With the support of Feed-in-Tariff (FiT) policy introduced in 2011, cumulative PV installed capacity in Malaysia reached about 225 MW in 2015 – owing primarily to residential and community solar projects. However, the country still has a relatively small installed PV capacity as compared to other emerging countries in Asia such as India and Thailand, due to underdevelopment of utility-scale solar projects.
This article is part of a series focusing on solar PV market across selected Asian countries: China, India, Thailand, and Malaysia.
The series closing article Solar Rises in the East examines challenges and opportunities in all four markets, with additional look into Indonesia and
The Philippines.
Market Overview
Before 2005, there was only a handful of off-grid PV installations in Malaysia, which were funded by the government under rural electrification project. With the support of United Nations Development Programme – Global Environment Facility (international financial entity providing funds for environment projects), Malaysia government initiated the Malaysian Building Integrated Photovoltaic (MBIPV) project in 2005 with the aim to promote grid-connected PV systems and develop solar PV policy framework to support growth of solar PV market in the country. From 2006 to 2010, approximately 2 MW of grid-connected PV systems were installed on residential and commercial buildings under MBIPV project.
MBIPV can be considered a stepping stone in the development of solar PV market in Malaysia and it was pivotal in formation of National Renewable Energy Policy and Action Plan (NREPAP). NREPAP was approved in 2010, followed by introduction of feed-in tariff (FiT) as a key stimulus for development of renewable energy landscape, including solar.
Under NREPAP, Malaysia aims to install cumulative solar PV capacity of 399 MW by 2025 and 854 MW by 2030. However, observing the current pace of development of solar PV market, the country is expected to reach its target well ahead of time. This rapid growth can be partially attributed to country’s abundant potential for solar PV generation.
Being located in the equatorial region, Malaysia is exposed to ample and constant sunshine – an ideal environment for solar PV power generation. Malaysia receives an average of 17 Mega Joules per square meter (MJ/m2) of solar radiation per day. All regions in Malaysia have sufficient availability of land for PV installations, except for Kuala Lumpur, where the solar PV capacity is limited to 5 GW due to the limited area and locations for solar PV installations.
Key Growth Drivers
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High dependence on non-renewable sources for electricity generation
Malaysia is largely dependent on fossil fuels, predominantly coal and natural gas, for electricity generation. Coal and natural gas accounted for about 79% of country’s installed electric generation capacity and 87% of the electricity output in 2012.
Malaysia has limited indigenous coal reserves: in 2012, Malaysia produced 3.4 million short tons of coal, which provided only 12% of country’s coal consumption in that year. Remaining demand was filled in by imports. Such high reliance on imports puts country under the purview of supply risks such as price fluctuation or shortage of supply.
On the other hand, Malaysia has large reserves of natural gas: as per Oil & Gas Journal estimates, as of January 2013, the country had 83 trillion cubic feet of proven natural gas reserves. However, the natural gas supply is located mainly in East Malaysia, which is separated from Peninsular Malaysia (where the country’s power sector is located) by the South China Sea. Due to this geographic characteristic, in 2011, the high demand centers in Peninsular Malaysia experienced power outages because of shortage of natural gas supply in the region.
Thus, in order to strengthen its energy security, Malaysia needs to diversify its electricity generation mix and shift to alternative renewable energy resources such as solar.
- Constructive solar policy framework and incentives
Malaysia introduced FiT in 2011 under the Renewable Energy Act 2011. The country has a well-organized FiT mechanism, which is administered and managed by Sustainable Energy Development Authority (SEDA).
The FiT fund is financed by the electricity consumers – with implementation of FiT, consumers started contributing 1% of their total electricity bill towards a Renewable Energy Fund. However, this was not applicable to the low usage consumers (using less than 300 kWh per month). In order to ensure successful implementation of FiT policy, the contribution share was readjusted in 2014 that resulted in increase in monthly electricity bill from 1% to 1.6%.
The FiT rates vary by type of applicant – community, individual, and non-individual, who are subject to capacity limit of 48kW, 12kW, and 1,000 kW, respectively, per application. SEDA proposed 70 MW of cumulative solar PV quota for the year 2016. In case of solar, FiT is applicable for 21 years from FiT commencement date.
Following are the FiT rates by applicant category in 2016:
Key Challenge
- Discontinuation of FiT for solar PV after 2017
Due to constraints in RE fund, Malaysia plans to end FiT for solar PV after 2017. Solar PV installations have increased significantly since the introduction of FiT policy. Thus, cessation of FiT might be a major setback for the industry.
At the current rate of FiT, the payback period on investment is 6-10 years depending on the capacity of the installed PV system. Despite the costs coming down, the upfront installation cost for solar PV is still high. Thus, in absence of FiT the return on investment in the solar PV is expected to be unsustainable. Besides FiT, there is no other strong incentive for investment in solar PV. Malaysia is preparing a framework for net-metering, which will allow the solar PV system owner to sell excess solar energy to the utility companies such as Tenaga Nasional Bhd (TNB) and Sabah Electricity Sdn Bhd (SESB), and earn additional income. However, this is in the trial phase and the actual benefits of this system are yet to be assessed.
Opportunities for Global Solar Companies
- Global solar PV module producers eye Malaysia as their key production center
Malaysia has relatively small installed solar PV capacity when compared to its massive upstream supply chain, which mainly caters to demand from overseas markets. The country has attracted many leading global solar PV module producers that have taken advantage of the relatively low cost and English-speaking workforce, as well as generous tax breaks. With around 3.3 GW solar module production capacity in 2014, Malaysia was the third-largest producer of solar modules, after China (33.8 GW) and European Union (4.2 GW). Moreover, the country is also benefitting from the anti-dumping duties levied by the USA and European Union on leading solar PV manufacturing countries such as China and Taiwan. Thus, Malaysia is set to become a hub for production of solar PV modules. Global solar PV module producers have been rapidly expanding their production base in Malaysia. For instance, Hanwha Q Cells, a Germany-based solar PV producer, has an annual production capacity of 1,100 MW in Malaysia as compared to only 200 MW in its home market.
EOS Perspective
Though Malaysia is blessed with abundant solar energy potential, the installed solar PV capacity is quite minimal. The FiT policy, introduced in 2011, has been the main factor encouraging general public and business enterprises to invest in solar PV systems.
The limited installed solar PV capacity in Malaysia can be partially attributed to underdevelopment of large utility-scale solar PV projects. There is no proper policy framework in place to support and benefit the utility-scale solar power developers. Malaysia announced development of its first utility-scale solar PV power plant in Kedah in April 2014. This 50 MW solar farm (which is still under construction) is a 60:20:20 joint partnership between the 1 Malaysia Development Bhd (an independent power producer, 1MDB), Tenaga Nasional Berhad (national electricity utility), and DuSable Capital Management (a USA-based private equity firm). 1MDB signed a 25-year power purchase agreement (PPA) with Tenaga Nasional Bhd following direct negotiations with the Energy, Green Technology, and Water Ministry.
Malaysian government is now preparing a framework for development of utility-scale solar PV projects. Preliminary discussions suggest that Malaysia is expected to target 1,000 MW of utility-scale solar PV capacity by 2020. Thus, we can expect rapid expansion of solar market in Malaysia provided the government introduces favorable policies and incentives for development of utility-scale solar PV projects.
The market for residential and community solar PV has been mushrooming in the past few years, but the investment does not seem to be sustainable without the support of FiT. Hence, after cessation of FiT in 2017, government will need to come up with some alternative incentives in order to protect the interest of investors of residential and community solar PV projects.
Further development of solar PV market in Malaysia will by large depend on the additional support and incentives extended by government.
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US$1 = MYR 0.26 (average 2015)