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Posts Tagged ‘Malaysia’

An Introduction to Feed-in Tariffs

You might already be familiar with the concept of Feed-in Tariffs (FiTs) from the UK FiT programme which was introduced in 2010, or other FiT programmes which have popped up all over the world in the past few years.  The basic purpose of FiT is to provide incentives for national investment in renewable energy technology.  To do this FiT schemes allow and encourage smaller providers (single to double digit kilowatts), including households, to generate electricity from renewable energy for feed-in to the grid.  These small-scale producers are paid a fixed price per kWh produced that is over the market price for electricity and is guaranteed for a long term (16-21 years in Malaysia, depending on the energy source). This premium price makes it worthwhile for them to invest in the initial outlay costs for installing the energy generation technology.

The rates that small-scale providers are offered differ depending on the form of renewable energy used: typically solar rates are higher and hydropower rates are lower, to reflect the efficiency of the technology – for example currently small hydropower generates electricity at a lower cost compared to solar photovoltaic (solar-PV) and is therefore more efficient.  This evens out the playing field for the different technologies so that non-mature technologies (such as solar-PV) will continue to receive investment, instead of investors opting for mature technologies that provide a higher return for cost without subsidy.  In Malaysia, rates can also be added to when the technology used achieves some ideal goals, such as being locally manufactured or assembled, or by using certain technology (see ‘bonus rates’ on the ‘FiT dashboard’ on the SEDA website).

The rates offered are also depreciated annually to reflect that over time as technology progresses, renewable electricity should get cheaper to produce.  So for instance an installation of solar-PV in 2014 will receive a higher annual rate than an installation of hydropower in 2014, but a lower annual rate than an installation of solar-PV in 2013, as it is thought that the solar-PV installation in 2014 would use better, more efficient technology to create a higher electricity to cost ratio.  In the Malaysian FiT programme, the annual rate for hydropower doesn’t depreciate over time, as it assumes that the technology for hydropower is mature and is unlikely to become much more efficient.

The Malaysian difference

The Malaysian FiT programme follows the basic FiT structure described above but differs significantly from other programmes in that it introduces an annual quota.  The quota caps the amount of electricity generation from each source of renewable energy available for the FiT scheme each year and is based on the amount of money collected from the 1% electricity bill charge (see my previous post) from the previous year.

The quota has two main purposes: the first is to ensure there is a maximum amount of money that the government pays out annually for the scheme, and the second is to control what renewable energy technologies are invested in that year, with the purpose of focusing the growth of renewable energy on proven and mature technologies in the short-term, and, once the mature technologies have reached capacity, on technologies that are currently still developing (such as solar-PV) in the long-term.  This means that Malaysia won’t be installing the bulk of the renewable energy technologies that are still developing until later, when they are more developed, which allows them to take advantage of research that the rest of the world have done.

The renewable energy technology available for the FiT scheme in Malaysia are: biomass; biogas; mini-hydro (not exceeding 30 MW), and Solar-PV.  SEDA, the Sustainable Energy Development Authority (SEDA) who is responsible for the management of the FiT believes that Malaysia is not well suited for wind power.

SEDA renewable energy

The National Renewable Energy Installed Capacity by source goals, from SEDA

To combat allegations of corruption, the allocation of the quota is based on a first come first serve basis. Applications are made by the SEDA website and the companies and individuals awarded are accessible on the website.

The obvious downside to the quota is that once the quota has been reached it is likely to disincentivise renewable energy installations.  It is easy to imagine a situation where, once the quota is reached, interested parties decide to wait until the next year to implement.  Once that year rolls around, the quota disappears like Glastonbury tickets but, like Glastonbury, hundreds or thousands are left without quota.  It is hard to say how likely this scenario could be, however the 2013 quota for 20MW Solar-PV disappeared within an hour of it being available[1].

On the flip side, no one can blame Malaysia for being eager to avoid the problems other nations have experienced with an unprecedented large take-up of FiT (see Limu’s take on the UK experience).  It could even be argued that the UK and Spanish FiT programmes had implicit quotas which, once breached, or with the threat of being breached, caused the FiT rate to be lowered (UK) or for the programme to be frozen (Spain).  Given this argument, it is unlikely that the quotas will ever disappear completely, however given time, experience and public support it is possible that the quota could rise to a level where it becomes more of a safeguard to government funds than a limit to the installation of renewable energy.

A note on Solar-PV

Despite the current limited quota for Solar-PV, SEDA seemed to be very excited about the potential for solar.  Malaysia receives a great deal more sun than the UK, from an annual average value of 1,470 kWh/m2 to 1,785 kWh/m2 of solar irradiance in Malaysian cities[2] (compare this to the UK annual average of 950 kWh[3]).  As well as the large electricity generating potential, SEDA were also excited about the ability of solar-PV to ‘democratize energy’, as Solar-PV technology gives all homeowners the chance to generate their own electricity.  This means that if/when electricity prices rise, homeowners do not become hostage to energy companies (although there is only one in Malaysia) and they can also decide to reduce their useage to sell their electricity on for a higher price.  In short, the householder becomes a ‘prosumer’ – both a producer and consumer to/from the grid.  Perhaps SEDA are especially keen on this idea because the pre-FiT programme to promote investment in renewable energy was shelved as (so they tell us) the single Malaysian electricity company refused to offer fair prices to potential producers.

I’m signing off now from sunny Malaysia, but I would be interested in hearing what you think of the Malaysian FiT quota?  Should DECC have established an explicit quota rather than disappoint investors when it prematurely lowered the tariff rate for solar?  How do you think it will affect the growth of renewable energy technology in Malaysia?

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You might have noticed my absence from the blog recently; I have been adventuring around far-flung pastures learning about environmental policies in foreign lands.  As part of this I’ve been attending a few events, including the Malaysian launch of the Sustainable Development Solutions Network (SDSN), led by Jeffrey Sachs himself.  I had a few words to say to them at the end about a certain discipline they failed to utilise.  But never mind about that right now, I wanted to talk about something else…

On Sunday morning I tagged along with the good folks of MESYM (a Malaysian environmental networking platform) to attend a Bloggers workshop hosted by the Malaysian Sustainable Energy Development Authority (SEDA) about Renewable Energy Feed-in Tariffs (RE FiT) in Malaysia.  I’ll write in more detail about the contents of the workshop in my next post, but for this post I wanted to talk about the actual workshop, which I thought was a really interesting idea.

We were all paid RM100 (about £20) in supermarket/department store vouchers each to go to the workshop.  Now considering the workshop was on Feed-in Tariffs in Malaysia (and provided a 5 star hotel buffet lunch) I would have happily gone along without being paid anyway, despite the 9am start time on a Sunday morning.

Our goodybag! Lots and lots of literature, notebooks, badges, a lunchbox (?!) and vouchers!

But we also got this goodybag! Lots and lots of literature, notebooks, badges, a lunchbox (?!) and vouchers!

However it quickly became clear that my fellow blogger attendees might not have felt the same way.  Casual questioning of various individuals on the day about what they mainly blogged about yielded answers such as “Usually myself.  Also Koreans (pop stars), I love my Koreans!” and “Mostly about myself.  And also about the kids I work with” and “The KL Stock Exchange”.  So, an interesting group of bloggers to invite to a workshop on Feed-in Tariffs.  I suspected that my friend and I, with existing environmental interests, were flukes.  This was quickly confirmed when we had a quick introduction to climate change followed by some questions, where we learnt that only about half the room had ever heard of renewable energy, and only 3 people, including me and my friend, had heard of Fukushima.

But this made the whole workshop a far more interesting strategy from SEDA.  We originally thought they were reaching out to the political, environmental, and social bloggers (and their readers) who were probably already thinking about these issues, to try and convince them of the validity of the FiT.  However by reaching out to these other bloggers, who had wide readerships but ones who generally didn’t read the newspaper and probably had not thought much on the issue, they were reaching an entirely new audience and, hopefully, getting them to think about renewable energy and the FiT and to view these issues from angles they probably would not have been exposed to if not for the workshop.

By SEDA’s own admission during the morning presentation it quickly became clear what the main issue was, for the general public which SEDA were obviously trying to reach.  Malaysia has an artificially low fixed electricity price (thanks to subsidies to the tune of RM20 billion, or £4 billion) from the government.  The Feed-in Tariff scheme is funded by a 1% renewable energy charge on every householder’s bill above 300 Kwh (RM77 at the current rate), and this was set to rise to 2% earlier this year, but elections happened later than usual and this has been postponed.  Added to this, the national electricity provider is hiking up the price by another 1%, so all in all householders are seeing an electricity price increase of 3%, of which 2/3rds are thanks to SEDA.

Given the UK’s own electricity price woes this might seem a laughable thing to get upset about, however Malaysians have taken their cheap fixed price electricity as a given and are very much unhappy about this price increase.  Added to this are the recent petrol subsidy cut, and a healthy suspicion of the government (Malaysia ranks as 54/176 on the government corruption perceptions index), leading the public to wonder whether the SEDA 2% is really just going to line the pockets of government official.  The workshop organisers showed us some newspaper articles and screen captures from Facebook to demonstrate some of the public displeasure.

A slide of complaints. Copyright SEDA Malaysia

A slide of complaints. Copyright SEDA Malaysia

So it’s no wonder SEDA are trying to get the ordinary public on their side through ordinary bloggers.  But for this, a large education effort had to happen, in order to get these untrained bloggers to understand what the FiT was and why it was needed.  For a 4 hour workshop the scope was huge: a quick introduction to climate change, an explanation of renewable energy and how they fit into Malaysia’s commitment to cutting GHGs (40% by 2020 from 2005 levels), an explanation of the Feed-in Tariff with some background context and how the 1% (soon to become 2%) electricity price levy fits in, a quick foray into solar-PV and how together with FiT it ‘democratizes energy’ (more in a later post!), energy efficiency, break-off sessions to go into more detail about various renewable energy technologies and energy efficiency and finally a question and answer session with the SEDA Chief Executive Officer and Chief Corporate Officer.

The workshop setup. Copyri

The workshop setup. Copyright: SEDA Malaysia

Energy efficiency break-out session: the cost of non energy efficient lightbulbs vs energy efficient ligthbulbs

From the energy efficiency break-out session: the cost of non energy efficient lightbulbs vs energy efficient ligthbulbs

We were also told, to make sure their massive effort was not wasted, that we would be paid for each blog post we wrote on the topic, up to 5 a month.  I thought about revealing the price here but I sympathise with SEDA and don’t want it to get picked up that this is what their 1% is getting spent on.  But I would say that the payment per blog post is not an insignificant amount, and with 5 blog posts a month this should be enough for a Malaysian to get by without any extra work, including renting a modest room.  Or it would be, if it was paid in cash, which I’m not too clear about as yet.  5 blog posts on one topic a month sounds like a lot though, and eventually one might run out of things to say.  However, the workshop organisers promised that further workshops would be run including a chance to go out and see a biogas plant, giving more fodder for more blog posts.

At first glance it might seem like a lot to spend on an untested strategy, however SEDA remarked that they had originally used television advertising, but their advertisements were run in the middle of the night when everyone was asleep, so this might be a more cost-effective strategy.  Bloggers are also uniquely able to tailor their posts to their readership and, crucially, answer comments from them.  We were also encouraged to “write whatever you want”, which makes me less wary of the thought that we might be part of a SEDA astroturfing operation.  I mean to indicate whenever I write a ‘sponsored’ blog, and there didn’t seem to be any efforts to ask bloggers to hide this.

After the event, during our delicious lunch, I spoke to a few of my blogger attendees to gauge their reaction to the workshop and the payments.  Everyone I asked said they would definitely write about it, but a few were still uncertain about convincing their readership about the 1%.  They told me that they had been to similar events for the entertainment industry, but never one for government policy.  I took a few blog URLs down and will be checking them to see what they write and how this strategy pans out.  I thought the event was well run given the scope and time, and I understood all that was spoken about, however I am well aware that I was one of the very few with previous interest, let alone education and experience in this field.  So it would be very interesting to see how much other bloggers took in and what kind of angle they will approach this from.

We’ve heard of astroturfing before, but, given what I saw and experienced, I think it would be unfair to put that label on this strategy.  I feel like SEDA were genuinely trying to educate blogger attendees and equip them with the background knowledge in order to write about FiT in their own words, rather than to sway them to their side of the issue.  I wonder if a similar kind of strategy could be used by the UK government, or indeed whether it has been done before.  Perhaps there might be outrage at the thought of paying bloggers for social media exposure but I can’t help but feel that it can’t hurt to get people who have shown their ability to hold a large readership to write commentary on policies and bring these to the masses who would otherwise have no knowledge or opinion.

In my next post I’ll actually talk about the Malaysian Feed-in Tariff, but in the meantime I’d love to hear any thoughts you might have on this blogging workshop.

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This is the view from the highway as you travel from Kuala Lumpur International Airport into the city of Kuala Lumpur.

It is about 20km from the airport to the government city of Putrajaya, and everywhere you look is oil palm (This is not an exaggeration. For an overhead view, click here and zoom in).  For a tourist, these oil palm plantations are often one of the first views of Malaysia, even before landing in its modern airport of glass and steel, and one could be forgiven for imagining these palms to be natural growths and a native of Malaysia.  In fact Malaysia’s oil palm is a native of Guinea, Africa, and was introduced to the British colony of Malaya in 1910 by Scotsman William Sime and Englishman Henry Darby. Today, Sime Darby, the conglomerate product of this partnership, boasts of being the world’s largest plantations company, with a total of about 525,000 hectares of oil palm in Malaysia and Indonesia [1].

All in all, palm oil plantations in Malaysia made up 4.5 million hectares of land (13.7% of Malaysia’s land area of 33 million hectares [2]) and generated 15 million tonnes of palm oil in 2008 [3].  In January 2010 palm oil exports were the second largest export product from Malaysia and were worth around GBP £793 million or 8% of total exports from Malaysia in that month [4].

Palm oil obviously makes up an important part of the Malaysian economy, but at what cost?  The clearing of land for palm plantations was responsible for the loss of roughly 758,000 hectares of rainforest between 1990 and 2002, or 47% of oil palm plantations planted in that period [5].  Planning permission for palm oil plantations has mysteriously been given to convert thousands of hectares of forest previously classified as ‘permanent reserved forest’, including 6000 hectares of High Conservation Value forest; home to rhinos, tigers, honey bears, gibbons, tapirs, panthers, and ramin trees (an endangered tree species), and 3,899 hectares of forest in Terengganu State, a forest isolated from the main range and containing endemic species.  Terengganu may sound familiar as it is famous for its big mammals including tigers, elephants and our large cousins, seladang [5].

Seladang - Picture Courtesy of asianimages.wordpress.com

Surely, forests in their natural state as habitats to these and other species, and serving several ecosystem services, have economic values, even if not in cash terms. Estimating what this economic value can be is what we environmental economists do, amongst other things.

An example of such work is a study on the Leuser National Park in Sumatra, Indonesia (a very similar habitat to rainforest in Malaysia, due to its geographical proximity) which attempted to discover what we call the “total economic value” of the park for different uses of the land, including conservation and deforestation for agriculture.

Calculation of total economic value of the environment is based on individuals’ preferences for the environment and takes account of:

  • its direct use value such as the revenue from palm oil, but also as in the Leuser National Park example water supply, timber, non-timber forest resources and fisheries. Some of these uses are marketed like palm oil and timber, while others do not have markets,
  • its indirect use value from ecosystem services such as  flood and drought prevention, fire prevention, carbon sequestration. Most of these services are not traded in markets ,
  • option values for possible future use of the rainforest for medicinal cures or possible future tourism, and
  • values people may have for the environment even if they do not use it directly or indirectly (the so called ‘non-use’ value).

The Leuser National Park study found that if the park was converted to produce goods that are marketed, the accumulated Total Economic Value over 30 years would add up to US$ 7 billion. However, if the park was conserved in its natural state, the accumulated Total Economic Value over 30 years would be US$9.5 billion. This clearly shows that conservation has more value than conversion – and this is despite the fact that under the conservation scenario it is not possible to estimate many of the benefits in monetary terms [6].

On a purely economic basis, Malaysia could be losing a lot more than they are currently earning from palm oil.  The problem in reality is that even if we can have similar studies in Malaysia (and there are some), demonstrating the value of forest conservation is not enough, if marketed goods remain the only way to ‘capture’ the economic value of forests (or turn them into cash), incentive to conserve will be minimal.

Some policies are developed precisely to make conservation pay for itself. For example, REDD and REDD plus which allow for international payments for carbon sequestration and biodiversity protection, can facilitate this in the very near future [7].

A compromise between oil palm and standing forest can also be reached.  A study from the University of East Anglia showed that consumers are willing to pay more for palm oil from an environmentally sustainable plantation.  The combination of conservation and these premium prices could create a greater total economic value, including greater value for oil palm plantation owners [8].

Although this has been a very long post and I have in no way shape or form managed a complete coverage of all the factors, I should wrap up by saying that current attempts at creating sustainable oil palm plantations should be applauded.

Some of the oil palm industry in Malaysia is trying its best to be sustainable, with at least half of new oil palm plantations being planted on old plantation land between 1990 and 2002, and the largest companies being members of the Round Table on Sustainable Oil Palm.  If only Indonesia could follow in its footsteps!

[1] Sime Darby – Plantation

[2] Asia-Pacific in Figures 2006, UNESCAP

[3] Department of Statistics Malaysia – Production of Major Commodities

[4] Department of Statistics Malaysia – Preliminary Release of Malaysia External Trade Statistics January 2010 (Updated: 05/03/2010)

[5] Greasy Palms – The social and ecological impacts of large-scale oil palm plantation development in Southeast Asia

[6] Economic valuation of the Leuser National Park on Sumatra, Indonesia

[7] Koh, Lian Pin; Butler, Rhett A. Can REDD make natural forests competitive with oil palm?

[8] Bateman, I., Coombes, Emma, Fisher, B., Fitzherbert, Emily, Glew, David, Naidoo, Robin. (2009) Saving Sumatra’s species: Combining economics and ecology to define an efficient and self-sustaining program for inducing conservation within oil palm plantations

Bateman, I., Fisher, B., Fitzherbert, Emily, Glew, David William, Watkinson, Andrew. (2008) Making Tigers Pay: Marketing Conservation of the Sumatran Tiger Through ‘Tiger Friendly’ Oil Palm Production

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