This article first appeared in The Edge Malaysia Weekly on August 26, 2024 - September 1, 2024

THE saying “the grass is always greener on the other side” describes the current state of renewable energy (RE) exports, which since last year have attracted huge interest in Malaysia’s solar photovoltaic industry.

Just two months ago, the country’s pilot auction for green electricity exports to Singapore closed with 100mw capacity set for the island state for one year from September.

To the surprise of many, the pilot saw muted response. It is understood that only two qualified entities participated in the bidding, despite claims of massive demand from the neighbouring country.

In a reply to queries from The Edge, Minister of Energy Transition and Water Transformation Datuk Seri Fadillah Yusof says response to the bidding, hosted by The Energy Exchange Malaysia (Enegem), was unexpected (“di luar jangkaan”).

“There were 16 companies that were eli­gible to participate in the bidding process (having met the requirements and possessing a generation licence from Singapore’s Energy Market Authority),” says Fadillah, who is also one of two deputy prime ministers in Prime Minister Datuk Seri Anwar Ibrahim’s cabinet. 

“The two winners are finalising the supply agreements. Each winning bidder will obtain supply of 50mw, making the entire [RE] capacity to be exported to Singapore amount to 100mw.”

Industry participants point to three issues: obstacles in recognising green attributes of RE procured from another country; pricing of RE sold from Malaysia; and the country’s packaging of this “product” called RE.

Despite these issues, the cross-border RE market still “holds substantial potential, particularly in countries that face space and resource constraints”,  Malaysian Photovoltaic Industry Association (MPIA) president Davis Chong tells The Edge in an email reply. 

“There is still a market for RE exports from Malaysia because of its strategic location and resources.”

The market response is a wakeup call that the sale of green energy to Singapore at a premium is not as straightforward as expected as Malaysia puts the necessary mechanisms and infrastructure in place.

Industry players were quick to point out that the minimum, or floor, price set for the bidding was “far too high compared to the current pool price” in Singapore.

According to channel checks, the floor price set in the pilot was 83 sen/kWh, versus 29.88 Singapore cents/kWh (RM1.01/kWh) all-in pre-tax regulated tariff for households in Singapore in 3Q2024.

While Enegem’s exports are branded as green energy, customers are more particular, says an executive of a green energy outfit with a presence in Singapore and parts of Asia.

“In RE, the origin of the electron is important,” he says. “This [exported energy] is a mixture of brown [fossil fuel] and green electricity, with the REC (renewable energy certificate)  slapped on it.

“Next, most of the RE is derived from hydro, which international customers shy away from.”

(RECs provide proof that the RE capacity belongs to the buyer. Depending on the number of units of RECs purchased, the buyer can offset the same amount of fossil fuel-based electricity that it has consumed.)

At home, the mismatch between the pricing and the “quality” of the green energy could also be the reason for the 50% take-up rate for the Green Electricity Tariff. The GET charges up to 20 sen/kWh on top of the base tariff. In return, the subscriber receives the REC from the green electricity quota pooled by Tenaga Nasional Bhd (KL:TENAGA) in the national grid.

The 20 sen/kWh GET is at a premium of just four sen/kWh, compared with the 16 sen/kWh surcharge imposed on medium- and high-voltage customers of conventional electricity via the ICPT (imbalance cost pass-through).

Buying green “is like buying a car”, the executive adds. “If it is locally made with non-standard stance rims, there will be customers … but who will buy it at the price of a continental car?

“Fully green electricity bundled with the REC and not mixed with brown energy — that’s premium,” he says.

The industry is also “unsure about green certification” for electricity bought from Malaysia, according to industry sources whom The Edge spoke to.

Companies that adhere to stricter emissions requirements do not deem RE acquired from another country as “green”. As a result, such RE loses the premium factor, and is sometimes ranked on the same level as electricity generated from fossil fuel.

For example, this criterion applies to RE100 members (multinational companies that have committed to going fully RE), which includes big data centre players such as Google and Microsoft Corp. Amazon.com Inc and China-based GDS Holdings Ltd have not committed, but have pledged to match 100% of the electricity they use with RE by 2030.

RE100 is an initiative spearheaded by non-profit organisation Climate Group, whose 433 member companies have pledged commitment to fully green electricity use.

According to the technical criteria of RE100, “claims to use of RE must be based on generation occurring in the same market for RE that use is claimed in”. In addition, “individual countries are distinct markets for renewable electricity” except for US-Canada and the EU, which are considered single markets.

Exceptions have been made for countries that have “little domestic energy production and import much of their electricity”. The list does not include Singapore.

Separately, RECs are already used in cross-border transactions for those that volunteer to be green, but reporting frameworks have yet to recognise cross-border transactions across Asean.

This means if a reporting company wants to claim that it is using RE in a specific country, then it must purchase RECs from that country.

In other words, these RECs are specific to the location where the RE is generated and are used to claim that the electricity consumption comes from renewable sources in that region.

In an email reply to The Edge, the RE100 ini­tiative says it is “aware of the scheme for cross-border trade that the Singaporean government is developing”.

It points to a public consultation conducted in 2022 — in response to grid infrastructure, as well as energy and green-attribute trading plans among Asean countries.

The public consultation noted that it was “not currently able to prescribe the detailed mechanisms that could meet the conditions in recognising physical cross-market procurement”.

Having said that, it advocates that “broader integration of markets [be] a core part of RE100’s goal of carbon-free grids by 2040”, adding that it will continue to study the mechanisms in order to potentially recognise it in the future.

There remains significant demand for cross-border electricity virtual power purchase agreements (PPAs) among corporations, “for example, those committed to the SBTi (Science Based Targets Initiative, which also sets emission guidelines and standards)”, MPIA’s Chong says.

“Even without the cross-border recognition of green attributes, RE can be unbundled, meaning the green energy itself and the associated green attributes can be sold separately.

“This approach can open up opportunities for export to various markets, including those that prioritise clean energy sources.”

Meanwhile, another global disclosure system provider CDP will recognise cross-border RE trade on a case-by-case basis, with emphasis on physical electron delivery, bilateral agreements and a uniform instrument to track the RECs.

Singapore is also taking steps to recognise international carbon credits (ICCs) to allow companies in the country to offset up to 5% of their taxable emissions. Each ICC must represent one tonne of greenhouse gas emissions reductions. At the moment, Singapore recognises carbon crediting programmes from host countries Papua New Guinea and Ghana.

Singapore has for years hinted at huge demand for energy, with two requests for proposals in 2021 and 2022 for 4gw worth of low carbon electricity import into the country by 2035 as the global market post-pandemic saw a huge focus on emissions standards in forming investment decisions.

However, many cross-border projects remain in the discussion stage. A US$13.5 billion, 6GW power-line project spanning 4,300km from Australia to Singapore has yet to receive approval from the Singaporean government, although Australia gave the nod last week.

Similarly, in Malaysia, Sarawak, which has more than 2GW of hydro power from its three biggest dams, is eyeing its own 1GW undersea cable project for Singapore. Its exports of hydro power from Laos to Singapore saw little take-up in its two-year pilot, which ended in June this year.

In Peninsular Malaysia, domestic players were in search of a bigger market, considering the quota imposed by the government on new plant-up of large scale solar (LSS) awards (823mw for LSS4 in 2021; 2,000mw for LSS5 in April).

Exports are not the only avenue for new RE demand, though. In Malaysia, demand for energy is expected to grow 35%, or 7gw, between now and 2030, in view of a huge pipeline of ener­gy-guzzling data centre projects (which, for high-tiered data centres, would require low-carbon electricity sources).

Malaysia is also expected to launch the grid third-party access mechanism, dubbed CRESS, next month. By doing away with the RE quota, Malaysia could see more RE-hungry establishments land on its shores while the industry waits for the cross-border market to mature.

See also ‘With wheeling charges announced, is it all systems go?’ — Next page 

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