By Ko Chuan Zhen, CEO & Co-Founder, Plus Solar Systems,
Solar power’s environmental benefits are not new information to most, though adoption in its early years has been slow due to financial viability. Historically, Malaysia has depended on fossil fuels, importing more than half of its national energy demand in coal.
However, in the last 10 years, I can say as a local clean energy industry player that clean energy has become more affordable, with payback periods shortened. In the market, we have also felt the winds of change. For example, our clients in energy-intensive manufacturing industries Mah Sing Plastics and AJIYA Berhad both see expedited payback periods.
A client, Mah Sing Plastic’s solar investment will see full ROI in 4 years
According to Wood Mackenzie, solar is now the cheapest form of new electricity in a host of countries. It also points to the cost of solar already falling by 90% over the last two decades and is forecast to fall by a further 15%-25% by 2030.
Which leads us to the government announcing a new clean energy target for the country, to generate 31% renewable energy by 2025 and 40% in 2035. However, clean energy only makes up 9% of Malaysia’s energy mix today.
Closing that gap in the next 4 years is a tall order that still needs taking care of step by step. But is now a good time for solar adoption? And if so, how do we as a country, close this gap and achieve the targets?
An opportune time
Malaysia’s solar potential is said to be high because of key pull factors: increasing affordability, recent policies and initiatives, increasing importance of ESG (environmental, social, and governance) ratings as well as rising awareness of these facts.
When it comes to affordability, solar investments can now take as little as 3 years to complete their payback periods, when in the recent past it would take 10 years, which I feel is a strong incentive for private and public adopters, pushing us towards clean energy.
Secondly, we have vibrant and supportive policies in the form of Government initiatives, such as the Large Scale Solar (LSS), Net Energy Metering (NEM) schemes, tax allowances and financing schemes. Publicly, our LSS projects, better known as solar farms, have attracted much involvement.
The latest LSS4 project will contribute 1,000 megawatts (MW) to total installed capacity, with tender results recently announced. Once completed, these solar farms will act as a spur for the industry during the pandemic.
In the private realm, last year’s Net Energy Metering (NEM) 2.0 proved to be highly successful in driving adoption. Its 1 gigawatt quota was finished 2 months ahead of schedule. In 2021, it was extended as the NEM 3.0, with a halved quota of 500MW, split into 3 sectors – private individuals, government entities (GoMEn), and commercial and industrial establishments (NOVA).
It is attractive to residents and government entities, who can now export excess power to TNB at a 1:1 offset. Commercial and industrial adopters however are less incentivised because of NEM 3.0 NOVA’s lower offset rates, which may hamper adoption from these sectors.
Both these projects have seen much success, with financial incentive as common points: the latest LSS4 expects to unlock RM4 billion in investment and create 12,000 jobs, while the NEM scheme gives adopters quick ROI on solar setups, cutting down on power costs and compounding savings.
Additionally, Malaysia has introduced two tax breaks in support of green adoption. By joining the NEM, industrial and commercial users are eligible for green investment tax allowance (GITA) when purchasing green technology equipment and assets, and the green income tax exemption (GITE) for providing green technology services.
Furthermore, companies could also make use of the Green Technology Financing Scheme 3.0 (GTFS3.0) to get financing guarantees and interest rebates on their green initiatives. In Budget 2021, a total of RM2 billion was allocated to the scheme until 2022.
Greater efforts needed
Still, the question remains: Is Malaysia on track to achieve these new goals?
In my opinion, current efforts do stimulate the industry, but they could indeed be enhanced to help meet the goals set in place. This is a critical time for Malaysia, considering the increasing role of sustainability, such as the UN Sustainable Development Goals (SDGs) targets and ESG scores in securing investments worldwide.
Globally, recognisable brands and energy giants are stepping into the clean energy space: Shell, Facebook, and IKEA have made investments into solar. Aside from the shift we see in such firms, environmentally conscious investors are also looking into solar. Most notably, Bill Gates in the last 5 years has managed to divest the majority of the Gates Foundation’s funds away from carbon-heavy industries.
With a passion, I foresee an energy future for Malaysia led by solar and mixed with other sources, both clean and traditional ones. But to address if we can close the gap between our goals and where we are today, the answer truly lies in fastened and timely strategic efforts.
I believe, together we need to create a sustainable and collaborative ecosystem that allows for conversations as well as supportive policies. The mutual effort of policymakers, media outlets, financial institutions and renewable energy industry players will play a big role in determining the success and reality of the 31 percent renewable energy target by 2025.