Asian Property Review talks to Catherine Ridu, Chief Executive Officer of SEDA (Sustainable Energy Development Authority) on how Malaysia is quietly emerging as a major player in the solar energy sphere.
APR: Will solar energy and other renewables especially wind replace oil and coal one day?
CR: Yes. It is inevitable and the energy transition is unstoppable. Social regulation and international pressure to commit to the climate agenda will sustain the energy transition momentum. The real question is how long will it take for the world to reach carbon neutrality or to reach 100% RE? Will there be sufficient time to transit before the critical two-degree Celsius global temperature increase? There have been many debates and studies on the timeline to two degrees Celsius, some have predicted it to be as little as less than a decade.
APR: Should housing developers be compelled to integrate solar panels into new homes in future or even those currently being developed?
CR: Yes because the solar PV component is perhaps the only component that can help generate income for the household (or reduce electricity bills). This PV installation will help hedge against future price increase in electricity when subsidies are eventually fully rationalized.
In addition, home owners of solar PV are part of the solution towards climate change mitigation and recent surveys have shown that Malaysians are aware of climate change and this reason may compel their conviction to take climate action.
APR: How can we get more financial institutions to finance solar panel installations and investments in solar farms?
CR: All financial institutions are risk-averse; therefore there is a need to lower perceived risk in investing in solar farms. In comparison to other forms of renewable energy (e.g. biogas, biomass, small hydro, geothermal) in Malaysia, solar PV financing has gained the confidence of financial institutions and have gained reasonable track record in terms of construction, achieving commercial operation and on-going operation.
APR: Will we be adopting new solar panel technology such as solar film for windows, solar roof tiles (Tesla), eventually?
CR: Yes, if the economics make sense (or cents). It will help to have a local market that can help reduce the cost but generally, vertical applications (e.g. window, façade) will produce lower yield than on a gentle slope (5 degree). Also, space constraint application will require higher efficiency PV modules so most of the houses will have crystalline rather than thin film technology.
APR: The price of solar panels continues to decline as panel efficiency increases. There is a supply glut of solar panels on global markets due to the price of polysilicone being at an alltime lows. At the same time, battery storage technology has increased by leaps and bounds with a corresponding decline in price. How would this impact the take-up rate of solar panel sales and installations?
CR: In the absence of new feed-in tariff for solar PV given the evolution to Net Energy Metering (NEM) and Large Scale Solar (LSS), the return in investment for solar and energy storage depends on the retail electricity tariff. In countries where electricity tariffs are no longer subsidized, the Return of investment (RoI) for solar and energy storage will be much better than in countries where electricity tariffs are still being subsidized (and typically on fossil fuel). In countries where there is Time of Use (ToU) of electricity tariff, energy arbitraging using the energy storage (e.g. Japan, Germany, Australia). will help with the RoI as the energy storages store electricity when the tariff is low and sell back to the grid when the tariff is high. In situations where the buyback price by the grid is very low but the retail electricity is high, selling of excess solar electricity is unattractive and the excess electricity can be stored in the energy storage until a time of need. In this respect, this will help to improve investment returns.
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APR: Why are we still not seeing a massive shift to solar panels in homes and commercial properties?
CR: In Malaysia, our electricity tariff is still being subsidized so return of investment (RoI) is low. Additionally, under the net energy metering (NEM), excess electricity is sold back to the grid at displaced cost which is much lower than the average retail electricity, making RoI even lower.
APR: Will the policy towards more Electric Vehicles on the road influence the demand for electricity, hence more incentive to switch to solar?
CR: Yes, it definitely will! In fact, it is almost a foregone conclusion that the future of energy will be in electricity, and not just any forms of electricity but ones generated by renewable energy. Yes, there will be incentive to switch to solar (and other forms of renewable energy especially ones with zero marginal cost) due to their ability to reduce electricity cost, meet climate agenda and ensure energy security.
“Solar PV financing has gained the confidence of financial institutions and have gained reasonable track record in terms of construction, achieving commercial operation and on-going operation.”
APR: How to attract more investments in solar farms? What type of land would be suitable to locate these farms?
CR: The justifications for solar farms should be when there is excess land that is not in competition with land needed for agriculture and industrial development. The type of land most suitable are those brownfield lands, nuclear contaminated zones (e.g. Fukushima, Chernobyl). Otherwise, solar PV (being versatile in applications) should be promoted in multiple use applications e.g. BIPV/BAPV, or agri-solar farms, floating solar on reservoirs and on rooftops be it residential, commercial or industrial.
APR: Can you explain what ‘smart grid’ is about – how it can save cost while at the same time ensuring stable and maximised distribution of electricity to all?
CR: Smart grid is an intelligence built into the grid to manage the grid balance between supply and demand of electricity, a balance among the distribution networks as well as balance between the transmission and distribution levels. In the future of electricity, electricity is no longer unidirectional from generation to transmission to distribution networks. We can have electricity generation at distributed levels and there is a lot more dynamics with variable renewable energy generating at the same time, and fluctuating demand loads (partly due to increasing e-mobility). Smart grid can help save cost when coupled with market pricing mechanism and intelligence to match supply and demand.
APR: How much percentage do the typical solar panels degrade each year in its lifetime of 25 years?
CR: Less than 1% per year and with each increasing year, PV technology improves to reduce the degradation rate. However, one shouldn’t get too hung up about the degradation as the LCoE has factored in the degradation. The important point to realise is that RE is not expensive, and in fact, renewable energy with no marginal cost (such as solar) is the only form of energy generation that can help reduce wholesale electricity tariff. That has been found true in countries such as Germany, India and the Philippines.
APR: “In advanced countries, there are energy markets that support peer-to- peer solar power trading, virtual net metering, virtual power plants, and solar leasing mechanisms which advance the commercial models of solar PV.” Is Malaysia anywhere near that stage or at least have aspirations towards that seeing that we have all the qualities to be one of the top solar energy producers / users in the world?
CR: SEDA Malaysia has the aspirations that in the future, we should enable peer-to-peer energy trading, promote virtual net metering, et cetera, as these are enablers to scale up RE in the electricity mix. However, in order to achieve these, some reforms in the electricity market is required. Alternatively, innovative solutions can be testbed in regulatory sandbox to allow pilot projects to test for viability before mooting any regulatory changes. Malaysia has good solar resource and we should capitalize the sun to generate electricity as the sun is free, and yes, we can be among the top in solar industry and set an exemplary leadership in the solar market.
APR: “Malaysia aims to be the second largest producer of solar photovoltaics (PV) in the world by 2020.” Are we on track?
CR: We are currently the third largest solar PV producers in terms of solar cells and PV modules. Not sure about the second place aspiration, as we need to ask MITI/ MIDA because manufacturing is under their purview. SEDA Malaysia’s primary objective is to moot up a renewable energy market and only secondarily, a renewable energy industry.
APR: It has been said the future of the electricity system can be summarized in 4Ds: Decentralized, Decarbonized, Democratized and Digitalized. Can you briefly elaborate on each of them ?
CR: I think the best way to explain about these 4Ds is in graphics comparison between centralized and decentralized power generations (see diagram below). Conventional electricity systems are marked by large power plants (typically coal and gas) and electricity is transmitted unidirectional from the transmission backbone down to the distribution networks and finally to the consumers (industrial, commercial, and residential). The fuel for power generation (coal, gas) will then be transported to these power plants
The new electricity paradigm takes into serious consideration of the climate agenda and the need for true national energy security. Only renewable energy truly addresses both climate and energy security. Renewable energy addresses climate agenda by not generating harmful Greenhouse Gases (GHG) emissions during power generation, and renewable energy also offers energy autonomy as energy is available domestically and is neverending in supply. In this respect, the future of energy will be decarbonized.
As renewable energy is typically harnessed insitu (at the location or site), for example, solar, wind, hydro, and geothermal, the decentralized electricity system is more suitable than the centralized configuration (see diagram below).
However, this provides additional challenges as some forms of renewable energy are variable in nature (e.g. solar, wind) and that would require some intelligence in the network to balance the grid in terms of the dynamic electricity supply and demand.
This is where digitization comes in and usually in the form of smart grid. Digitization can also be extended to other forms of applications such as electricity management in buildings/homes, energy trading among prosumers (i.e. producers and consumers), wholesale electricity trading including cross border trading.
Finally, electricity should be democratized so consumers have the choice to be suppliers and/ or producers concurrently. Consumers should also have the choice of deciding their electricity source (much the same as mobile phone users subscribing to their service provider) and producers have the right to sell electricity.
APR: “It is predicted that once the combined levelised cost of energy (LCoE) for solar and wind, and energy storage receives the same grid parity, this will mark the end of the carbon era.” Can you elaborate on what this means?
CR: The levelised cost of energy (LCoE) is defined as “the net present value of a unit cost of electricity over the lifetime of a power generating asset”. Renewable energy (RE) that has zero marginal cost will have the greatest potential to have lower LCoE as these renewable energy resources do not rely on commercial feedstock. Examples of such renewable resources are hydro, wind, solar, wave, and geothermal.
Hydro is a very mature RE technology and it is a known fact that hydropower LCoE can be very low. For the next 2-3 decades, solar and wind will dominate in the RE scenario (see image below), and LCoE for both solar and wind are going through a steep learning curve.
In some countries, the LCoEs of solar and wind have reached or exceeded grid parity when compared to gas and even coal fired power plants.
The only issues with both these renewable resources are their variability and intermittency, and they only produce electricity when there is sun and wind.
In order to address their intermittency and manage their variability, energy storage solutions are required. Currently, energy storage systems are still in their infancy stage meaning their LCoEs are high compared to conventional fossil fuel power plants. Thanks to the rise of mobile energy storage applications (e.g. electric vehicles), the LCoE of energy storage is declining fast.
In this respect, once the LCoE of wind and solar combined with energy storage reaches grid parity with fossil fuel based power plants, this will mark the end of the carbon era. The end of the carbon era can be accelerated if there is carbon tax or carbon emissions trading which will help internalize the cost of externalities in carbon-based electricity. The image below is from Bloomberg, depicting the key contributors to the future electricity generating capacity mix.
APR: Have government incentives in Malaysia such as Large-Scale Solar (LSS), Net Energy Metering (NEM), and the Feed-in Tariff (FiT) caused an exponential take-up rate in solar installations?
CR: The FiT has succeeded in creating a small solar PV market. As at the end of September 2017, SEDA Malaysia has approved in total 11,818 FiT applications for solar PV (440.23 MW) of which 8,447 applications have achieved commercial operation (345.78MW). In any country, the NEM and LSS are natural organic progression of solar PV beyond the FiT. The LSS has gone through 2 tranches of competitive auctions and we have witnessed a healthy price reduction in their price submission. The NEM is still slow in the take-up for reasons stipulated in the earlier responses to part 2 of question 4. The important lesson here is to limit the FiT such that once it achieves the objective of initial market breakthrough, a well-designed FiT must have an exit strategy as FiT programmes can be expensive for the public to bear. In Malaysia, we have limited our FiT within the 1.6% contribution from electricity bills (from consumers usage of Electricity that is above 300 kW/h per month) and the impact of the 1.6% is very small compared to other countries whereby their FiT contribution can be as high as > 20% of the electricity bills.
APR: Malaysia has targeted 9% of the total installed capacity of Renewable Energy to be from solar PV by 2020 under the 11th Malaysia Plan. Are we on track?
CR: Under the RMK11, the official RE target is 2,080 MW by 2020. Yes, we are on target to achieve the target taking into consideration the FiT, the LSS (1,000 MW) and NEM (500MW). As at the end of September 2017, SEDA Malaysia has approved in total 1,461.41 MW of FiT applications and of which, 520.8MW of installed RE have achieved commercial operation.
Under the recently completed Greentech Master Plan, the Ministry of Energy, Green Technology and Water (KeTTHA) has set RE target of 30% of total electricity generating capacity by 2030. This includes large hydro and to-date, the RE contribution to the total electricity generating capacity is 22.8%. In the ASEAN level, the overall RE target is 23% in the total primary energy supply (TPES) of the ASEAN Energy Mix by 2025.
APR: It is said the threshold for solar power in an electricity grid is 15%. How can we increase this without affecting the stability or intermittency of the power ?
CR: Not sure where you got the source of 15% and perhaps only ST & TNB can validate the threshold. In the past, the holy grail of grid stability is defined as no more than 10% variable renewable energy (solar & wind) in the grid. Of course, countries (e.g. Germany, Spain, Italy, Chile, Australia and others) have witnessed higher variable renewable energy injection to the grid without the grid collapsing. Perhaps the downside to such excessive variable renewable energy injection is the self-cannibalizing effect of negative electricity tariff (common occurrence in Europe). Some countries such as Chile, will not allow negative electricity tariff (which is a good thing) and will impose a floor of zero (meaning electricity is free).
However, some countries are well known for curtailing variable renewable energy (e.g. China) and perhaps the only way to handle the variable renewable energy is the need to create an energy balancing/flexibility market which will help to balance between supply and demand of electricity. In the energy balancing market, the key components are energy storages, demand response, flexible capacity, market driven wholesale electricity tariff, and crossborder electricity trading.
It has also been said that the level of power fluctuations due to variable renewable energy decreases as spatial distribution of these plants increases. This essentially means that if the solar and wind farms are spread over a wider area, the power variability is reduced and we can have more ‘stable’ electricity generation from these sources.
APR: List out ways SEDA can encourage more solar installation take-ups.
CR: Let’s not limit ourselves to solar but to the entire sustainable energy agenda:
• Promote energy storage programme
• Encourage faster rationalizing of electricity subsidies
• Migrate from baseload to energy balancing/ flexibility market
• Electricity market reform – i.e. liberalization
• Implement the time of use tariff
• Promote digitization of electricity – perhaps explore the use of blockchain and IoT technologies to allow peer-to-peer electricity trading, carbon emissions trading, wholesale electricity trading.
• Decarbonize the transport sector to greater electricity adoption
• Consider carbon pricing • Innovative solar business e.g. leasing, virtual net metering
• Greater cross border electricity trading of renewable energy (e.g. hydro, solar) • Energy policies should internalize the climate agenda
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