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Malaysia Establishes Feed-in Tariffs to Accelerate Renewable Energy Deployment

Clean Energy Solutions Center facilitates collaboration to develop and implement supportive policies

Tuesday, January 12, 2016

Malaysia Establishes Feed-in Tariffs to Accelerate Renewable Energy Deployment

Solar power in Malaysia will benefit from recently established supportive energy policies. Photo by CEphoto, Uwe Aranas / CC-BY-SA-3.0.

Malaysia has taken steps to further clean energy deployment by mandating adoption of a renewable energy feed-in tariff (FiT) mechanism under the country’s 2011 Renewable Energy Act. The effort was supported by the Clean Energy Ministerial’s (CEM’s) Ask an Expect service, which facilitated a partnership between the Malaysian Sustainable Energy Development Authority (SEDA) and the Clean Energy Regulators Initiative (CERI), a collaboration between the CEM’s Clean Energy Solutions Center, Leonardo Energy, and 21st Century Power Partnership. SEDA and CERI are working together to enable FiT implementation and renewable energy development, with CERI supporting SEDA’s efforts to review and improve FiTs for solar photovoltaic (PV), bioenergy, small hydropower, and geothermal energy resources and technologies.

The FiT implementation process was designed to support rapid renewable energy deployment while also enhancing energy security and addressing climate change challenges. The effort drew from international experience and lessons, as well as a gap analysis conducted by Sustainable Energy for All (SE4ALL). FiT implementation focused on:

  • Review and improvement of FiT rates for solar PV, small hydropower, biomass, and biogas

  • Support for design of a geothermal FiT based on international experience and benchmarks

  • Analysis of other potential policy mechanisms to support large-scale deployment of solar PV (e.g., auction and tendering approaches)

This effort builds on the Malaysian government’s New Energy Policy. Since 2011, Malaysia’s overarching policy framework for clean energy development has provided a strong foundation for significant deployment of renewable energy and energy efficiency. The New Energy Policy prioritized actions to support energy security, environmental and social development, and economic efficiency. Specifically, the government adopted policies to support market-based energy pricing, energy efficiency in the commercial and residential sectors, improved governance within the energy sector, and scaled-up deployment of renewable energy. Within this context, Malaysia has adopted a target of 11% installed renewable energy capacity by 2020.

The government of Malaysia sought policy recommendations from CERI, specifically the Meister Consultants Group, a partnering CERI expert institution. The consultations led to concrete policy outcomes to support scaled-up clean energy development:

  • Ensure FiT design is accurate and cost-reflective through robust country-specific analysis and incorporation of international good practices. Through examining Malaysia’s renewable energy market and current FiTs, as well as international good practices for FiT design, key recommendations were provided to support specific renewable energy technologies and resources in Malaysia.

    • Solar PV – Solar PV cost reductions are expected to continue in Malaysia as the market grows. Malaysia established a revised degression approach for the solar PV FiT in 2014 in response to suggestions that such an approach would allow for decreases in the FiT level over time, in alignment with anticipated changes to prices and market conditions.

    • Biomass FiTs – Calculation of biomass tariffs is complex, as input values are site-specific and factors relating to the feedstock can significantly affect tariff rates. Malaysia increased FiT bonus rates for biomass and biogas in 2014, following recommendations that Malaysia adjust biomass and biogas tariff rates based on further analysis, paying special attention to evolving feedstock price dynamics.

    • Geothermal – Effective policy support can be particularly important for geothermal development, a highly capital- and time-intensive process. Geothermal FiT design requires a stable regulatory environment, price certainty, a long-term contract mechanism, and a credible off-taker for power produced. In addition, given the time- and resource-intensity of geothermal exploration and development risk, mitigation mechanisms are critical in supporting deployment. Malaysia established a geothermal FiT for projects up to 30 MW in 2015 to support scaled-up development of this largely untapped resource in Malaysia.

  • Consider development of additional policy mechanisms to support PV. To complement Malaysia’s PV FiT, the government of Malaysia requested support to consider tendering approaches for larger-scale systems. Tendering approaches can allow for further policy alignment with evolving renewable energy markets and prices. A supportive net metering policy was also recommended as a complement to a FiT, and launch of a net metering program is anticipated in January 2016 to complement Malaysia’s PV FiT policy. The program is based on successful stakeholder meetings supported by CERI.

The collaboration between the government of Malaysia and CERI has resulted in a strong policy framework to expand and catalyze clean energy development.