Government mulls independent installers to speed up roll-out of battery storage

Sunday 05 Jan 2025

This article first appeared in The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

THE government is considering opening up battery energy storage system (BESS) installation to third parties as it explores options to accelerate the infrastructure roll-out ahead of an expected influx of solar farms in the country, according to the Energy Commission (EC).

If third-party installation is implemented, it could emulate the independent power producer (IPP) model introduced in 1993 to allow private companies to participate in the country’s power generation alongside Tenaga Nasional Bhd (KL:TENAGA).

BESS installation is one of the planned utilisation of proceeds from the system access charges (SAC) imposed on renewable energy (RE) farm developers and its offtakers, in exchange for using the national grid via the third party access (TPA) mechanism that was recently rolled out, called CRESS (Corporate Renewable Energy Supply Scheme).

“This shall include the possible implementation of the BESS auctioning and ancillary market mechanism in the future,” EC CEO Datuk Abdul Razib Dawood says in a reply to queries from The Edge.

“Having BESS is vital to cater to the increasing variable RE (solar) capacity integration under this open grid access programme,” he adds.

Under the CRESS framework, 25 sen/kWh will be charged if RE producers manage the intermittency of the RE sources, which can be managed with battery systems. The rate is higher, at 45 sen/kWh, if the power producers inject “non-firm” RE into the grid, meaning the grid owner will have to manage the intermittency. BESS is a crucial component in balancing the fluctuations in renewable energy (RE) output, especially from solar, and preventing sudden surges that could damage the grid or cause power outages. This is particularly important as the country aims to achieve 40% of its power generation capacity from renewable sources by 2030, up from 27% today.

At the moment, BESS projects are awarded directly, as the system is still in the pilot phase. Independent RE producers are also encouraged to install BESS at their solar farms.

According to sources, Tenaga and UEM-backed NUR Power Sdn Bhd are involved in the development of a 400MWh BESS facility for RM600 million. The project marks Peninsular Malaysia’s first utility-scale battery storage project.

Back in February, Tenaga had talked about a battery pilot project that it said would be “operated by Grid System Operator (GSO), and overseen by the Energy Commission”.

In Sabah, Tenaga’s 80%-owned Sabah Electricity Sdn Bhd is also developing a BESS project of a similar scale for RM645 million. The project was awarded to an associate of Seal Inc Bhd (KL:SEAL) in September.

While there is inherent capacity within the grid to handle solar intermittency, that cushion will be mostly taken up by the time the latest large scale solar (LSS) awards — up to 2gw under LSS5, to be announced in the coming months — come online, Razib tells The Edge.

Meanwhile, under the newly introduced third-party access to the national grid CRESS (Corporate Renewable Energy Supply Scheme), the Ministry of Energy Transition and Water Transformation (Petra) expects another 2gw of RE capacity to be added to the system.

As a rule of thumb, a solar farm considered capable of providing firm or stable electricity typically requires battery storage capacity of at least four hours of energy output.

Avoiding tariff hike from battery installation

The mechanism for third-party battery installers could be similar to that of IPPs. The latter are paid a capacity charge to provide standby power generation capacity as well as an energy charge for actual power supply. These charges are recouped via the national tariffs, which means consumers ultimately pay for the costs.

The batteries required to support new RE supply-demand would mean additional capital expenditure (capex) to the national grid. To avoid “unnecessary socialising of the battery capex and opex (operating expenditure) to the consumer through the national tariffs”, the CRESS mechanism could pass the cost of developing BESS to green energy users and RE developers, the costs of which are incorporated in the SAC, says EC’s Razib.

“It is unfair for those who are not using RE to be paying for the battery storage costs,” Razib says, referring to the average household consumer.

By requiring only RE users like CRESS participants to pay for BESS, it establishes “a just and equitable mechanism, while simultaneously shielding the general electricity consumers from unnecessary electricity tariff increases due to the increase in green electricity supply and demand”, he says. The collected fund will be deposited in a designated green electricity supply fund, he adds.

With CRESS, 20 sen/kWh out of the 45 sen/kWh SACs collected for non-firm supply will be used to pay the battery developers.

“The 20 sen/kWh difference will be used for battery developments, that is, RE developers under CRESS that did not install their own battery will have to pay for it,” Razib says.

In other words, little to none of the battery costs will be passed to the national electricity tariffs. Battery development will also be contingent upon demand for CRESS, which is a proxy to demand for RE.

It also means that if there are no takers for the BESS projects, Tenaga is likely to step in to develop the infrastructure.

Under the IPP model, however, the project’s long-term liability goes to the Single Buyer, which is Tenaga, which purchases all electricity generated in the country. At the moment, the Single Buyer also serves as the market aggregator or middleman for electricity exports from Malaysia to Singapore.

The government has been wanting to carve the Single Buyer’s role out of Tenaga to address market participants’ perception of the entity’s independence. Adding new liabilities — which currently sit on Tenaga’s balance sheet — would make it difficult to do this. As such, the best scenario is still to have future solar farms, including those under CRESS, install their own BESS, which is more likely to be distributed across the grid system rather than concentrated in a single location.

Few existing participants

Nonetheless, only a few local players have considerable experience in battery storage projects.

Tenaga, which operates the national grid, has piloted a battery storage in collaboration with Sime Darby Property Bhd (KL:SIMEPROP) that can store 0.4mw. It had in the past expressed its intention to incorporate battery storage as part of grid development, citing economies of scale as an advantage.

Separately, BM Greentech Bhd (KL:BMGREEN), through recently acquired Plus Xnergy Holding Sdn Bhd, is in partnership with power producer Leader Energy Group Bhd to install a 1.45mwh BESS in Leader Energy’s large-scale solar farm in Bukit Selambau, Kedah. BM Greentech is 52.6%-owned by QL Resources Bhd (KL:QL).

Just last month, on Sept 14, Tenaga’s unit Sabah Electricity Sdn Bhd awarded the RM645 million Lahad Datu 100mw battery project to Seal’s 16.96%-owned MSR Green Energy Sdn Bhd. Subsequently, MSR Green Energy announced on Sept 26 that it had roped in Chinese outfit Sungrow for the project.

MSR Green Energy is 63.74%-owned by its largest shareholder KVC Corp Sdn Bhd, which is in turn 76%-owned by Chen Khai Voon. Chen, who also has a 30.66% direct stake in Seal, is a co-founder and shareholder of Genetec Technology Bhd (KL:GENETEC), in which he holds an indirect stake of 5.96%.

Genetec is also in a joint venture (JV) with Citaglobal Bhd (KL:CITAGLB), which produces locally assembled BESS equipment. It unveiled a working prototype of 1mw capacity to the public last year.

The JV is still actively pursuing BESS opportunities, Citaglobal says in a reply to queries from The Edge. “Our completed projects include a large-scale 1,720kWh BESS for a Middle Eastern client; a 426kWh BESS for Petronas and University Malaysia Terengganu; a 344kWh BESS for PROLINTAS (Lebuhraya Kemuning-Shah Alam); and a 233kWh BESS for Port of Baku in Azerbaijan,” says Citaglobal energy division executive director Aimi Aizal Nasharuddin.

“We are also in the process of developing new projects, including one under CRESS for an industrial client in Johor, a microgrid application for a government-linked company in Pahang, expanding the microgrid for a Middle Eastern client, and integrating BESS for local commercial and industrial clients to lower their power consumption during high-demand periods.”

Battery storage is commoditised, much like solar panels. China is a major producer of these two components at lower costs, making it challenging for local battery developers to compete.

Battery storage prices have dropped as much as 25% this year, according to data from Taipei-based market intelligence outfit TrendForce. The type of battery used for BESS reached a record low of 0.35 yuan/Wh, or 4.9 US cents/Wh, in August, compared with 0.47 yuan/Wh at the start of 2024.

Aimi says Citaglobal anticipates a price decrease of 5% to 10% for its own product in the next 12 months, in line with global trends.

While it may not be entirely feasible to eliminate the use of foreign BESS at this stage, the government should avoid over-reliance and consider technology sovereignty at this point in time, when adoption is just about to accelerate, he says.

“Although foreign BESS products may currently offer cost advantages, Malaysia could face future price fluctuations or dependency on external technologies, which may affect long-term growth. Heavy reliance on imported systems increases Malaysia’s exposure to potential geopolitical risks, trade disruptions and supply chain bottlenecks. Building a local BESS manufacturing ecosystem could help mitigate these challenges,” he adds.

Opening up of grid third-party access to all corporate RE consumers still on the cards

The government is looking at opening up grid third-party access mechanism for renewable energy (RE) to all corporate consumers under the Corporate Renewable Energy Supply Scheme (CRESS) instead of being limited to just new demand, according to Energy Commission (EC) CEO Datuk Abdul Razib Dawood.

“Work is still in progress on exploring the opening up of CRESS to existing power consumers,” Razib says in response to queries from The Edge.

“Both Petra (Ministry of Energy Transition and Water Transformation) and the EC are looking into this, especially on the aspect of grid and system capability and system cost, including the possible cost implication to general electricity consumers.

“Ultimately, we will need to strike a balance between fulfilling business demand and ensuring affordable electricity supply to our rakyat.”

The EC acknowledges that existing commercial electricity users such as manufacturers have expressed interest in participating in CRESS to decarbonise their existing manufacturing facilities.

CRESS was introduced to match new supply with new demand for RE, particularly from data centres, for which an estimated 7gw of capacity would be required from now until 2030. Under the current CRESS guidelines, existing consumers who are currently sourcing electricity from the grid via Tenaga Nasional Bhd (KL:TENAGA) are barred from participating in CRESS.

This is to phase in the adoption of RE by the commercial sector and avoid straining the national grid, which has to be upgraded to address the intermittent nature of green energy, especially solar. It also helps ensure existing power assets have enough take-up and to prevent them from becoming stranded if offtakers move to CRESS.

There are a few teething issues, however, that need to be addressed by market participants.

Typically, solar farms or any power plant can secure financing because the offtaker is the Single Buyer, a ring-fenced entity within Tenaga and a reputable paymaster.

With CRESS, the offtaker is the corporate consumer, which may not have a track record in payment. This makes it difficult for solar farm developers to secure financing.

Further, new corporate consumers (for example, manufacturing plants or data centres) typically commence operations in phases over the span of several years — so, they may require less electricity at the start of operations. Some are reluctant to sign long-term offtake agreements beyond 10 years to keep their options open, in case business continuity issues arise.

In comparison, existing customers with stable operations and long-term presence are easier to sign on to long-term offtake contracts with solar farms, thus making the solar farm project bankable. In addition, some existing customers are considering switching to full RE adoption for their operations and are willing to pay a premium for it.

To address the potential influx of RE to the grid from the anticipated relaxation of CRESS requirements, the government is exploring options to accelerate this grid strengthening process, including opening up battery installation to third parties, aside from self-installation by solar farm owners, and installation by Tenaga Nasional.

Time will tell whether interest in CRESS will translate into actual participation. The government has committed only to reviewing the grid access charges every three years, in line with the electricity industry’s regulatory period review, which includes forward planning for grid expansion capex.

Aside from CRESS, Malaysia has several options for those interested in green energy.

This includes the self-consumption model, where up to 85% of electricity demand can be offset by the installation of rooftop solar.

For those who do not mind blended green energy — a mix of green electrons and fossil fuel-based electrons with green attributes — the green electricity tariff is offered at a surcharge of up to 20 sen/kWh. Tenaga also sells megawatt-hours of renewable energy certificates (RECs) to interested buyers who want to offset their coal-fuelled electricity consumption.

Foreign investors who want to invest here “always demand green energy”, Razib says. “And they want it fast. So, we provide all the menu [for green energy].”

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