This article first appeared in The Edge Malaysia Weekly on July 24, 2023 - July 30, 2023
MANY are surprised that the National Energy Transition Roadmap (NETR) is under the purview of the Ministry of Economy instead of the Ministry of Natural Resources, Environment and Climate Change.
But to Rafizi Ramli, the Minister of Economy, it would be even more surprising if it were the opposite. For this simple reason — the energy transition is not just about generating renewable energy and pursuing the net zero goal but it is also an economic growth catalyst.
He sees the energy transition as an avenue to transform Malaysia’s economic structure, which emphasises a low-cost and minimum value-added model, to one that is technology-driven and content-led.
Rafizi clearly understands that the energy transition is not an option but a necessity, and the country has to do it fast, otherwise it will be even harder for Malaysia to catch up with its neighbours.
“In terms of the decision, it sounds very simplistic. The government allows a willing seller, willing buyer; self-contained; and self-sufficient energy generation system ... but it is many things,” he says.
“Energy transition is very much driven from an economic competitiveness perspective, especially when you put this into the equation — we can no longer operate as a low-cost manufacturing nation. Our task is to restructure the economy, and Malaysia needs to transform from our current state of the economy to one that is driven by technology and sustainability and one that can attract new investments,” says Rafizi in an interview at his office in Menara Prisma in Putrajaya.
While the focus now is on the upcoming polls in six states, which have been fixed for Aug 12, the work to transform the country’s economy continues. The government will launch the NETR on July 27.
“The successive administrations before us had policies on renewable energy, it wasn’t even called energy transition, so it had a different approach. So, while we had plans for renewable energy here and there, all the components of the ecosystem were not urgent enough,” says Rafizi, an accountant by training.
“By now, it has become a national imperative, economically and socially. And that is where I think we have reached the right point, where it is possible to accelerate the transition.”
Besides raising competitiveness, the NETR will enable the country to revamp the energy model, one that has the government absorbing the fluctuations in energy prices [in the form of subsidies]. “[The model] is no longer sustainable. Fiscally, we can’t go on like this,” he says.
Rafizi stresses that subsidy rationalisation is a question of sequencing and the government has started its work by cutting the electricity subsidy for mid- and high-voltage users.
He disagrees that the government is dragging its feet on this thorny issue, pointing out that it needs to ensure that domestic households and small and medium enterprises (SMEs) are given the option to buffer the impact first. “It cannot be that we remove the subsidies and then say good luck to you.”
Earlier, the government announced industry reforms that included RE exports to generate revenue for the government’s coffers and grow the local RE industry. Malaysia also committed to doubling the speed of its initial RE installation target and achieve a 70% generation capacity by 2050, from its previous target of 40%, which will be ironed out in the upcoming Planning and Implementation of Electricity Supply and Tariff Committee (JPPPET) report.
Energy transition a growth catalyst
The minister highlights that Malaysia is ranked No 1 in Southeast Asia and No 35 in the world in the Energy Transition Index (ETI) by the World Economic Forum (WEF). “I don’t think anyone knows this,” he says.
The ETI benchmarks countries on their current energy system performance and provides a forward-looking measure of transition readiness. The framework has been revised to incorporate a wider approach of balancing the three imperatives of the energy triangle — equity, security and sustainability.
Among emerging and developing Asia, Malaysia ranks No 2, behind China, which ranks No 17 globally.
Rafizi says Malaysia’s high ranking demonstrates that the country is in a rather comfortable position in terms of the energy transition and that gives little reason for it to delay any further.
“The number one area where investments had poured in globally over the past two to three years was into the energy transition. So, it just matches well that we are ready, more than any other country in this region, and we are strategically located,” he says.
“We have to find two or three growth narratives. And to find growth narratives, we must look at our existing advantages and leadership position.”
Investments in energy transition projects have overtaken those in other sectors in terms of receiving the most investments globally.
According to the United Nations Conference on Trade and Development (Unctad) in the World Investment Report 2023, international project financing in renewable energy remains the largest among all the sectors, despite falling 30% year on year to US$368 billion.
Large projects included the US$15 billion construction of floating marine wind farms in Italy by Falck Renewables and Bluefloat Energy and the construction of a 4,000mw offshore wind power plant in Binh Thuan, Vietnam, by AES for US$13 billion.
On the ETI, Malaysia scores highly on system performance, at 70 points, which is higher than the scores of some higher-ranked countries on the index, such as Finland (No 4), Austria (No 8), the Netherlands (No 9), Germany (No 11), the US (12), the UK (No 13), Canada (No 19), Australia (No 24) and Japan (No 27).
Malaysia also scores highly in terms of energy security, due to supply diversity and reliability, according to the WEF Energy Transition Index 2023 report. The top scorers in the security dimension are mainly advanced economies, such as the US, Australia and Estonia, says the report.
However, it is worth noting that the country’s transition readiness is rather low, at 49.3 points, which is lower than the scores of some lower-ranked countries on the index, such as Colombia (No 39), Vietnam (No 43), Bosnia and Herzegovina (No 50) and Singapore (No 70).
Likewise, Malaysia scores low in renewable capacity buildout, with only 0.22 points out of 100, and development of environmental technologies as a percentage of all technologies (7.88 out of 50). It is also deemed quite restrictive when it comes to foreign direct investment regulations.
The low scores reflect the lack of government efforts in the energy transition so far.
Rafizi says a key takeaway from the Asia Zero Emission Community (AZEC) in Japan in March is that Malaysia is not considered serious about energy transition. “And part of that reason is because when compared with other countries, we spend less time focusing on energy transition projects, we did not allocate enough [and] we did not reform the market and legislations that can expedite the energy transition,” he tells The Edge, and that pushed him to set a short three-month deadline to roll out the NETR. The launch coincides with the state polls that are just around the corner.
Rafizi attributes the low number of investments, particularly foreign direct investments, in the energy transition to such a perception.
“While the global investments had gone into the energy transition in the past few years, it wasn’t as exciting in Malaysia, so the investments went to other countries. That is the bit where we have to reassert our strategic competitiveness, because we hope through NETR, the international investment community will embrace us because they have been with it,” the minister explains.
‘More economically viable now’
In the past, the approach was to open bidding for Large Scale Solar (LSS) plants to encourage the race to the bottom, and so the tariff went down to as low as 18 sen per kWh, which is even lower than the conventional generation, says Rafizi.
“So, if you are looking at 18 sen per kWh, obviously it is not going to be economical, so we may, and most probably, end up in a situation where some of those who came forward to do LSS did not have the capability or economic means to do it,” he adds.
“So, these lessons learnt are reflected in the different approach that we have spelt out in the NETR, because we are looking at a transparent pricing model. We want to strike a balance between affordability and economic sustainability or RE capacity.”
With the removal of subsidies for medium- and high-voltage users, which resulted in tariffs that mirror market prices, the differentials between the RE pricing and conventional tariffs are a lot closer, says Rafizi.
With the surcharge, high-voltage industrial users are already paying 40.20 sen per kWh during off-peak periods and 53.7 sen per kWh during peak periods. This makes the electricity tariff for high-voltage users higher than the feed-in tariff for solar photovoltaic (PV) of about 40 sen per kWh.
This would attract companies that are required to have a higher RE mix, only to find that it is no longer economically prohibitive to consume and switch their electricity sources more towards RE. This also removes the need to suppress RE tariffs, especially for the industries, says Rafizi when elaborating on the possible measures in the NETR, emphasising that the priority is to remove the impediments.
“In that sense, it is a lot more economically viable now for RE capacity than before, because it also comes hand in hand with the subsidy retargeting programme which, in the case of electricity, the government has already completed,” he says.
“If you compare, they [heavy industrial users] have to pay about 40 sen per kWh on average anyway. And for solar generation, anything above 25 sen per kWh, they make a profit. There is a big range where suddenly, it is economical. Before this, at 18 sen, it was quite difficult (see ‘Transparent pricing model to include grid capex and wheeling charges’).”
Harnessing the rooftop potential
To be sure, the NETR isn’t the first roadmap for RE in the country. However, it will be the first to lay out the path to energy transition, by making the landscape more attractive for investors to come in and set up the infrastructure, and for consumers to switch to RE as well as to become prosumers.
One of the major aspects of the NETR will be unlocking the huge potential of rooftop solar, says Rafizi. This will be done by allowing rooftop owners — from private houses to commercial and industrial premises, as well as government institutions, for example schools — to monetise their assets.
Under the Net Energy Metering (NEM) Rakyat programme, the current approach to residential rooftop solar requires users to fork out a huge capital expenditure. Capex for a 4.5 kWp residential rooftop solar system starts at about RM20,000 to offset a few hundred ringgit in their monthly electricity bill.
A typical landed home can install even higher capacity, the bigger the size of the rooftop. For households that consume less electricity, the excess power generated is kept as credit, which can be used to offset future consumption or electricity bills for the consumer’s other properties — but it can be rolled over for just one year under the current guidelines.
In a nutshell, with existing mechanisms, those who use less electricity do not benefit from a rooftop solar system and could potentially lose money in the long term. Meanwhile, NEM NOVA for commercial and industrial customers capped the inverter output at 100% of its maximum demand — which theoretically limits the amount of excess electricity generated.
This is why rooftop solar has not taken off in Malaysia in a big way, despite its tropical climate with sunshine all-year round. And this is what Rafizi and the government will want to address through the NETR.
“Turn the vision upside down. What the government intends to achieve, in stages, is a situation where we reform the market to allow rooftop owners, whether domestic or commercial, to monetise their rooftops. Then, they can earn money from that,” says Rafizi.
“We will have companies that are willing to invest in rooftop solar installations out of their capex and pay monthly rent to rooftop owners, because they can supply to the grid. If you think about it, suddenly you have assets that households and SMEs can monetise.”
According to the Malaysian Renewable Energy Roadmap (MyRER), the country has 269gw potential for solar PV, dominated by ground-mounted configurations (210gw) and including considerable potential from rooftop (42gw) and floating configurations (17gw).
While the ground-mounted configurations are still bigger than the rooftop installations, with LSS, there will always be the question of whether the land should be utilised for other purposes, rather than for RE.
Rafizi points out that one of the models that the ministry has studied for the NETR is the Australian model, particularly the one adopted by the South Australian government.
While Australia is a continent with a small population, where land use may not be as competitive as Malaysia, yet the South Australian government has taken the rooftop solar path to generate electricity from renewable sources, rather than large-scale solar farms.
According to the Department of Climate Change, Energy, the Environment and Water of Australia, the largest source of electricity in South Australia comes from renewables other than hydroelectric power, at 65% of the mix in 2021.
“They have demonstrated that if you turn the solar rooftop model upside down, which allows rooftop owners to monetise, that is a catalyst for capacity build ups, compared with the approach to focus on LSS,” says Rafizi.
“If you think about it, Australians have a lot of land, so the LSS is not as restrictive to them as it is to us. But South Australia has adopted the rooftop model as a pathway to energy transition, rather than focus too much on LSS.”
Being an oil-producing nation, many Malaysians are concerned that the energy transition will be a threat to the country’s oil revenue in the future. However, Rafizi sees it as an advantage, making the country’s energy transition pathway smoother than others, as we have the buffer to withstand any energy shock.
“We have to understand there is a fine line between being complacent and taking that advantageous position to move towards energy transition. We want to take the latter approach.”
Transparent pricing model to include grid capex and wheeling charges
By Kathy Fong
It goes without saying that the National Energy Transition Roadmap (NETR) will change the landscape of the highly regulated power industry. If the impact brought on by the liberalisation of the power generation sector back in the 1990s was tremendous, that brought on by the NETR could well be a shock wave.
Tenaga Nasional Bhd, which controls the national grid and distribution network, is certainly at the centre of all the action.
According to the Minister of Economy Rafizi Ramli, the government is considering adopting a transparent pricing model, in which the electricity tariff will include an amount for grid infrastructures plus a sum for wheeling charges for transmission, in the green energy market. The rationale for the model is to remove the capital expenditure (capex) burden on Tenaga in terms of upgrading and maintaining the national grid as Malaysia builds more renewable energy (RE) capacity.
“Currently, the upgrade of the grid is very much dependent on Tenaga’s capex availability, unless the government allocates an amount for it,” says Rafizi, adding that the government may not be able to afford it due to fiscal constraints.
“So, whatever Tenaga puts in, whatever the government puts in to keep up with the need for infrastructure upgrades, that is over and above what has been set aside from the tariff, which doesn’t really exist now. And that also allows us to rebalance our energy generation in the future,” he explains.
When asked if Tenaga will still own the national grid in the future, Rafizi says the grid will always be the national utility’s asset. “I think that model will not change. It is just that the current model creates a financial impediment, because grid upgrades are left to Tenaga.”
Given the high tariff for green energy exports, he says it makes economic sense to include the capex for grid upgrades in the tariff. This is exactly what has been said about having RE exports cross-subsidise the development of the local RE industry by leveraging the premium pricing that foreigners are willing to pay.
Single market aggregator
Rafizi says the government is considering having a single market aggregator in the RE market, playing a role to ensure that the country achieves the national objective of net zero carbon emissions by 2050 while being able to earn a lucrative profit from the export of RE.
“If you don’t have a single market aggregator and it is purely on a commercial basis — willing buyer, willing seller — it will create a few complications. Number one, the supply still has to go through Tenaga, and then it is going to be a three-party commercial negotiation, between the seller, buyer and grid owner, which is Tenaga. It might create inefficiency in the whole transaction,” he says.
To Rafizi, the more important role of the aggregator is to keep track of carbon credits.
“What we don’t want to do is, basically the country builds all these capacities but transfers all of our carbon credits to foreign markets. So there is a need for a neutral party to manage this, and that looks from a bird’s eye perspective that there is a threshold from time to time that takes into account the total generation capacity versus the total export demand, and [to monitor] what is the threshold that we can allow for us not to disadvantage ourselves in terms of carbon credits and footprint.”
However, he is lipped-tight on who the single aggregator is. According to him, the government makes reference to the European model when forming the NETR as the model there takes into account cross-border transmissions.
“Conceptually, that is what we are looking at. These are major market reforms, these are not small things, so we have to go through various stages of decision-making, and then we have to see what regulations are [required],” says Rafizi.
In Europe, some countries have aggregators, with a number of them not single market aggregators, to manage the consumption pattern to avoid big fluctuations in demand so that there is less need for extra capacity to cater for a sudden peak in demand. Their function is to pool electricity supply and demand and sell this capacity in the market.
What the aggregators have in hand could be 1,000 electric vehicles, the owners of which are willing to charge them during hours when demand is low for some incentives. In a nutshell, an aggregator helps to bring down the peak and raise the trough of the demand and supply of electricity.
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