Malaysia: Towards a sustainable future

Malaysia: Towards a sustainable future

With the cost of fossil fuels rising every year, Malaysia is looking to rely
on more sustainable sources of energy.

The total energy consumption in Malaysia is high as subsidies are being
extended to consumers. In 2011 alone, the country spent a whopping RM14.5bil
to buy fossil fuels to generate energy.

One way to decrease fossil fuel-based electricity generation is by
minimising electric consumption and using energy-efficient electrical items
and gadgets. This is in line with the Govern-ment's master plan to increase
energy efficiency by 15% in 2030.

Energy, Green Technology and Water Ministry (KeTTHA) secretary-general Datuk
Seri Dr Zaini Ujang gives an in-depth interview on sustainable energy,
saving money on electricity tariff and conserving electricity.

Q: Sustainable energy is not a new topic in terms of policy and it has long
been seen as serious by the Government. But it is not very popular compared
with talking about electricity tariff increases, which is done every six
months. With that perspective, we broadly see how they are linked to each
other. Datuk Seri, may we start with the popular notion?

A: Electricity tariffs in Malaysia are largely determined by gas prices and
foreign exchange rates when we buy coal. These two main sources that account
for more than 78% because 22.5% of our energy is sustainable energy, while
78% is energy generated from gas and fuel which we need to buy.

Some gas supply we obtain from Petronas, some from locally produced gas and
we also buy from abroad. We also rely heavily on coal, which is almost fully
imported as very little coal is mined in Sarawak.

When the foreign exchange is not in the ringgit's favour or the price rises
at the international level, it has great impact on us.

That's why the Government is looking at how best to cushion the tariff hike
and for this, we have formulated several mechanisms that we deliberate on
from time to time.

Q: Datuk Seri, if we talk of the electricity tariff today and from time to
time, related agencies and KETTHA itself have stated that we have the lowest
tariff compared with other Asean countries. Earlier, you showed that if seen
from a global context, we are the fourth lowest in terms of tariff ranking
compared to Sweden.

A: I have always spoken of this matter concerning consumers who use less
than 300 kilowatts (kW) monthly. We are among the nations with the lowest
tariff, maybe among the five lowest nations compared with Indonesia and the
Philippines.

They may impose a higher tariff, double ours. But the issue is, why is it
cheaper in Sweden? Because they depend more on renewable energy. Primarily,
they use hydro electricity, nuclear and wind turbines, and they also use a
lot of biomass, which is solid waste.

Indirectly, we have to shift our focus now from depending on fossil fuel to
more sustainable sources of energy and the transition must be done well.
Otherwise, it will cause a lot of problems in terms of reliability and the
quality of our electricity supply. So, I would like to state a few things
from the pricing aspect.

The average electricity price in peninsular Malaysia is 38.53 sen. The
cheapest that we can supply electricity is by generating it through the use
of coal, which costs 25 sen. At this price, we can sell at 38 sen and make a
profit.

Gas is between 33 sen and 36 sen, and lately 37 sen. At 37 sen to 38 sen,
the difference is just sen. But if we go for other fuel or sources, it will
be more expensive.

If we now go for solar energy on a large scale, the cheapest pricing is 40
sen. Even then, we would have to ensure the tariff level stays at 38.53 sen.
This is specific because at more than 38.53 sen, it would cause a steep rise
or surge in our price.

Many people have asked me or the ministry why they can't manufacture or
install solar energy in their factories and more often, their shops. By
using the feed-in-tariff (FIT) mechanism, it is an incentive tariff and not
the real tariff.

So, how do we get this tariff? For example, solar starts from 52 sen and
through the FIT, it reaches 74 sen. So, we produce and sell to the utility
company. If it's in the Peninsular, Tenaga Nasional Berhad, we use it at 38
sen only.

The profit is huge, so many people think this is a good method for a new
source of income, a new business. It needs to be clarified that this is an
incentive tariff.

To get this incentive tariff, we must secure the money from other consumers
or domestic consumers using more than 300 kWh monthly.They will be levied a
1.6% charge to be channelled to our renewable energy fund. For commercial
and industrial consumers, they will be charged 1.6%, even if usage is small.

Q: That means we can have a gradual and systematic transition towards
adopting more sustainable energy if it is done comprehensively and uniformly
in the future.

A: Why are we making a fuss about sustainable energy? We cannot fully depend
on fossil fuel. The world is shifting from fossil fuel to environmentally
friendly fuel. The most suitable one is gas, which is more costly. If we
depend on gas, it will cost 37 sen and we sell at 38.53 sen for a meagre
profit of one sen.

Q: Some are saying that if we have sustainable energy, it means that there
are industry players. I am also ready to adapt to solar technology usage and
others. Why not use solar energy, why can't we switch to sustainable energy?
This is the perspective of the community which wants the transition to be
done immediately but for policymakers at KETTHA and other agencies, the
transition must be done as smoothly as possible. We need a more elaborate
clarification on this, Datuk Seri.

Earlier, we discussed the electricity tariff increase in Malaysia, which is
still among the lowest in Asean. If we look at the five countries with the
lowest tariff, the benchmark is Sweden.

Sweden is often used as the best example of how it turned solid waste
management into renewable or sustainable energy. They are so successful that
they have to import 2.7 million tonnes of rubbish from neighbouring
countries to accommodate and manage their solid waste for energy.

In the case of our nation, many would probably say they face the risk of
foreign exchange by using two natural resources. But to move in that
direction, how will the transition from the existing system to sustainable
energy be carried out?

A: There are two factors which I mentioned earlier. One, if we depend on gas
in Malaysia, we have to pay at a rate that is profitable to Petronas. Yes,
it is our homegrown company. The royalty from Petronas will be paid to the
Government for various purposes.

Secondly, we have to find other methods to address the issue of cheaper
energy and find a replacement for coal. Coal is currently the cheapest at 24
sen.

Now, our tariff is fixed at 38 sen and coal at 24 sen. Whatever is above 24
sen should be balanced so that we get the 38 sen. The more costly the
energy, the more coal we must use in order to generate electricity. This is
what we use everyday, as the balancing happens daily.

There are several types of sustainable energy that are cheap, not dependent
on the entry of foreign products and attract foreign exchange. For example,
small hydro, not big hydro which needs huge dams. Where there's a river, you
can generate at any part of the river. And I have been informed by TNB that
they can generate up to two megawatts (MW) using the stream of a big river.
They divert the water and generate power.

If we can generate 100MW or 200MW, which does not require a dam or foreign
exchange, continuously, it means we buy the machine only once, say from
Japan or Germany.

Secondly, we have an abundant supply of biomass. Biogas, or biomass from
wastes, is a major part of solid waste from many sources which is
biodegradable. When there is biodegradation, the major portion of it is
biogas.

We can produce biogas and this can be converted to electricity later on. We
also have solar energy which is the most expensive because the capital
expenditure or cost of installing solar panels at the initial stage is very
high but in the long run, it is cheap.

Hence, to calculate the FIT mechanism, we have fixed the profitability at
10% throughout 21 years or whatever the number of years we have given. So,
regardless of the type, the profit is 10%.

It means that even though people question why small hydro gets 24 sen or 26
sen while solar panel energy gets 52 or 74 sen, many go for solar whereas
with small hydro, you get the same profit in the long term.

Q: In this respect, if we speak about sustainable energy, the challenge
often faced is the need for sustainable demand, but financial sustainability
is also another matter.

A: Companies that want to pursue such projects must be supported with
financing from financial institutions. The ministry has embarked on several
initiatives to ensure that we obtain the full support of financial
institutions.

I myself am getting Bank Negara Malaysia to conduct a workshop for financial
institutions to explain to them the relevant requirements. Many financial
institutions are not clear about the investment risk element involved in
such projects.

They are very cautious. For example, tariffs were supposed to have been
revised but this was not the case. According to their calculation, the
review was supposed to have been done but the Govern-ment did not do so.
They are wary about what will happen to their investments. Many financial
institutions are cautious about investing in sustainable energy. We will
take up the matter with Bank Negara. We will issue the first sukuk for green
technology soon.

Before I delve further, I want to clarify another matter. There are three
elements of sustainable energy. The first element is electricity generation
supply, the second is demand, which must be handled well, and the third is
financing, which is tied to investment.

I want to speak specifically about demand but before that, I want to touch
on financing. As an example, if I am a consumer and want to invest in
sustainable energy, it can be done. As an example, we have the FIT and net
energy metering (NEM) if we want to tap solar energy. (FIT and NEM are
methods designed to accelerate investments in renewable energy
technologies.)

The FIT quota for industries, commercial and individuals have been taken up.
We obtain about 338 MW. The quota has been fully exhausted. What is
available now is net energy metering. With FIT, we generate electricity and
sell to utilities, for example at 74 sen. Then we buy back for our own
consumption at 38.53 sen.

We make our profits here but remember, electricity generation is for four to
five hours only each day. The electricity supply generated is not much.
Second, the NEM is undertaken by us for our own consumption and the excess
is sold to utilities. We sell for 31 sen only.

This is more sustainable in terms of supply and energy planning, and is a
true reflection of what we can submit to the ministry's tariff. We cannot
give subsidies through FIT as it is a promotion tariff.

The NEM is open and now, less than two MW have been taken up. Our quota is
500 MW. A lot more quota can be utilised but the people say at 31 sen, there
is no profit, though in fact the profits are huge. Q: Datuk Seri,earlier we
talked about the NEM and the huge profits that can be reaped. We also talked
about using solar energy at home, which we felt was expensive. Five years
ago, the cost was a bit cheaper and this is our investment for the future.

A: I am the first person to use NEM at home. In Malaysia, people ask, why
use NEM and not FIT? As a civil servant who manages energy in Malaysia,
honestly, I should not use FIT because the profit factor is obvious. NEM is
more sustainable and this is what we want to promote. That is why I am using
it in my house. For four kW of energy generated by solar panels, our
investment is about RM27,000. The cost is going down now, probably to
RM26,000 or RM25,000.

I was told three years ago that the cost had doubled, so it was not
profitable. In my house, based on the calculations made between three and
four years ago, we have an estimated return on investment. We use it for our
consumption and the balance we sell to TNB.

How do we reduce our dependence? We can reduce the number of energy blocks
to cut usage.

There are prices for five energy blocks. For the first block of 100 kW, it
costs 23 sen; for the second 200 kW, it costs 34 sen; for the next 300 kW it
will cost 51 sen; and the next 300 kW it will cost 54 sen; and after 900 kW
it will cost 57 sen.

If we could reduce the usage of energy blocks, from the 54 sen block to 34
sen block as an example, by using NEM, we are paying for the block at a
cheaper price of 34 sen.

This will indirectly reduce consumers' burden when using electricity and at
the same time, we do not burn fossil fuels that produce carbon materials
that raise global warming. This is a pressing issue. For example, the United
Kingdom will ban the use of fossil fuel for all vehicles by 2040. This is
related to our discussion today.

Q: Datuk Seri, you talked about National Transformation 2050 (TN50) and the
way forward is green technology, which needs to be explained more clearly.
We need to start today. What is your analysis and understanding of the way
forward?

A: We have the National Green Technology Master Plan 2017-2030. By 2030, we
expect energy efficiency to increase by 15% compared with 2015. This means
using energy--efficient electrical items and gadgets. The ones we have now
may not have a star rating, but the ones in future will have a five-star
rating.

To be more specific, there is a regulation in place now which only allows
electrical products with a four or five-star rating to enter Malaysia. We do
not allow those rated below to enter the country.

We also have the Energy Commission label, which serves to remind the people
that these are the materials or equipment that can be used. We also have the
Malay-sian Green Technology Corporation indirectly promoting certain items
and certain labels.

On the whole, not only do we control or manage in terms of energy and its
generation, we also control its usage. We want to reduce energy demand by
15%, so if everyone can decrease their requirement by 15% by using solar
energy and energy-efficient equipment, we can minimise electric consumption.

For example, open the windows during the day instead of turning on the
lights. This will help minimise electric consumption and indirectly decrease
fossil-fuel based electricity generation, thus cutting down on carbon
emission.

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

Link to Original Article:
http://thestar.com.my/news/nation/2017/09/05/towards-a-sustainable-future/

--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---

John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com