16 June 2014
Malaysia -- Impact of Degression Rate in Solar PV marketFrost & Sullivan has shared with us this intellitgence on the impact of degression rate in the Malaysia solar PV market.
Renewable Energy in Malaysia – An OverviewMalaysia has a vast potential for renewable energy (RE) development; its location near the equator makes it suitable for solar development and its tropical forests makes it ideal for biomass development. The country’s electricity generation capacity increased by approximately 20.0% between 2000 and 2009 and Tenaga Nasional Berhad (TNB) currently has a reserve margin of close to 31.0%. However, the country needs to develop greenfield power projects and refurbish old power plants in order to sustain the existing reserve margin.
Malaysia is working towards strengthening its energy mix to ensure the sustainability of the country’s economic development. Currently, close to 90.0 per cent of the country’s energy is generated from coal and gas. As per the Tenth Malaysia Plan, the country aims to account 5.5% (985 MW) of the total generating capacity through renewables by 2015 and 11.0% by 2020. Along with this, the country is also aiming to reduce carbon footprint to 40.0% below 2005 levels by 2020. To achieve these goals, the country introduced the much awaited ‘feed-in-tariff (FiT) policy’ in 2011. FiT, a special tariff rate governed by Sustainable Energy Development Authority of Malaysia (SEDA) is the rate at which the TNB would buy electricity from RE power producers including solar PV generators.
Policies and RegulationsIn April 2011, Malaysia adopted a system of Advanced Renewable Tariffs and RE targets differentiated by technology, i.e., the country’s policy includes specific targets for each technology by year. For instance, Malaysia's quota for solar PV power was 29 MW for 2011 while the target was an additional 46 MW in 2012. Due to limited funds, the FiT quota allocation for RE producers was awarded on a first-come, first-serve basis.
The quota regulation has not been well received by project developers especially those developing solar PV and biomass projects, the two technologies that has the maximum traction in Malaysia. Several project developers had requested SEDA to revise its quota system as they believe this system restricts them from developing large capacity projects. Raising the quota would drive RE power developers to develop large-scale grid connected projects.
In addition, the country limits foreign ownership to 49.0% to qualify for FiTs and other incentives. Industry stakeholders believe this cap should be removed not only to attract more foreign investments but to lessen the burden on Malaysian investors.
Impact of Degression Rate in Malaysia Solar PV marketThe Malaysian solar PV market was valued at $44.2 million in 2012, and is expected to grow to $45.9 in million in 2016 at a CAGR of 0.9%. Currently, most of the projects being developed in the country are small rooftop systems.
The 20 MW solar PV quota for non-individuals under the 500 kW category was announced in February 2013 and came into effect on March 2013. According to Chairman of SEDA Malaysia, “these 20 MW solar PV quotas are subject to the degression rates of 20.0% for installed capacity exceeding 24 kW, as previously announced by the Ministry of Energy, Green Technology and Water (KeTTHA).” The degression rate for installed capacities below 24 kW will remain at 8.0%.
Degression rate refers to a gradual decrease in the FiT rates year-on-year as outlined in the Schedule of the Renewable Energy (RE) 2011 (Act 726). The degression rate is determined by the applicable rate at the time of its FiT Commencement Date. The purpose of degression rate is to account for a reduction in cost of RE technologies as they mature with time. It works on the principle that, as the technology matures, the cost of implementation reduces. The degression rate for solar PV technology is determined by SEDA.
According to KeTTHA, the degression rates for bonus criteria of locally manufactured PV modules and inverters have been reduced from 3% and 1 % respectively to 0%. Further, reduction in degression rate for solar PV for individuals is expected to reduce to 0% driving greater public participation by home owners in the 'Solar Rooftops Programme’.
The degression rates are expected to be reviewed once in two years. According to SEDA, the applicants who had applied for the solar PV quota are expected to commission their solar PV systems within the Feed-in Approval (FiA) year (31st December 2013). If applicants fail to commission their systems, they will have their rates degressed by an amount decided at the time of application (as described above). Besides, applicants will fail to get the benefits of any lowering of degression rates in the subsequent year.
The 20.0% degression rate has generated mixed reviews from the industry stakeholders. While some of them agree to this new system, majority of them feel that this rate have the potential to wipe out the industry. According to KeTTHA, following factors contribute to a high digression rate:
· A sudden fall in global solar PV prices in the last two years
· An anticipation in the further reduction of panel prices in Malaysia over the next two years
· The current economic conditions that that could translate into a lower amount of subsidies required for the same capacity
· A windfall profit, which is perceived to have largely profited the PV service providers
As per SEDA’s analysis, 99.45% of the solar PV capacities submitted by applicants online were above 24 kW which had higher degression rate. This clearly indicates the commercial viability of the said degression rate in the industry.
ConclusionMalaysia has been credited with one of the first few countries in Southeast Asia region to launch the RE industry-friendly FiT policy. The FiT policy implementation in the country has created the necessary momentum to invest in RE market including solar PV technology. The demand for solar roof-top systems have been increasing with the introduction of the ‘2,000 solar rooftop program’ in 2012. As per the program, SEDA had allocated 2,000 household quotas and is planning to allocate further 10,000 this year. Besides, project developers have evinced interest to develop large-scale grid connected solar PV projects using thin-film technology. All these prove that ‘degression rate’ alone would not impact solar PV market growth.
Acknowledgements and contactThis article was authored by Subha Krishnan, Research Analyst, Energy & Power Systems, Asia Pacific, Frost & Sullivan.