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Commitment to renewables in Malaysia

Malaysia has, in its Tenth Malaysia Plan for 2011 to 2015, re-emphasised its commitment to the use of renewable energy to meet the country's growing energy demands and the sustainability of the environment. This commitment can be seen through the enactment of the Renewable Energy Act 2011 (RE Act) and the Sustainable Energy Development Authority Act 2011 (Seda Act) coming into effect in December 2011, a significant milestone in the development of renewable energy in Malaysia.

A feed-in tariff (FIT) system has been established under the RE Act to enable electricity generated from approved renewable energy installations by individuals as well as companies incorporated in Malaysia to be sold at a premium FIT rate to electricity utility companies/distribution licensees over a guaranteed period. Malaysia's FIT system is based on the German model with the exception that there is a yearly quota put in place on the capacity of each renewable energy source.

Although such quota may be viewed in some quarters as limiting renewable energy growth, is was introduced to promote an orderly development of renewable energy projects. In addition, given that Malaysia adopts the shared burden principle where a majority of electricity consumers (other than those whose consumption does not exceed 300kWh per month) are required to pay an additional 1% of their total electricity bills to fund the cost of electricity generated through renewable energy, this yearly quota ensures that the development of renewable energy projects can be sufficiently funded.

Under the RE Act, while any person is eligible to apply for a feed-in approval to participate in the FIT system for the generation of renewable energy from a renewable energy installation having an installed capacity of not more than 30 megawatts or such higher installed capacity as may be approved by the Minister of Energy, Green Technology and Water, there is a general restriction on foreign participants and existing distribution licensees who are only allowed to own up to a 49% equity interest in companies involved in renewal energy projects.

Such general restriction on foreign participants, however, does not apply to any foreign individual proposing to develop a renewable energy installation using solar photovoltaic as its renewable resource and having an installed capacity of up to and including 72kWp only.

The RE Act accords recognition to four types of renewable resource: biomass (including the use of municipal solid waste as a fuel source), biogas (including the use of landfill or sewage gas as a fuel source), small hydropower and solar photovoltaic, in view of their proven technologies and technical potentials as well as the economic viability under the local environment. Any renewable energy installation which proposes the use of solar thermal, wind or geothermal is currently not entitled to participate in the FIT system under the RE Act.

The FIT rate varies for each renewable energy installation using different type of renewable resource and the FIT rate decreases as installed capacity increases taking into account economies of scale. Similarly, the FIT rate (other than for small hydropower) also decreases with time based on annual degression rates and in this respect, any approved renewable energy installation (save for small hydropower) that is commissioned at a later stage will enjoy a lower FIT rate.

In order to participate in the FIT system, an eligible person must apply for a feed-in approval from the Sustainable Energy Development Authority (Seda) which is the statutory body established under the Seda Act to administer and manage the implementation of the FIT system.

Once an application for feed-in approval is approved by Seda, the RE Act obliges the relevant electricity utility company or distribution licensee to enter into a renewable energy power purchase agreement with the approved party within a specified period and in such form as prescribed by Seda, failing which the relevant electricity utility company or distribution licensee will be deemed to have committed an offence and be liable to penal sanctions under the RE Act. Such obligation gives an added focus and impetus to the development of renewable energy projects in Malaysia.

These positive developments in the renewable energy industry herald Malaysia's long-term commitment towards sustainability of environment and now accords new and commercially viable opportunities to project sponsors, utility players and financiers alike to tap into Malaysia's abundant renewable energy resources.

Lee Jeuhan

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