Challenges to investment
Before 2011, Malaysia faced significant challenges promoting investment in renewable energy (RE). Malaysia’s highly subsidized electricity tariffs made it difficult for RE and other energy efficiency (EE) initiatives to compete with traditional fossil fuels, creating major barriers to implementation and long-term viability. Because fossil fuel subsidies kept energy prices relatively low, there was little urgency surrounding the development of RE during that period. Recognizing that RE development would be critical to Malaysia’s future, the Malaysian government sought to incentivize RE producers by reducing long-term risks and ensuring return on investment, aiming to make RE a significant part of the country's energy mix.
Approach
In December 2011, under the Renewable Energy Act 2011, the Malaysian government introduced the Feed in Tariff & Renewable Energy Fund. Under the Feed in Tariff, commercial and residential electricity customers were allowed to generate and sell electricity from RE sources to the national utility companies Tenaga Nasional Berhad (TNB) and Sabah Electricity Sdn Bhd (SESB) at a fixed price and for a specified period. The Renewable Energy Fund that accompanied this scheme was established to finance and accelerate the implementation of the FiT scheme. It received initial funding of MYR 300 million (around USD 87.25 million) from the Malaysian Treasury. A surcharge collected from electricity consumers' bills further funded the scheme. The surcharge only targeted customers using more than 300 kWh per month or paying more than MYR 77 per month. Starting at 1.0%, the surcharge was later increased to 1.6% in January 2014. The Sustainable Energy Development Authority (SEDA) managed and supervised the RE Fund, which financed FiT payment claims and administrative expenses.
Key Enabling Conditions
A series of government initiatives, such as the Efficient Management of Electrical Energy Regulations (2008) and the Green Building Index (GBI), accompanied by the promotion of energy-efficient buildings, created a synergistic effect that advanced RE in Malaysia. These efforts, combined with the falling prices of solar panels, significantly enabled the growth of solar energy in particular. Increased awareness among Malaysians about the benefits of solar energy in reducing electricity bills and carbon footprints further contributed to adoption of the FiT scheme and other clean energy initiatives.
More recently, in 2023, the National Energy Transition Roadmap (NETR) further increased the ambition of Malaysia in regards to gradually increasing RE shares to, respectively, 31% by 2025, 40% by 2035, and an impressive 70% by 2050. This has acted as yet an additional positive signal and confidence booster for investors in the clean energy space.
Impact / Outcomes
In the two years following the implementation of the FiT scheme, Malaysia approved a total RE capacity of 482 MW, of which 40.2% was solar photovoltaic, 27.7% was biomass, 27.2% was small hydro, and 4.9% was biogas. This two-year period saw a cumulative total of 119 MW of RE capacity connected to the grid, representing a 94% increase from the 61.2 MW connected at the end of 2010. By November 2013, SEDA had collected MYR 510 million (USD 148 million) from the 1% consumer surcharge, disbursing MYR 66.8 million (USD 19.4 million) for FiT payments and MYR 3.3 million (USD 1 million) for administrative fees. After disbursements and fees, the RE fund had a balance of MYR 752 million (USD 219 million), including the initial grant and earned interest. Though the FiT scheme contributed to significant increases in RE generation capacity, especially solar PV, the Malaysian government replaced the solar FiT scheme in 2016 with the Net Energy Metering (NEM) and the Large Scale Solar (LSS) schemes. The NEM provided consumers with greater incentives to consume RE efficiently and energy prices which better reflected market rates, while the LSS supported the uptake of utility scale solar PV systems through a reverse auction system.
Additional Sources
- Husain, A. A., Ahmad Phesal, M. H., Kadir, M. Z. A. A., Ungku Amirulddin, U. A., & Junaidi, A. H. (2021). A decade of transitioning Malaysia toward a high-solar PV energy penetration nation. Sustainability, 13(17), 9959, https://doi.org/10.3390/su13179959
- Malek, D. B. A. (2013). Briefing on RE Funding Mechanism for the Feed-in Tariff, https://www.st.gov.my/en/contents/highlight/2013/4_SEDA.pdf
- Parliamentary Research Officer (2013). Feed-In Tariff and Renewable Energy Fund, https://www.parlimen.gov.my/images/webuser/artikel/ro/amy/FiT%20and%20RE%20Fund.pdf
- Razali, A. H., Abdullah, M. P., Hassan, M. Y., & Hussin, F. (2019). Comparison of new and previous net energy metering (NEM) scheme in Malaysia. ELEKTRIKA-Journal of Electrical Engineering, 18(1), 36-42, https://doi.org/10.11113/elektrika.v18n1.141
- SEDA (2021). Malaysia Renewable Energy Roadmap: Pathway Towards Low Carbon Energy System, https://www.seda.gov.my/reportal/wp-content/uploads/2021/12/MyRER_webVer-1.pdf
- https://www.iea.org/policies/4801-renewable-energy-act-establishing-feed-in-tariff-fit-system
- https://lib.uniten.edu.my/ulib/index.php/list-cat5/tnb-1/tnb2014/2014-february/5987-rm325-million-boost-for-re-fund/file
- http://www.pv-magazine.com/2013/12/05/malaysia-increases-surcharge-to-fund-fit-program_100013656/
- https://www.thesolarera.com/post/feed-in-tariff-in-malaysia