Malaysia to rely on annual tenders to achieve 7 GW renewable target by 2025: consultant

Malaysia is likely to continue to run annual tenders to help achieve its renewable generation target of 7 GW by 2025, given the competitive tariffs achieved in earlier solar auctions, an EY consultant said.

Malaysia set a 20% renewable energy target in 2018. At the end of 2018, renewables had a 2% share of the generation stack. The country now has 1 GW of renewable capacity in the pipeline. Total installed capacity at the end of 2019 was 33.9 GW, according to official data, and there have been no official updates for 2020 as yet.

Malaysia is expected to continue to run annual tenders to help achieve its goals - with the possibility of increasing the country's target - in view of the competitive tariffs achieved in the solar auction of less than Malaysian ringgit 20/kWh ($4.85/kWh), said Gilles Pascual, EY Asean power and utilities leader in Singapore.

The tenders issued by the Sustainable Energy Development Authority (SEDA) since 2017 for solar, biogas, and small hydropower projects supported Malaysian development of renewable energy, in addition to providing fiscal incentives for boost such developments, said Joo Yeow Lee, associate director, power at IHS Markit in Singapore.

Solar facilities account for the largest number of Malaysian projects, according to a recently released EY report titled, "Green recovery opportunities in Southeast Asia, Japan, South Korea and Taiwan." A total of 2.327 GW of solar capacity has won approval in tenders in the past four years.

"While Malaysia has not officially announced its intention to continue running annual tenders or announced a target past 2025, the success of past auctions, the interest from investors and lenders, as well as the competitive tariffs achieved, all point towards continued growth of solar capacity," Pascual said.

Solar to see seven-fold capacity jump in next decade

IHS Markit estimates Malaysia's installed solar capacity will see a seven-fold increase by 2030 from an estimated 1.4 GW to 1.5 GW at the end of 2020. Total installed capacity at the end of 2019 was about 1.2 GW, according to IHS Markit data.

By 2050, approximately 20% of the power generation in Malaysia will come from renewables, with solar PV contributing around 90% of that total, according to IHS Markit forecasts. Malaysia's installed solar capacity will see a 30-fold increase between 2019 and 2050, according to IHS Markit.

Lee attributed his optimism about expansion of renewables in Malaysia to a number of factors. Firstly, the Malaysian government has been consistent in implementing large-scale tenders; it has continued to modify schemes that support solar development; and more are expected, he said.

A strong local supply chain for solar; a low resource potential for other renewable technologies; strong demand from multinational corporations with RE100 commitments (a global initiative that brings together the world's most influential businesses committed to 100% renewable electricity) and operations in Malaysia; and the development of data centers requiring green energy will also all contribute to the expected increase in installed solar capacity, he said.

In addition, the heavy reliance on solar under the current national policy inhibits other technologies from stepping up to help meet the target, while wind development is likely to remain minimal due to Malaysia's location near the equator where wind speeds are extremely low, Lee said.

2025 target likely to be missed

Yet, Malaysia may miss ambitious target the government has set for 2025, equivalent to 20% of total installed power capacity, according to Lee.

Delays in current projects; a longer project development timeline allowed in the 2020 tender; and potential delays in the Malaysian Electricity Supply Industry 2.0 (MESI 2.0) program, which may also have an impact on demand, will hurt efforts to meet the target, he said. Reaching it by 2027 is more realistic, he added.

The Ministry of Energy and Natural Resources approved MESI 2.0 in 2019 in an effort to change the structure of the electricity supply industry, the next stage in the liberalization of the power industry.

IHS Markit's forecast that the 20% capacity target will only be reached in 2027 is also based on expectations of a sustained increase in tender capacity since the fourth Large Scale Solar Photovoltaic (LSSPV) tender was issued this year, Lee said.

A shift toward small capacity tenders since the 4th LSSPV tender was issued this year will also hurt progress toward the target, Lee said.

"Biomass/gas and small hydro are relatively smaller than solar, averaging around 30 MW per tender for biomass/gas and around 200 MW for small hydro, compared with solar which awarded close to 500 MW each for Large Scale Solar 1, 2 and 3 and 830 MW for Large Scale Solar 4," he said.