Renewable energy investors get FiT support guarantee from Malaysia: Interview with minister Peter Chin Fah Kui

Posted: June 7, 2011

Stakeholders in the renewable energy sector who view Malaysia’s feed-in tariff mechanism as a honey pot, are concerned over certain aspects of the scheme, like the quota system and degression timetable. In an hour-long interview with David Lee Boon Siew, Malaysian Minister for Energy, Green Technology and Water Datuk Seri Peter Chin Fah Kui addresses their grouses, and shares the government’s thinking on growing renewable energy.

Investors looking at Malaysia’s feed-in tariff (FiT) mechanism as a business opportunity should find comfort in the initiatives the government has taken to ensure the potential problem areas are adequately addressed. The government may be cautious in approach, but it is not short on ambition.

To ensure the fund is kick started without a hitch, the government has agreed to inject RM189 million into the Renewable Energy Fund to fund the RE targets for a year, Datuk Seri Peter Chin says. The advance was given via the Performance Management & Delivery Unit (Pemandu), a unit under the Prime Minister’s Department whose role is to oversee implementation of the country’s Economic Transformation Programme and Government Transformation Programme.

In the long-run, however, the RE Fund will be fed by a 1% electricity tariff increase. (At press time, Chin held a press conference to say that the 1% increase will take effect from Sept 1st. He also announced an average 7.12% increase in electricity tariff beginning June 1st, partly because of a gas subsidy reduction exercise. However, domestic users who use less than 300kWh per month will be exempted from these increases).

Chin says that because there has been a delay in the onset of the FiT, the amount in the RE Fund that is not used for this year will likely be carried forward to 2012. He indicates the FiT will start in July with the set up of the Sustainable Energy Development Authority (SEDA) at an office in Putrajaya.

As for requests from stakeholders that the degression of 8% for 2012 be postponed for the same reason, Chin says: “This seems to be the case; that we have to adjust.” This indication from the minister will please industry players as whatever tariff that has been agreed on will last for the duration of the agreement – 21 years in the case of solar photovoltaics.

The minister touched on a number of other issues in the interview.

On whether RE levy will be increased 2% or 3% to boost the RE sector

If we want a larger role for RE, we have to promote it. We can increase the RE levy to boost the pool fund. However, there are other mechanisms we can use to promote RE, like double deduction for investments or (reducing or abolishing) import and excise duties. Don’t forget that electricity consumption grows over time and the 1% levy will translate into a larger amount.

It all boils down to the size of the RE fund. For the first year, I am getting RM189 million from Pemandu as advance. As I collect more, and if the pool is big enough to sustain higher quotas, I will do it. After all, the money is earmarked for this purpose. If it is growing the green economy, why not? If we invest a small amount and get big returns from it, why can’t we do it?

If you invest a certain amount to grow the economy and it is successful, why can’t we do some more? Those funds can be from other sources, not just from the 1% tariff hike. If the government feels it is a good deal, it can invest. However, if it falls flat, I can’t justify asking for more.

The existing quotas are to prevent overheating of the RE industry, but they are not carved in stone. They will be revised accordingly, depending on the funds available.

Assurance for players in Malaysia’s FiT scheme, given the flip-flop in some countries

The law is explicit. We are applying a law passed by parliament. If we renege on it, any of the players can use the law to sue the government. It is as simple as that. The agreements that we sign is part and parcel of the regulations that will come. I am using the law to guarantee you. Which government wants to be sued? This is the inbuilt system. Everything depends on the total amount we can collect, and it will be disbursed. We don’t want to keep the money.

On the rationale for quotas in the FiT

I met investors at the Malaysia-European Union Forum in Vienna, and among other things, they want Malaysia to remove the cap on annual capacity targets. They want a free-for-all as is being done in some European countries. We know however that some have failed when the funds ran out because there were too many players.

We can’t be too bullish from the beginning. I would like to see SEDA taking a cautious approach. We start small. This is something new. We don’t want to fall into the trap that some countries found themselves in because they went overboard.

On whether foreign participation is crucial to the success of the FiT

For the amount of money we have (in the fund), I think locals can take up the quotas. I have many people writing to me. I say you have to bid; I can’t promise you. I think foreign participation will be in providing technology. You have one or two Chinese companies keen to do solar farming here.

In the solar sector, Malaysia has the best opportunity to position itself and become a global leader in solar PV manufacturing. Four leading multi-national PV companies – First Solar, Q-Cells, Sunpower and Tokuyama – have either set up operations here or have announced their FDIs equivalent to RM14 billion. They provide business opportunities for local players to understand, build capacities, enter the PV business and benefit along the supply chain.

On financing of RE projects

As of now, there is a lack of awareness among financial institutions because RE projects are still being considered high-risk investments, which makes it difficult for RE developers to source for funding. SEDA and the ministry will look at this issue thoroughly so that action is taken to ensure support from financial institutions in RE development.

On the importance of a transparent online FiT application process

Because the process is transparent, it will avoid all sorts of talk on whether so-and-so was selected because of his connections. You can see the quotas online and can see who has been selected at any point of time.

On withdrawal of gas subsidy for electricity generation within four years

Yes, this is the plan. The government has only this pool of money. You can use it to subsidise fuel (to prevent inflation) but it is non-productive and doesn’t grow the economy. Or you can use it to invest in many productive areas, to build incomes and eventually to build a bigger pool of funds. This is a policy choice. And the choice is that we need to transform our economy. We will increase the electricity tariff. But we will all learn to be more energy efficient.