MW ; however, it s actual capacity can reach 6 , 500 MW [4]. E xpansion in the usage o f renewable energ y (RE) was suggested in the Eighth Malaysian Plan 2001 to 2005 for the first time [5]. In this P lan , five RE sources , namely solar, wind, hydro, biomass , and biogas , were highlighted . In this Plan, 5% of the total energy production in Malaysia was supposed to be supplied by renewa ble energ y [6]. During the development of the Ninth Malaysian Plan, i.e. , 2006 to 2010, t

5 he identified goals for renewable en
he identified goals for renewable energ y were maintained (300 MW for Peninsular Malaysia and 50 MW for Sabah) [7]. M eantime, the share of the five energy sources were delineated as 56 % natural gas, 36 % coal, 6 % hydro, 0 .2 % oil, and 1.8 % renewable energ y [8]. Moreover, decreasing the amount of carbon dioxide emission by 40% in 2020 (compared with the level in 2005) was considered in the Ninth Malaysian Plan [9]. T he efficiency of solar energy harvested from the sun has reached 40% in Malaysia by 2012 [10]. Nevertheless, its production cost has decreased significantly [11]. P redict ion projected that by 2050, the price of Click here to view linked References 3 The 1980 energy use ( kilogram of oil equivalent) per $ 1 , 000 .00 g ross d omestic p roduction ( constant 2005 Pu

6 rchas ing Power Parity ) was 180 , w
rchas ing Power Parity ) was 180 , which increased to 210 in 1998 and decreased to 191 in 2010 [ 20 ] . Table 1 shows the annual shares o f solar PV in Malaysia after the implement ation of FIT in 2011 [ 2 1 ] . T he share of PV in 2011 in the total RE of Malaysia was very small ; however, in 2030 , it will cover almost all of its RE supplies. Table 1 . Projected annual shares o f the s olar PV after FIT implementation [ 2 ] Year Solar PV Total per annum (MW) 2011 9 219 2012 11 146 2013 13 178 2014 15 210 2015 17 232 2016 19 224 2017 21 231 2018 24 224 2019 28 218 2020 33 198 2030 280 282 2040 850 852 2050 1 , 350 1352 Enjoying more than a four - unit level of radiation (sunshine), Ma

7 laysia has a strong bas e for impl
laysia has a strong bas e for implementing solar energy among the renewable energ y sources [ 16] . Hence , solar energy can be utilized all year round in this country. Fig . 2 shows the formation and growth of s olar PV among the renewable energ y sources in Malaysia during 1999 – 2006 , which shows the increasing trend of both RE and PV during the same time. 0 10000 20000 30000 40000 50000 60000 70000 80000 year 1999 year 2000 year 2001 year 2002 year 2003 year 2004 year 2005 year 2006 42 64 116 188 313 557 1282 2220 30511 36679 39073 45760 48654 57529 63569 71230 Electrisity generated (GWh) RE PV 5 Since 2001, under the Malaysian National RE Policy and Action Plan , the FIT rate was pegged at RM0.17/kW · h

8 ( US$ 0.052/kW · h) for biomass and
( US$ 0.052/kW · h) for biomass and biogas. It was revised to RM0.19/kW · h ( US$ 0.058/kW · h) in 2006 and to RM0.21/kW · h ( US$ 0.064/kW · h) in 2 007 for biomass and biogas. The FIT rates for the solar PV are shown in Table 2 . Table 2 . FIT r ates for s olar PV [ 15 ] Capacity of RE installation FIT rate (RM per kW · h) E ff ectiv e period degressio n rate Installed capacity up to and including 4 kWp 1.23 21 years 8% Installed capacity above 4 kWp up to and including 24 kWp 1.20 21 years 8% Installed capacity above 24 kWp up to and including 72 kWp 1.18 21 years 8% Installed capacity above 72 kWp up to and including 1 MWp 1.14 21 years 8% Installed capacity above 1 MWp up to and including 10 MWp 0.95 21 years 8% Installed capacity above 10 MWp up to and

9 including 30 MWp 0.85 21 years
including 30 MWp 0.85 21 years 8% Additional for installation in buildings or building s tructures 0.26 21 years 8% Additional for use as building materials 0.25 21 years 8% Additional for use of locally manufactured or assembled solar PV modules 0.03 21 years 8% Additional for use of locally manufactured or assembled solar inverters 0.01 21 years 8% S olar PV is a mong the renewable energ y sources that bene fit from FIT , which has the highest tariff of RM 1.78 or US$ 0.95 [ 2 3 ] . The above tariff is fixed for 21 years , whose degression is 8% per year (Table 3) . Table 3 . Proposed full FIT rate [ 23 ] RE Duration year Tariff RM/kW · h ( US$ /kW · h) ᵃ Annual degression Displaced electricity cost RM/kW · h ( US$ /kW · h) ᵃ Wind

10 21 0.23 – 0.35 (0.07 – 0.11) 1
21 0.23 – 0.35 (0.07 – 0.11) 1% 0.22 (0.07) Solar PV 21 1.25 – 1.75 (0.39 – 0.54) 8% 0.35 (0.11) Solid waste and sewage gas 21 0.30 – 0.46 (0.09 – 0.14) 1.5% 0.22 (0.07) Biomass 16 0.24 – 0.35 (0.07 – 0.11) 0.2% 0.22 (0.07) Biogas 16 0.28 – 0.35 (0.09 – 0.11) 0.2% 0.22 (0.07) Geothermal 21 0.28 – 0.46 (0.09 – 0.14) 1% 0.22 (0.07) Mini - hydro 21 0.23 – 0.24 (_0.07) 0% 0.22 (0.07) ᵃ Subject to final confirmation upon enactment of the RE law ᵃ Subject to tariff increment 7 EQ Solar China Senai High Tech Park Solar module & cells RM1.7billion STX Corp South Korea Senai High Tech Park Solar cells RM1.5 billion Bosch Solar Energy AG Germany Batu Kawan, Penang Solar panel RM2.2 billion Solexel Inc U.S. Senai

11 High Tech Park PV cells RM2.8 bill
High Tech Park PV cells RM2.8 billion Different technology parks with new infrastructures , as well as 15 - year tax exemptions , are the reasons that attract ed investors in Malaysia as a solar industry motherland. In addition to these incentives , an interest ing banking and d ebt v enture system provides considerable financial assistance to solar companies in e stablishing their factories or solar farms in Malaysia [ 32 ] . For instance, the RM2.3 billion project of Sun P ower , an American base company , in Alor Gajah was financed by a RM1 billion loan from the Malaysian government. [ 33 ] . 6 .3 . Establishing a Safe Atmosphere against Fluctuation in Fuel Prices E nergy prices have fluctuated significantly over the past decades , with those of the natural gas and e

12 lectricity fluctuat ing the most [ 3
lectricity fluctuat ing the most [ 3 4 ] , as shown in Fig. 4 . Although the crude oil price has decreased currently compared with that in June and July 2008, the intense fluctuation in oil prices threaten s the economy of the industry. Fig . 4 . Malaysia n c rude oil price 2004 – 2011 [ 3 5 ] Fig. 4 shows that Malaysian investors suffered from three severe price shocks in June 2008, Septe mber 2009 , and April 2011. Expanding the solar PV industry in Malaysia and sharing the country ’s energy supply can provide a safe r atmosphere against fluctuation in fuel prices and protect energy investors against oil price shocks. 6 .4. Establishing a Safe Atmosphere for Investors of the Renewable Energ y Sector $0.00 $20.00 $40.00 $60.00 $80.00 $100.00

13 $120.00 $140.00 9 includ ing
$120.00 $140.00 9 includ ing solar PV and its related industries. Since its establishment in 1974, Petronas has been the biggest pet roleum company in Malaysia and has paid over RM403 billion tax to the Malaysia government [ 41 ] . I n 2008 alone , this figure reached RM 67.6 billion , which ma d e up 44 % of the government’s total revenue [ 42 ] . The decisive point is that the total amount of taxes paid by Petronas in one year is more than the total g ross d omestic p roduct of six Malaysian states , namely Labuan (RM m illion 2,272), Perlis (RM m illion 2,890), Kelantan (RM m illion 9,273), Melaka (RM m illion 14,385), Terengganu (RM m illion 14,715), and Kedah (RM m illion 18,153) in 2008 [ 4 3 ] . Further , the oil and gas sectors produce 30 % of Malaysia’s total income , whi

14 ch is roughly equal to 8 % of the a
ch is roughly equal to 8 % of the annual gross domestic production [ 4 4 ] . I n this condition, any disaster in the oil and gas industry would be intense and will have irreversible effects on the economic development. Gradual transition of the oil and gas industries’ shares, which are extremely vulnerable to political and external fluctuat ions, to renewable energies, particularly the solar energy , would make Malaysia’s economic development sustainable, efficient , and manageable , in the long term . 7 . M ain discussion s on FIT Given the infrastructures built in Malaysia, FIT ’s success in the solar sector mainly depends on the following three factors : 7.1. Increasing P roduction C osts P aying attention to investment in electricity generation should not stop the government from paying

15 attention to investment s in the
attention to investment s in the other sectors , such as training human resources and improving solar panel manufacturing technologies and equipment. S hortage or deficiency in any basic factor could lead to the decline in quality and increase in the costs of electricity , which will ultimately l ead to failure in the predicted success. 7.2. Loss of S ense of C onfidence by I nvestors The main target of the FIT program is to attract investmen ts , guarantee pro fit s , and protect the investment. Therefore , any action or change in the laws that will harm the investor’s confidence contradicts the conduct of FIT . The amount of production and percentage of degression play an essential role in determining the income rate. A ny change in the laws will damage th

16 e investor’s confidence and cause fail
e investor’s confidence and cause failure of the pl an. 7.3. Loss of S ense of C ompetition FIT has considered the degression rate so that the investor can bene fit from the offered facilities through the nearest rates and quickly enter the competitive market. Any change in the rates should be applied in such a way that it does not lead to investors’ failure to expan d . 8. M ain d iscussions on Malaysia ’s FIT in the s olar e nergy Malaysia ’s FIT is a localized FIT policy developed based on Malaysia ’s energy and econom ic specifications. S ome of the basic points for the first year of FIT implementation are discussed in the next section . 11 9 . Conclusion s Malaysia , with 12 h of daily sunshine , has approximately 4.5 kW · h/ ( m 2 · day) potential

17 for solar radiation which prompts t
for solar radiation which prompts the government to use PV to generat e 5.5% of the total electrical energy by 2015. In this way , FIT accelerat es the investment and increas e s electricity generation using PV. FIT provides bene fit s for both government and private investors. Implementing FIT in Malaysia will create 5 0, 000 new green jobs , especially for professiona ls and experts. Malaysian investors had suffered from three severe crude oil price shocks i n June 2008, September 2009 , and April 2011 . FIT can make a safe platform against the fluctuation of crude oil and fuel prices. FIT reduces the investment risk in the Malaysia n energy sector , which will result in a secure atmosphere for the energy supply in the country in the future. FIT plays a key role in makin

18 g efficient, sustainable and manageable
g efficient, sustainable and manageable economic development in Malaysia. In parallel with the FIT advantages for Malaysia, some stress points in implementing FIT also exist . Implementing FIT norma lly increases the electricity cost. Any changes in the FIT rate can destroy the whole sector by creating a loss of confidence or loss of competition among investors. S ome special points of view regarding Malaysia’s FIT exists . The investment payback time for FIT is quit e long . Malaysia ’s FIT program does not have any mechanism that involv es the low - and medium - income people. The rate of inflation has not been included in the FIT rate , and the 8% degression rate per annum discourages investors after a short period . We hope that the Malaysia n government

19 can devise a practical remedy to t
can devise a practical remedy to tak e advantage of the FIT bene fit s and eliminate the negative points of the FIT program . A modified FIT m ight support the country in achieving its energy roadmap target. Acknowledgment The authors would like to thank the Solar Energy Research Institute of the National University of Malaysia for their support and cooperation on this research. References [1] DR. Ossen, RA. Majid, MA. Ahmad, Tropical building design principles for comfortable indoor environment. Johur Bahru : University Technology Malaysia, 2008. [2] S. Ahmad, M. Kadir, S. Shafiea, Current perspective of the renewable energy development in Malaysia . Renewable and Sustainable Energy. 15(2011) 597 - 904. [3] K.H. Solangi, M.R. Islam, R. Saidur, N.A. Rahim, H. Fayaz, A review on global solar e

20 nergy policy. Renewable and Sustainable
nergy policy. Renewable and Sustainable Energy Reviews. 15(2011)2149 - 2163 [4] AM. Isa, M. Hideaki, T. Niimura, R. Yokoyama, Multi - Criteria Generation Optimal Mix Pla nning for Malaysia ’ s Additional Capacity. International Journal of Energy and Environment, 4 (2010) 221 - 229. [5] B. Bakhtyar, A. Zaharim, K. Sopian, Omidreza Saadatian, and N. Ludin. "The effects of Feed in Tariff on Foreign Direct Investment in Malaysia." Advances in Environment, Biotechnology and Biomedicine , (2012) 142 - 151. 13 [22] TH. Oh, SY. Pang, SC Chua, Energy policy and alternative energy in Malaysia: issues and challenges for sustainable growth. Renewable and Sustainable Energy Reviews. 14 (2010) 1241 – 52. [23] SC. Chua, TH. Oh, WW. Goh, Feed - in tariff outlook in Malaysia. Renewable and Sustainable Energy Reviews. 15 (2011) 705 - 712. [24] BA

21 . Malek, Road to energy security. The St
. Malek, Road to energy security. The Star newspaper. Dec 11,2011. http://thestar.com.my/news/story.asp?file=/2011/12/30/focus/10180281&sec=focus [25] IMF. Malaysia Unemployment rate. Mundi. [Online] 2011. http://www.indexmundi.com/m alaysia/unemployment_rate.html. [26] C. Teh, Electricity demand, economic growth and sustainable energy resource in Malaysia. 2010, http://christopherteh.com/blog/2010/09/electricity - demand/. [27] Bernama, Malaysia National News Agency. RM4.2 Billion of F DI From Jan - May in 2009. Bernama. [Online] July 02, 2009. http://www.bernama.com. [28] MIDA. Malaysia optimistic in attracting RM10 billion in FDI in 2011. MIDA Economy News. [Online] August 1, 2011. http://www.mida.gov.my. [29] M. Mahathir, M'sia firming up position as largest solar panel maker. [interv.] Bernama. Kuala Lumpur, November 16, 2011. [30] G

22 roup, Petronas. Financial Results Annoua
roup, Petronas. Financial Results Annouancement. Kuala Lumpur : Petronas, 2008. [31] Shukri, Azli. In home KHTP Analysis Production Industry Invest ment Contact Photovoltaics (PV). Dahulu Kini dan Selamanya. [Online] December 2010. http://dahulukiniselamanya.blogspot.com/2011/09/analisis - khtp - dlm - kontek - pelaburan.html. [32] engineur, de. Malacca to build first solar farm, RM46 million. The Green Mecha nics. [Online] September 11, 2012. http://www.thegreenmechanics.com/2012/09/malacca - to - build - first - solar - farm - rm46.html. [33] MIDA. Sunpower on track to implement project. http://www.mida.gov.my/env3/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=1 01&cntnt01returnid=3 88. [Online] 01 14, 2009. [34] Oh TH, Pang SY, Chua SC. Energy policy and alternative energy in Malaysia: issues and challenges

23 for sustainable growth. Renewable and S
for sustainable growth. Renewable and Sustainable Energy Reviews. 14 (2010) 1241 – 52. [35] SC. Chua SC, TH. Oh, Review on Malaysia’s National energy developments; key policies, agencies, programmes and international involvement. Renewable and Sustainable Energy Reviews. 14 (2010) 2916 – 25. [36] R. Doherty, M. Malley. The efficiency of Ireland’s Renewable Energy F eed - In Tariff (REFIT) for wind generation. Energy Policy. 39 (2011) 4911 - 4919. Table(s): Projected annual shares of the solar PV after FIT impl Table 2. FIT rates for solar PV Capacity of RE installation FIT rate (RM per kW · h) E ff ectiv e period degressio n rate Installed capacity up to and including 4 kWp 1.23 21 years 8% Installed capacity above 4 kWp up to and including 24 kWp 1.20 21 years 8% Installed capacity above 24 kWp up to and i

24 ncluding 72 kWp 1.18 21 years 8%
ncluding 72 kWp 1.18 21 years 8% Installed capacity above 72 kWp up to and including 1 MWp 1.14 21 years 8% Installed capacity above 1 MWp up to and including 10 MWp 0.95 21 years 8% Installed capacity above 10 MWp up to and including 30 MWp 0.85 21 years 8% Additional for installation in buildings or building s tructures 0.26 21 years 8% Additional for use as building materials 0.25 21 years 8% Additional for use of locally manufactured or assembled solar PV modules 0.03 21 years 8% Additional for use of locally manufactured or assembled solar inverters 0.01 21 years 8% Table 3. Proposed full FIT rate RE Duration year Tariff RM/kW · h (US$/kW · h)¹ Annual degression Displaced electricity cost RM/kW · h (US$/kW · h)² Wind 21 0.23 – 0.35 (0.07 – 0.11)

25 1% 0.22 (0.07) Solar PV 21 1.25
1% 0.22 (0.07) Solar PV 21 1.25 – 1.75 (0.39 – 0.54) 8% 0.35 (0.11) Solid waste and sewage gas 21 0.30 – 0.46 (0.09 – 0.14) 1.5% 0.22 (0.07) Biomass 16 0.24 – 0.35 (0.07 – 0.11) 0.2% 0.22 (0.07) Biogas 16 0.28 – 0.35 (0.09 – 0.11) 0.2% 0.22 (0.07) Geothermal 21 0.28 – 0.46 (0.09 – 0.14) 1% 0.22 (0.07) Mini - hydro 21 0.23 – 0.24 (_0.07) 0% 0.22 (0.07) Table 4 . F irst group of foreign investors in the solar sector in Malaysia Company Name Original Country Location Product Total Investment First Solar U.S. Kulim Hi - Tech Park Solar panel (thin - film) RM2 billion Q - Cells Germany Selangor Science Park II Solar cells RM5 billion SunPower U.S. Rembia, Melaka Solar panel RM1.8 billion Tokuyama Corp Japan Bintulu, Sara

26 wak Polycrystalline silicon RM1.8 b
wak Polycrystalline silicon RM1.8 billion Twin Creeks Technology Inc U.S. Perak Hi - Tech Park PV cells RM1 billion EQ Solar China Senai High Tech Park Solar module & cells RM1.7billion STX Corp South Korea Senai High Tech Park Solar cells RM1.5 billion Bosch Solar Energy AG Germany Batu Kawan, Penang Solar panel RM2.2 billion Solexel Inc U.S. Senai High Tech Park PV cells RM2.8 billion Table 5. Renewable tariff adjustment for inflation Ontario SOC 20% France 60% – 70% Spain 75% to 2012 ; 50% after 2012 Greece 25% Ireland 100% Fig. 1. E lectric power consumption in Malaysia from 1970 to 2009 0 20 40 60 80 100 120 year 1968 year 1976 year 1984 year 1992 year 2000 year 2008 year 2010 The electric power consumption in

27 Malaysia (billion kWh) Fig. 2. G r
Malaysia (billion kWh) Fig. 2. G rowth of the solar PV among the renewable energ y sources during 1999 – 2006 in Malaysia 0 10000 20000 30000 40000 50000 60000 70000 80000 year 1999 year 2000 year 2001 year 2002 year 2003 year 2004 year 2005 year 2006 42 64 116 188 313 557 1282 2220 30511 36679 39073 45760 48654 57529 63569 71230 Electrisity generated (GWh) RE PV Fig. 3 . Malaysian trend in generating solar energy among the renewal energ y sources in 2011 – 2050 0 2000 4000 6000 8000 10000 12000 14000 MW Solar PV SW Mini - hydro Biogas Biomass Fig. 4 . Malaysia n c rude oil price 2004 – 2011 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 Fig. 5 . Malaysian roadmap for solar