This article first appeared in The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021

THERE has been a significant increase in the awareness and adoption of, as well as investor interest in, solar energy over the past decade. This can be seen from the launch of the feed-in tariff (FiT) in 2012 to the rollout of the first large-scale solar programme (LSS1) in 2017 and the introduction of the rooftop and power purchase agreement (PPA) models two years later.

For instance, the 300mw quota allocated to the Net Offset Virtual Aggregation (NOVA) programme under the existing Net Energy Metering programme (NEM 3.0) was fully taken up early last month by energy consumers, particularly those from the commercial and industrial sectors.

This is even more impressive when considering that the NOVA programme only commenced on April 1. Moreover, the uptake over the last three months has surpassed the total uptake in the first three years of the NEM programme, which commenced in 2016.

While Malaysia’s ambition to achieve carbon-neutral status by 2050 is backed by growing demand and an established value chain, as well as arguably one of the most comprehensive policies in the region for renewable energy (RE) development, especially for large-scale programmes, Malaysian Photovoltaic Industry Association (MPIA) president Davis Chong Chun Shiong warns that there are still bottlenecks that need to be dealt with immediately.

“The market demand for RE is growing. Malaysia should be looking at our energy policies in a more holistic way because the future trends of RE are going to impact not just the growth of RE players, but also many other industries as well. Unfortunately, we have some limitations and constraints in our existing policies,” he tells The Edge in a virtual interview.

According to Chong, the current government policies are limiting the country’s sustainable acceleration of RE, as the existing supply is not meeting the high demand. “Referring to the Report on Peninsular Malaysia Generation Development Plan 2020 (2021-2039), we would argue that the government policy is slowing the development of RE,” says the CEO of Solarvest Holdings Bhd, a Bursa Malaysia-listed solar turnkey engineering, procurement, construction and commissioning (EPCC) solution specialist, which is making its debut as an asset owner in the fourth cycle of the LSS.

“Today, the whole world is talking about carbon-neutral, net zero by 2050. But our country’s policy is limiting our pace and progress as it is only driving us to 31% RE capacity mix by 2025 and 40% RE mix by 2035. I think we can and we should do better than this.”

Established in 2006, MPIA is a non-profit organisation that represents the local solar industry. It has almost 150 members, including manufacturers, service providers, system integrators, consultants, insurance providers, training providers and academicians.

“We would like to urge the government to reassess the RE quota allocation as stated in the Peninsular Malaysia Generation Development Plan 2020. The current roadmap to reach 40% RE mix by 2035 includes the capacity for large hydrogen plants, which distorts the whole quota allocation,” Chong asserts.

In addition to the 5.2gw of operational and committed RE, Malaysia needs another 3.3gw of new RE requirements to reach the 31% RE mix target by 2025 (see bar chart). Of the 3.3gw, 2.2gw will be occupied by a large hydro segment which, in MPIA’s view, should be allocated to pure RE sources instead.

“The inclusion of large hydro in the RE roadmap is uncommon as it dilutes and limits the new capacity deployment for RE sources such as solar, mini hydro and biomass. The remaining 1.1gw new requirement of RE mix can easily be fulfilled even before 2025, given that one LSS and NEM programme can easily generate 1.5gw,” he explains.

Moving beyond 2025, Chong points out that only 2.4gw of new RE capacity will be required to reach 40% RE mix by 2035, which is not a difficult target to accomplish. Therefore, MPIA strongly believes that Malaysia’s RE roadmap should be more expansive to better reflect the demand for RE in the country.

Chong points out that there is strong demand from multinational corporations (MNCs) and RE100 companies, such as Facebook, Coca-Cola, Microsoft, Google and Amazon, for direct RE supply to be made available at their premises. RE100 is a global corporate RE initiative that brings together hundreds of large businesses committed to 100% renewable electricity.

“When we speak to these MNCs, they want to know about the availability of RE in our country. There should be more flexibility for RE trading such as P2P (peer-to-peer), direct PPA as well as third-party access to meet the rising demand,” he proposes, adding that MPIA is supportive of the imposition of fair grid fees as it believes commercial and industrial players are willing to pay.

“These MNCs are not in the energy business, but they want to get direct RE supply. If you allow third-party access, a lot of companies will be willing to do it. Of course, now you could buy a piece of land next to the MNC’s office and build a solar farm, but it is not feasible,” he observes.

“Let’s say if an MNC has a data centre in Kuala Lumpur, how can it build a solar farm in KL? It would make better sense for them to build it on cheap land in Terengganu or Kedah. That’s why third-party access to the grid is important — so they can operate an off-site virtual power plant.”

Chong opines that if the government allowed direct RE supply, Malaysia may not even need the LSS programme as everyone would be free to decide which power to consume. And the beauty of it is that the government could collect taxes while Tenaga Nasional Bhd could charge grid fees.

“All these MNCs and RE100 companies have set their own RE goals. They need to have their energy transition plans to meet their strategic directions. The best way is to get direct RE supply via off-site PPA, so I’m sure they will be very keen to become the off-takers of the RE plants,” he says.

Likewise, there are many RE investors out there who are willing to put up RE plants and sell the energy to these MNCs and Fortune 500 companies. “Basically, you have a willing buyer and a willing seller. You also have the infrastructure, but the policy is limiting your growth. While the limitation in our country’s RE policy will not directly block foreign investments, it is certainly not encouraging for them to come here compared with other countries that have more supportive policies,” says Chong.

It has not gone unnoticed that Bursa Malaysia has been encouraging public-listed companies (PLCs) to adopt environmental, social and corporate governance (ESG) practices, particularly those with a larger market capitalisation even though there is no enforcement.

Chong believes the pressure of financial institutions and big foreign funds with strict guidelines to invest in companies that pass their sustainability framework will push more local companies to strive to meet these requirements lest they fall off the radar screens of ESG investors.

“For instance, a bank may set strict guidelines that it will not finance a coal-fired power plant. I think more PLCs will experience more pressure to make their operations as ESG-compliant as possible. But as it is, Malaysia is not progressing as fast,” he observes, but credits bigger corporations such as ViTrox Corp Bhd and Sunway Bhd with taking the lead in adopting RE.

“I think Bursa and the banks will play a very important role in the years to come. If you want to get your company listed, you need to meet Bursa’s requirements. If you want to borrow money from a bank, you need to accommodate certain criteria,” says Chong.

Although green energy stocks, including solar companies, are expected to be favoured by ESG investors, he is of the view that the whole value chain of the solar industry is much bigger than that. “I am talking about any company that is directly or indirectly involved in the green energy supply value chain, from energy generation to end users. Imagine if a financial institution is focusing on green loans by supporting environmentally sustainable economic activity, it should be deemed a green stock too,” he contends.

Nevertheless, Chong concedes that some companies may be only skimming the surface and riding the solar hype, rather than truly going green and sustainable. “If you look at Bursa-listed companies, there are not many pure solar players. Some companies are venturing into solar via LSS, but they are just asset owners. It really depends on the investors’ appetite, whether they want to go for asset-based companies or EPCC,” he says.

Given the increasing focus on ESG, companies that can claim some element of it will likely get more attention from investors and banks, whether it is fundraising or an impending listing, he adds. “For example, if you are selling a furniture product made from recycled wood, you may have an advantage over conventional furniture players when raising funds. The ESG will create a very good story for your company.”

However, there are many shades of green. For instance, solar may be considered RE, but certain quarters have highlighted that solar panels contain toxic chemicals and materials. Yet another looming issue is the disposal of solar panels and solar waste.

Chong acknowledges that the manufacturing process of solar panels is toxic and therefore, it is the manufacturers’ responsibility to take care of the scheduled waste. But he is quick to clarify that solar panels are essentially made of aluminium frame, glass and silicon, and hence, they are akin to electronic waste, which can be segregated and recycled.

“There is no way that we cannot recycle these types of waste. To us, these are just normal, solid waste, e-waste and metal waste. But yes, the solar panel manufacturers need to have their [own] recycling programme,” he says.

“When we were getting into the electronic era, did we plan the recycling programme? No. But in the end, businesses found that recycling e-waste is also a business opportunity that could generate income. We believe the same is going to happen in the solar industry. The waste recyclers will find ways to recycle solar panels.”

Chong points out that in some countries, the recycling cost is built into the tariff as solar farm operators are responsible for the waste. “At the moment, there aren’t many solar panel manufacturers providing recycling programmes. But I do believe they will do more in the future because this is their social responsibility. In any case, solar panels are generally a non-hazardous waste.”

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