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Malaysia introduced more incentives for renewable power
purchases at the start of December after pledging to reach carbon
neutrality by 2050 at the earliest, a move winning endorsement from
policy experts and multinational companies.
From 1 December, domestic, commercial, and industrial users can
all opt to acquire power from renewable sources by paying an extra
Malaysian Ringgit 0.037 per kWh under the Green Electricity Tariff
(GET) program.
This compares with a premium of RM0.08 under myGreen+, the
previous procurement scheme being phased out.
With high renewable energy costs often cited as an obstacle to
Malaysia's energy transition, IHS Markit Associator Director for
Climate and Sustainability Joo Yeow Lee said the new scheme could
promote more green electricity uptake.
"It is definitely more attractive as prices are significantly
lower," Lee told Net-Zero Business Daily.
In November, an IHS Markit study found that member firms of
RE100—a coalition of companies aiming to source all of their
electricity from renewables—only met 1% of their power demand
from low-carbon options in Malaysia.
This is despite Malaysia having close to 800 GWh of renewable
supply on offer annually, enough to cover more than 60% of those
companies' power consumption, according to the study.
"We have seen in other markets that when the price of renewable
energy decreases, there is an increased market take-up," said
William Stroll, a Singapore-based partner at law firm Pinsent
Masons. "Whilst many corporates have a stated green agenda, often
they are not willing to pursue this agenda where there is an
increased cost."
Lee, Stroll, and some others agreed that Malaysian authorities
also managed to sweeten the pot for power users by issuing
internationally recognized Renewable Energy Certificates (RECs)
under the GET. Domestic certificates are issued under myGreen+.
Based on international standards, a green power generator is
eligible to issue one REC per MWh fed into the grid. While there is
no way to track electrons through a power network, the RECs can be
sold to electricity consumers and allow them to claim the usage of
renewable power.
This instrument is popular among the multinational firms that
aim to reduce their emissions.
Jared Braslawsky, executive director of the I-REC Standard
Foundation, which establishes international criteria for such
certificates, said his organization was "exceptionally glad to see"
Malaysia provides "high-quality renewable energy products to
end-users of all sizes."
"We are optimistic that the broader program will help support
domestic renewable energy generation," Braslawsky said in a statement earlier this
month.
According to state-owned utility Tenaga Nasional Berhad (TNB),
Malaysia's largest power firm, 49 customers subscribed to the GET
as of 14 December.
The Ministry of Energy and Natural Resources said some
Malaysia-based subsidiaries of CIMB Bank, FrieslandCampina, HSBC,
Sanlam Group, Nestlé, and Zurich Insurance Group are among the earliest subscribers. HSBC,
Nestlé, and Zurich Insurance are RE100 members.
The Malaysian government said 4,500 GWh per year will be made
available under the GET. The subscribers will start to receive
renewable supplies from 1 January 2022.
Stronger climate ambitions
The market reform came after Malaysia's Prime Minister Ismail
Sabri Yaakob announced a national target to reach
carbon neutrality in 2050 or later in September.
Ismail Sabri promised that Malaysia will unveil a National
Energy Policy and long-term low-emission development strategies by
the end of 2022, which he said will include a CO2 emissions
price.
The country will not build new coal power plants going forward,
he added. According to the latest annual data from International
Energy Agency, coal accounted for 45.9% of Malaysia's electricity
mix in 2019.
When updating its Nationally Determined Contribution in July for
submission to the UN Framework Convention on Climate Change, the
government said Malaysia is committed to cutting the GHG intensity
of its economy by 45% from 2005 levels by 2030. This was more
ambitious than a previous goal of a 35% reduction set in 2016.
Malaysia has separately established targets to reduce CO2
emissions from its power sector by 45% by 2030 and 60% by 2035,
relative to its 2005 level. TNB and Sarawak Energy, another
state-owned utility, have committed to carbon neutrality by
2050.
Based on recent announcements, the government appears to be
focusing on cutting coal usage rather than natural gas. More than 7
GW of coal-fired plants' power purchase agreements (PPAs) will expire by 2033, and the
government plans to replace those with electricity generated from
gas and renewables.
Phang Oy Cheng, executive director of sustainability advisory at
KPMG Malaysia, said Malaysia faces challenges in decarbonizing its
economy due to population growth and poverty outside of urban
areas. The oil and gas sector supplies 35% of government revenues,
according to globalEDGE data.
"The transition to net carbon zero will require not just
political will but also significant structural and legislative
reforms on a national scale," Phang said in a research note earlier this
year.
Renewable targets
In 2018, Malaysia said it aimed to have 20% of its generation
mix be renewables by 2025 without taking large hydropower projects
into account. This was estimated to require 7 GW of solar and other
renewable capacity additions on
top of the end of 2018 level of nearly 1.4 GW.
The country established new renewable capacity targets
of 31% by 2025 and 40% by 2035 in June. But hydroelectricity is to
be counted this time.
With the new baseline, the energy ministry calculated that
renewable capacity would need to increase from around 8 GW
currently to 18 GW by 2035, but it did not disclose an interim
figure. The country's installed hydropower capacity reached 6.28 GW
as of the end of 2020, according to the International Hydropower
Association.
IHS Markit expects Malaysia to meet the 2025 and 2035 targets.
The government has been consistently conducting tenders for
renewables in recent years, and it issued an order to block exports
of renewable electricity to other countries in October, but Lee
said the inclusion of hydroelectric also helps lower the bar.
Isabella Suarez, an analyst at the Center for Research on Energy
and Clean Air, said the recent targets were not ambitious enough.
"[The government] underestimates the potential for renewables such
as wind, solar, and biomass in Malaysia," she said.
With the GET's subscription period lasting for just a year, some
experts said Malaysia should allow energy users to acquire off-site
renewable electricity via long-term PPAs to drive renewable
expansion. Only utilities can do so for now.
There are also suggestions that the government should let RECs
change hands freely in a secondary market in the country.
Moreover, Malaysian electricity suppliers should enhance the
grid infrastructure to incorporate the upcoming expansion of
renewable power, Ember Policy Analyst Muyi Yang said.
"The introduction of the GET is a good start, but much more is
needed," Yang said. "Electricity decarbonization is not only a
change in generation mix towards more reliance on renewable and
other clean technologies. It also requires a reconfiguration of the
electricity system."
Posted 15 December 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability