This article first appeared in The Edge Malaysia Weekly on October 14, 2024 - October 20, 2024

RENEWABLE energy producers and their prospective customers, such as data centre operators and semiconductor players, voiced grouses to the Ministry of Energy Transition and Water Transformation over two meetings last week about the high grid access prices under the newly introduced third-party access (TPA) mechanism for renewable energy.

Several alternative proposals were submitted to the ministry during the meetings, which were also attended by representatives from Google, Amazon Web Services, Meta and Microsoft. Industrial players included semiconductor companies like Infineon and Micron, sources say.

“This is a very important project and we need to find the middle ground,” says one industry player. “The SAC (system access price) is too high, but I also think that it cannot just be one-sided as we (the industry) should also contribute to upgrading the grid. It cannot just be the government forking out the capital expenses to upgrade the grid,” he adds.

This TPA mechanism is known as CRESS, which stands for Corporate Renewable Energy Supply Scheme. Under the scheme, RE producers have to pay a toll or SAC to Tenaga Nasional Bhd (KL:TENAGA) to use the national electricity grid to supply green energy directly to their corporate customers.

This pricing issue may slow down the adoption of CRESS, which was partly accelerated in light of the expected power demand jump from data centres.

“The numbers (cost) are too high ... at the moment, so, no, [we won’t go for CRESS],” says a local data centre developer who initially planned to power up the facilities with solar energy via CRESS. The developer has now decided to procure conventional electricity from the grid instead due to the huge gap of almost 25 sen/kWh.

Solarvest Holdings Bhd (KL:SLVEST) CEO and co-founder Davis Chong Chun Shiong says the company has approached several potential customers who are not keen on using CRESS.

“Basically, the rate is going to be equal or more [than the usual cost of electricity], so it’s not attractive enough. So they (offtakers) are taking a look-and-see approach ... Maybe in three to six months, the government will decide if they are going to revise the rate,” he tells The Edge.

Data centre players also don’t want to commit to long-term power supply contracts under CRESS, as they prefer to plant up their capacity in phases. Without sizeable long-term power purchase agreements, solar farms are not bankable, some producers say.

The average cost of electricity generated from conventional sources such as coal and fuel is 39.95 sen/kWH. Of this, 13.75 sen goes towards delivering electricity to the home or business. There’s also an extra charge of 16 sen/kWH to cover the cost of fuel known as fuel surcharge under the imbalance cost pass-through system. So, the electricity rate or tariff for medium- to high-voltage consumers is about 55.95 sen/kWh. If one uses RE, one will have to pay 59.95 sen, as the green electricity rate is set at 20 sen/kWh.

Tenaga, the owner and operator of the national grid, is now the sole offtaker of electricity generated by independent power producers, which it purchases under long-term power purchase agreements and supplies to end users.

Under CRESS, the SAC is set at 45 sen/kWH for non-firm or intermittent RE supply to the grid. RE generation sourced from solar or wind is known for this intermittency as they are not constant and can be weak or strong at times.

The SAC will be lower, at 25 sen/kWH, if power producers can manage the ups and downs of the RE they supply to the grid.  One way to manage this is if producers store supply excess in batteries, which can then be used to “firm” up their supply to the grid when it is weak.

The CEO of a solar producer, who does not wish to be named, thinks the government may review the rate if take-up is not encouraging.

“At this point the scheme is not attractive, unless they reduce the SAC rate or Tenaga’s tariff goes up. This is because the current price is on par with the market. It doesn’t make sense if they launch something that gets zero subscription, right? I hope the government will review it,” the CEO says.

“We estimate that the total cost of production, including the wheeling charges (SAC), to be at 57 sen/kwh. So, how much do you want to charge the electricity that you generate? That calculation hasn’t included the profits yet,” the CEO adds.

A market observer also wants to know how the SAC was determined. “It is understood that part of the fees will be used for grid investment, but what is the breakdown?” she asks.

The CRESS framework is meant to get more players to come into the market and boost competition, but the high SAC could end up stalling this liberalisation of the energy sector, she adds.

Additionally, RE producers wanting to participate in CRESS must find “new customers”, not existing clients. For example, customers of existing facilities such as factories cannot buy RE under this new third-party access framework unless they are building new factories.

“The revenue will be tied to the offtakers’ ability to pay for the power they consume, and we won’t have their track record if they are new customers. This also poses a challenge for us to get financing from banks because our revenue depends on the customers’ ability to pay. And, already, the margins are a challenge due to the steep wheeling charges.

“At the end of the day, it boils down to how much premium customers are willing to pay to be part of CRESS,” says the chief executive of a RE company.

Samaiden Group Bhd (KL:SAMAIDEN) CEO Datuk Chow Pui Hee agrees that securing new offtakers for CRESS is a challenge and hopes the government will open it up to existing customers.

“Under CRESS guidelines, demand is primarily limited to new customers, which at this moment are from data centres. This contrasts with programmes like LSS (large scale solar), where Tenaga serves as the offtaker. Acquiring new customers can be challenging due to their unknown track records and the associated revenue uncertainty. Working with existing customers offers greater predictability,” she tells The Edge.

On the SAC, Chow agrees it is high but thinks it is meant to incentivise more players to adopt the Battery Energy Storage System (BESS) in their projects, thereby alleviating competition for direct grid injection.

“I welcome the move by the government to open up the national grid. I always envisioned Samaiden to be the first company to build RE assets under CRESS. The pricing is tricky but I have been in the industry for almost 10 years. I remember when the first LSS was announced and a lot of people were asking how to do the project because prior to that, solar projects were under the fit-in-tariff programme.

“Today, we are at LSS5 and many companies are vying to get a slice of it. While CRESS has its challenges, I view it as a catalyst for industry advancement,” she says.

Cypark Resources Bhd (KL:CYPARK) executive chair Datuk Ami Moris is also positive on CRESS, saying it provides access to a new market for RE producers, and better clarity for the industry’s growth.

“CRESS provides the impetus for companies like Cypark to grow exponentially without relying on quotas or allocations as with LSS. This will accelerate the country’s energy transition vision and help achieve the 70% RE mix by 2050,” she tells The Edge.

CRESS’ main intent, to her, is to reposition green energy as a premium over conventional energy sources like fuel and coal. “Some consumers have their own mandates to reduce their carbon footprints and the price premium may be acceptable for a finite period. In the RE development business, efficiency and scale matters,” she adds.

Past efforts to liberalise the energy sector in the country include the four LSS projects, in which players bid for the right to supply 2.3gw RE to Tenaga at a fixed rate. There was also the Corporate Green Power Programme (CGPP), where RE is supplied to corporate customers through the national grid under virtual PPAs. But only 800mw was awarded.

CRESS is essentially another third-party access (TPA) mechanism to liberalise the energy sector, but with the complaints about its pricing, concerns are that it would end up like the TPA mechanism the government rolled out to liberalise the natural gas sector — from the regasification terminals all the way to gas distribution pipelines — which has seen very few takers, again due to the pricing issue.

It was reported that only two shipments of liquefied natural gas (LNG) have been brought into the country by third parties because local gas prices have been kept below the market rate due to the government’s cross-subsidising policy. So, with the market rates of LNG remaining elevated, and the long-term nature of gas supply contracts, the TPA mechanism for the gas market has not really taken off.

Apex Securities says CRESS is less appealing to consumers compared with the Green Electricity Tariff (GET), under which the government offers a discounted rate for electricity generated from RE sources.

“We are neutral on this framework … Based on our in-house analysis, GET offers a more attractive rate for MV (medium voltage) and HV (high voltage) commercial users compared with CRESS. However, there could be higher uptake of CRESS if the SAC for non-firm output is reduced to 25 sen/kWh, the cost of BESS becomes more commercially viable, and an expectation of much higher electricity (rates) from the grid over the medium to long term, which could be attributed to elevated coal or natural gas prices,” it said in a Sept 23 report.

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