This article first appeared in The Edge Malaysia Weekly on September 4, 2023 - September 10, 2023
THE renewable energy (RE) industry waited eagerly for details of the third-party access (TPA) framework and the RE exchange to be announced at the Energy Transition Conference last Tuesday but was left disappointed by the scant information given.
The TPA framework and RE exchange are the two key elements that will facilitate the liberalisation of the local power sector and RE exports.
Investors, both local and foreign, have had to hold onto their investments mainly due to unknown essential details.
Furthermore, the lack of details poses uncertainty about RE exports.
“I thought the government was going to announce the framework for TPA and the energy exchange in Phase 2 of the NETR (National Energy Transition Roadmap), which is much needed as many players have already found offtakers for their RE.
“The framework would allow inclusivity for other industry players and entrepreneurs, which will accelerate the growth of the RE sector,” a solar company CEO tells The Edge.
The rush to get on with the TPA framework is especially crucial as players could miss the deadline for the Request for Proposal (RFP) by the Singapore Energy Market Authority (EMA) to export RE across the Causeway. EMA has issued an RFP for 1.2GW of imports to begin in 2027, with a Dec 31 submission deadline.
Indeed, some quarters pointed out that the absence of details shows that the Energy Commission (EC) has yet to come up with practical solutions that would allow a win-win situation for all stakeholders.
“The paper will require cabinet’s approval and the EC is working on striking the right balance … so that the tariff rate will benefit all parties and the grid infrastructure. At the end of the day, someone has to foot the bill for the grid’s development,” a market observer tells The Edge.
“If the wheeling charges are too high, that would dampen independent producers’ desire to sell their energy to offtakers. But Tenaga Nasional Bhd has been investing billions in the grid infrastructure and will continue to pour more into it to be RE-ready.
“This is the balance that the EC needs to strike,” he explains.
TPA to the national power grid has long been talked about as far as liberalisation of the power industry is concerned.
In an interview with The Edge in July, Minister of Economy Rafizi Ramli did point out that the electricity tariff will be revised to include wheeling charges and capital expenditure for grid development.
The rationale of the revised tariff is to smooth TPA as Tenaga is assured of an amount paid to it for others to use the power grid, plus the capital expenditure (capex) burden on its shoulder for grid development will be lightened, which may in turn lead to more timely upgrades and developments.
The government estimates RM180 billion of investment is required in grid development up until 2050 to develop a robust and flexible grid to facilitate the country’s energy transition.
For now, the upgrade and development of the national grid is solely dependent on Tenaga.
Intermittency is one of the main challenges for RE. And that requires upgrading and development of the national grid so that it could help fill the supply gaps that occur regularly. On top of that, storage is another capital-intensive investment in the RE industry.
At the Energy Transition Conference last week, Tenaga announced its commitment to invest RM90 billion in grid development in the next six years, some 40% of which will be channelled into energy transition-related capex.
The NETR states that the government recognises the importance of the TPA framework to reform the power sector — crucial steps to accommodate higher RE penetration in the country, which cannot be solely dependent on government-linked companies to be steadfast in the process.
“The lack of common alignment on timing, quantification and the funding mechanism of grid investment presents challenges in meeting RE targets.
“Overcoming grid limitations to accommodate higher RE penetration is as essential as the development of a TPA regulatory framework to address supply-demand mismatches for corporate green power.
“Furthermore, the absence of an RE exchange platform inhibits the potential to capitalise on price premiums associated with exporting RE and sharing of reserves. Transparent price discovery mechanisms for willing buyer-willing seller are also lacking. Addressing these multiple challenges is crucial in fostering the growth of RE on a large scale,” the NETR report reads.
Already, there have been complaints that TPA has been a big stumbling block for oil and gas companies that need to jump onto the RE bandwagon to meet their ESG compliance and net zero emissions target.
“If we don’t have TPA soon, we can’t meet our targets. We are not short of enquiries for RE now,” says the executive, voicing his frustration at the slow progress.
The EC is playing a crucial role in finding the right pricing mechanism.
Its chairman Mohammed Rashdan Mohd Yusof, who was speaking at the Energy Transition Conference, told the audience that the biggest challenge in the country’s energy transition is the power grid.
“The current grid is fine but it cannot accommodate RE because of the intermittency problem (the nature of solar energy), so there is need for a tremendous investment in the grid and energy storage.
“Who is going to pay for it? So, we are working on it now and the key component is the energy exchange, where we can tap into other markets to fetch higher prices for RE and, hopefully, that will fund this (grid development),” he said in one of the dialogue sessions.
MIDF Research points out that the grid’s TPA framework will be the game-changer for the country’s RE ambitions.
“We reckon that it could drive the growth of willing buyer-willing seller power-purchase agreement (PPAs) at potentially better returns compared to previous large-scale solar (LSS) programmes, while a transparent mechanism for wheeling fee calculation will be introduced,” it says in a report last Wednesday.
On the energy exchange, the research house expects the government to establish it by the end of the year to enable cross-border RE trading, where players could fetch better premiums for their energy.
“The exchange will be operated by a single market aggregator and will essentially function as a wholesale RE market. Players are expected to sell RE generation to this exchange, which in turn will manage the export to neighbouring countries, allowing monetisation of excess power through bilateral or multilateral power-trading arrangements and providing an efficient price discovery mechanism,” it adds.
Past efforts to liberalise the energy sector in the country include the four LSS projects, in which many players won the right to produce a total of 2.3GW RE for Tenaga at a fixed rate, depending on the bidding process.
More recently, there was the Corporate Green Power Programme (CGPP) that brought the concept of virtual PPAs with the offtakers and supplying it through the grid. But only 800MW was awarded. One could say that the CGPP is the precursor to ultimately opening up the grid.
Energy transformation to drive economic growth
As Malaysia has long been powered by its oil and gas (O&G) sector, making a shift to becoming a renewable energy (RE) powerhouse is no easy feat. And yet, that is exactly what the government is attempting to achieve.
Last week, the government launched a 70-page National Energy Transition Roadmap (NETR) that details the country’s ambitious journey to net zero emissions by 2050. The NETR, a long-term goal that will span decades, will involve many stakeholders and entail changes to the country’s regulatory landscape to liberalise the energy sector.
Minister of Economy Rafizi Ramli expects the roadmap to spur new growth areas for the country’s economy that will result in a 10% to 15% uplift to the gross domestic product (GDP) value. Part of this will be supported by attracting green foreign direct investments (FDIs) into the country.
“For businesses, infrastructure and technology would become the impetus for investments to flow through. A cleaner energy mix and energy efficiency would also future-proof our industries so that we are prepared for a world where money responds to the greenest products,” said Rafizi.
The NETR has made strong projections on the benefits of Malaysia’s accelerated pivot towards net zero carbon emissions, including some RM1.2 trillion to RM1.3 trillion of investment opportunities to enable energy transition.
The roadmap is not merely about energy transition, but also about creating an entire economic ecosystem by tapping into energy transition potentials.
According to the NETR document, the investment is estimated to contribute an additional GDP of RM220 billion and create about 310,000 green growth job opportunities in 2050. “Economic benefits will be felt across the social spectrum, with medium and low-income households expected to be the biggest beneficiaries of income gains,” it reads.
Basically, what the NETR wants to achieve is for Malaysia to have a 70% RE installed capacity mix for the power sector; attract FDI that would create new industries; and address the energy “trilemma” that would eventually be a boost to the overall economy.
Sunway University professor of economics Dr Yeah Kim Leng says the NETR is a critical roadmap not only to meet the country’s net zero carbon emissions target by 2050, but also to cope with rising energy demand. If not done right, it could lead to the country becoming dependent on international imports when its diminishing fossil fuel reserves are depleted, he warns.
“Besides ensuring long-term energy security, the energy transition is strategically positioned as a new growth engine as renewable energy supplies have become an imperative as well as a competitive advantage for domestic and foreign investors seeking to decarbonise their production and supply chains in line with global trends.
“In the short to medium term, the large investments expected in the RE sector and the associated industries powered by it will drive the country’s economic growth and transformation into a green economy,” Yeah tells The Edge.
He points out that private sector participation is key for the RE sector to take off, but it would require a clear, consistent and sound legal and regulatory framework.
“The NETR has provided the basic framework and the direction for regulators and industry players to work together in achieving the goals laid out in the roadmap. There will be various hurdles that need close consultation and collaboration among the various stakeholders to iron out the implementation challenges,” says Yeah.
In the past, Malaysia had seen the introduction of many blueprints and policy documents. But due to government changes, many of the ambitious plans did not pan out on the back of poor execution.
UOB Global Economics and Markets Research points out that while it sees the launch of the NETR as a positive move, there are pertinent issues and challenges to be tackled in ensuring the successful implementation of the entire NETR and to attain all goals by 2050.
“Consistent close monitoring of each initiative and target throughout the whole transition journey until 2050 is key to drive the realisation of the NETR, but this was not expressed in both NETR Part 1 and 2, except for the establishment of the National Committee on Energy Transition to monitor the implementation of NETR projects. The NETR is a long-term goal that spans decades and governments,” the research house says in an Aug 30 report.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid says striking the right balance in regulation is pivotal for the country to move forward with its energy transition plan. “I suppose this will be the ongoing challenge and therefore, coordination among the relevant agencies, be it from the federal or state level, has to be clearly spelled out and implemented.”
Afzanizam points out that the RE sector provides a great economic multiplier effect, considering that RE makes up less than 4% of the country’s energy sources. The largest is natural gas, at 42.4%, followed by crude oil at 27.3%.
However, the government needs to embark on structural reforms to encourage households and businesses to take initiatives in the green economy.
“There is great potential for RE to contribute to the national GDP as there will be sizeable investments in the pipeline that involve the government and the private sector. In that sense, there is an urgent need for the government to reform its fiscal position, especially in areas relating to fuel subsidies.
“The existence of such assistance would result in a moral hazard as businesses and households have no incentives to switch to electric vehicles or a hybrid version as the current mode of energy source provides them with a ‘cheaper’ input,” he says.
To help facilitate the implementation of the NETR, the government has set up the National Committee on Energy Transition.
Realising that one of the key challenges to the country’s energy transition is financing, the government has allocated a seed fund of RM2 billion to fund marginally bankable projects, or those “yielding below-market returns” such as in the electric-vehicle value chain, hydrogen and carbon capture, and usage and storage technologies.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says to ensure the success of the NETR, it would require a good monitoring and evaluation system to track the progress of the roadmap, including periodical updates to investors and the public in a timely manner.
“Towards this end, we welcome the establishment of the National Energy Council to set forth high-level strategic directions and policies, allowing for the working committees to coordinate and report the progress of the NETR,” he says.
Lee also suggests that a long-term and effective carbon pricing and the removal of existing subsidies to fossil fuels as well as mature carbon credit mechanisms are essential to speed up RE deployment.
“The establishment of an RE exchange by 2024 will act as a market aggregator that will enable price discovery and monetise excess power. It is necessary for the country to command the price premiums of RE that come from cross-border trading.
“Resistance to change in energy transition may arise due to the government’s strict regulation of the energy sector. There are concerns about the government’s commitment towards RE, and hence, a consistent and clear energy policy framework is needed for the buy-in of investors and stakeholders,” he adds.
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