Impact of Feed in Tariff (FiT) on RE Power Generation

22 April 2014 Residence Hotel Uniten

Ir Dr Ali Askar Sher MohamadCOO SEDA Malaysia

Contents

•History of RE in Malaysia•The FiT•Status today•Blockers and enablers of RE

Renewable Energy Development in Malaysia

3

8TH Malay

sia Plan (200

1 - 2005

)

• RE as the 5th Fuel• Implied 5% RE in energy mix

9th Malay

sia Plan (2006 –

2010)

• Targeted RE capacity to be connected to power utility grid:• 300 MW – Peninsular Malaysia; 50 MW - Sabah

• Targeted power generation mix: • 54.2% natural gas, 40.2% coal, 5.2% hydro, 0.2% oil, • 0.2% Renewable Energy

• Carbon intensity reduction target: 40% lower than 2005 levels by 2020

RE as of

31st December 2010

• Connected to the utility grid: 61.2 MW (17.5% from 9th MP target)• Off-grid: >1GW (private palm oil millers and solar hybrid)

Malaysian RE Plan

National Renewable Energy Policy & Action PlanOriginal National Renewable Energy Policy & Action Plan

Year Cumulative RE Capacity

RE Power Mix

(vs Peak Demand)

2015 985 MW 5.5%-6%

2020 2,080 MW 11%

2030 4,000 MW 17%

A mechanism that allows electricity that is produced from indigenous RE resources to be sold to power utilities at a fixed premium price and for specific duration.

FiT is guaranteed via the RE Act, whereby:

Access to the grid is guaranteed utilities legally obliged to accept all electricity generated by RE private producers

FiT rates high enough to produce ROI + reasonable profit (not excessive) to act as an incentive fixed for a period (typically 16 or 21 years) to give certainty & provide businesses with clear investment environment Adequate FiT rate "degression" to promote cost reduction and achieve “grid parity”

Adequate fund is created to pay for the FiT rates & guarantee the payment for the whole FiT contract period

Provides a conducive and secured investment environment Provides fixed revenue stream for installed system Only pays for electricity produced: promotes system owner to install good quality and maintain the

system5

The Feed-in Tariff (FiT) Mechanism

STATUS

BIOGAS BIOMASS SMALL HYDRO SOLAR PV All

No of ApplicationNo of

ApplicationNo of

ApplicationNo of

ApplicationNo of

Application

PENDING -- -- -- 3 3

REFUSED 6 11 3 718 738

REVOKED 2 2 -- 32 36

WITHDRAWAL 1 2 1 87 91

APPROVED 11 9 17 315 352

FiTCD 6 5 4 2266 2281

All 26 29 25 3421 3501

Status Today (31 March 2014)

Status Today With 1 % contribution to RE Fund, at 31 March 2014• Total approved capacity = 477 MW• Commissioned capacity = 185 MW

STATUS

BIOGAS BIOMASS SMALL HYDRO SOLAR PV All

Total Installed Capacity

Total Installed Capacity

Total Installed Capacity

Total Installed Capacity

Total Installed Capacity

PENDING -- -- -- 0.0184 0.0184

REFUSED 7.2 118.718 30.71 64.1017 220.7297

REVOKED 3.8 17 -- 17.4156 38.2156

WITHDRAWN 0.6 20 4 2.4491 27.0491

APPROVED 13.4 79.093 119.29 79.7036 291.4866

COMMISSIONED 11.7332 52.3 11.7 109.4862 185.2194

TOTAL 36.7332 287.111 165.7 273.1746 762.7188

Lessons learned from FiT implementationLesson 1

• RE Fund contribution of 1 % (about RM 300M annually) is not enough!• Very limited quota• Government finally increased the contribution to 1.6 % from 1st Jan 2014• This translates to about RM 600 M annually (due to increased tariffs)• With this increase, and also revision of displaced cost (dc), tentative new quota release

from 2015-2025 is about another 1100 MW, which includes approximately:• 170 MW biogas• 240 MW biomass• 60 MW MSW• 400 MW small hydro• 200 MW PV• 30 MW geothermal

LESSON 2

• FiT rates need to be carefully studied and balanced• Obviously high rates for solar PV • Rates in 2012:

(i) up to and including 4kW 1.2300

(ii) above 4kW and up to and including 24kW 1.2000

(iii) above 24kW and up to and including 72kW 1.1800

(iv) above 72kW and up to and including 1MW 1.1400

(v) above 1MW and up to and including 10MW 0.9500

(vi) above 10MW and up to and including 30MW 0.8500

(i) use as installation in buildings or building structures

+0.2600

(ii) use as building materials

+0.2500

(iii) use of locally manufactured or assembled solar PV modules

+0.0300

(iv) use of locally manufactured or assembled solar inverters

+0.0100

Compare with biogas and biomass(i) up to and including 4MW 0.3200(ii) above 4MW and up to and including 10MW 0.3000(iii) above 10MW and up to and including 30MW 0.2800

(i) use of gas engine technology with electrical efficiency of above 40%

+0.0200

(ii) use of locally manufactured or assembled gas engine technology

+0.0100

(i) up to and including 10MW 0.3100(ii) above 10MW and up to and including 20MW 0.2900(iii) above 20MW and up to and including 30MW 0.2700

(i) use of gasification technology +0.0200(ii) use of steam-based electricity generating systems with overall efficiency of above 14%

+0.0100

(iii) use of locally manufactured or assembled boiler or gasifier

+0.0100

Action from Lesson 2• PV Rates• In 2013, PV rates were degressed by 20 % for commercial plants while rates for individual

applications were degressed by 8 %• In 2014, PV rates for all categories have been degressed by another 10 %• In 2015, PV rates will probably be degressed by an additional 10 %

• Biogas and biomass rates• FiT rates and bonuses of biogas and biomass plants were subject to degression of 0.5 % and

1.5 % in 2013• Degression rates for these plants have been set to 0 % starting from 2014• Agri and animal waste (including POME) biogas plants are now qualified to get the landfill

gas bonus (now 7.7 sen/kWh)• Bonus for local manufacture or local assembly of boilers and gas engines has been raised to

5 sen/kWh from 1 sen/kWh• From Industry feedback, and PSS applications submitted to TNB/SESB, there is a huge

interest in biogas and biomass today

LESSON 3

• Even with better FiT rates, development of RE plants can be affected by Grid connection problems

• PV plants are normally on factory/warehouse rooftop where grid connection is simple due to onsite substation and sufficient load

• Most biomass, biogas, and especially small hydro plants are located in remote areas where the Grid (i.e. medium voltage network) is either non existent, weak, or does not have sufficient local load to accept the RE generator

• Although RE Act guarantees grid connection, but the interconnection facilities are the responsibility of the RE generator• If point of connection is too far, the costs and unit losses are too high to be economically

viable

Action from Lesson 3

• Negotiate with utility to allow:• Connection of a cluster of RE plants to the Transmission network

• Each individual plant may be too small to warrant connection to Transmission voltage but in a cluster, they can add up to 30 MW or more

• Already agreed, and can proceed• Suitable for small hydro plants, and some remote biomass plants

• Flow of power from Distribution network to Transmission network when there is not enough local load• Still in negotiations with utilities• May require all RE generators connected to medium voltage to provide SCADA facilities to convince

the utilities

• Set up Grid Interconnection Committee (GIC) chaired by SEDA, with the Energy Commission (EC) as Secretariat, and members comprising TNB, SESB, and NUR• GIC to discuss all issues relating to Grid connection and bring the proposal to Distribution

Code Committee (DCC) or Grid Code Committee (GCC) under EC for approval and implementation

The Way Forward• FiT is not meant to be permanent but only to kick start the RE Industry• New applications for FiT are proposed to end• 2017 for solar PV• 2020 for small hydro• 2025 for biogas and biomass

• Last FiT payment in 2041• As fossil fuel power generation costs rise, and RE technology matures, Grid Parity will be

achieved one by one for each technology• Small hydro already at grid parity (23 sen/kWh or 24 sen /kWh compared to dc of 23.8sen/kWh)• Non PV technologies can afford to sell to the utility at dc, especially if the real dc is determined• Small PV can be installed under Net Energy Metering (NEM) while utility scale plants can be built

through existing power plant bidding exercises• An alternative Legal Instrument is needed to ensure the utilities buy from the RE

generators at dc and accept NEM because the existing RE Act only implements the FiT.

Conclusion• Malaysia went into the FiT after studying its implementation in other countries• Although we have weaknesses, but we managed to avoid many of the pitfalls

experienced by others• Some countries almost went bankrupt and had to cancel the FiT since there was no quota

system• Within 2 years we managed to increase the grid-connected RE from 61 MW to 185 MW• By 2020, we’ll have a minimum of 1000 MW or more under the FiT

• The FiT can only go so far• New Legal Instruments are needed as we approach grid parity