Malaysias Drive to build a Renewable Energy industry

By: Spire Research and Consulting

With increasing environmental concerns and rising oil prices, governments across the world have been forced to look for alternative sources of energy which are sustainable and environmentally-friendly. Malaysia, one of the world's primary palm oil producers, is taking steps to promote the use of renewable energy (RE) – a move that will be welcome news to consumers of energy world-wide. Production of oil has already shown signs of slowing growth from 2005 and it is forecasted that only about 700,000 barrels of oil will be produced per day in 2008.

Primarily driven by industrialization, Malaysia 's commercial demand for energy is expected to increase nearly two-fold to an estimated 2,218 PetaJoules (PJ) in 2010. With its oil and gas reserves predicted to last for another 19 and 33 years respectively, the Malaysian government has begun stressing the importance of RE and Energy Efficiency (EE). Together with the current energy supply mix in the country, made up of gas (70%), coal (22%), oil (2%) and hydro power (6%), RE has been recognized as the country's fifth fuel by the Malaysian government in the 8 th Malaysian Plan (2001-2005). By 2010, the Malaysian government is expecting RE to contribute 350 MW to the total energy supply in Malaysia, which is projected to reach 3,128 PJ.

Several fiscal incentives, policy instruments and institutional mechanisms are in place to drive these RE and EE strategies. Companies enjoy incentives such as pioneer status, investment tax allowance and import duty and sales tax exemption for equipment used in energy conservation. According to the Energy Commission, an estimated total investment of RM 30 Bn(approx USD 8.8 Bn) is required to be spent in the electricity supply industry for the next 5 to 10 years. Out of the total investments, 60% will be invested in power generation, while the rest will be split equally among transmission and distribution.

The implementation of the Small Renewable Energy Programme also promotes small power plants, utilizing renewable energy, to sell electricity to the state-owned electricity utility. This programme applies to all types of RE, including biomass, biogas, municipal waste, solar, mini-hydro and wind. The National Biofuel Policy, an initiative set forth in 2006, also encourages production and utilization of biofuel from palm oil as an alternative energy resource. The programme started by launching the Envo Diesel, a mixture of 5% processed palm oil and 95% diesel, as a form of biofuel. Currently, Malaysia is already producing 500,000 tonnes of biofuel annually.

Many local companies are already taking advantage of RE technologies to begin reducing energy costs and earning revenue. For example, as the first biomass RE project using empty fruit bunches as fuel, TSH Bio Energy Sdn. Bhd. sold electricity to Tenaga Nasional Berhad (TNB) at 21.25 sen/kwh. The Malaysian government anticipates that as Malaysian industry becomes increasingly aware of the eventual benefit of EE equipment and applications, demand for them should increase as well.

According to one study , the total market size in 2005 for RE in Malaysia is estimated at USD 380 Mn and is expected to grow by 10% per annum as a result of the government's energy strategy. The total imports of renewable energy equipment in 2004 were estimated at USD 317 Mn, increasing 19% from a year before. Hence, commercial opportunities are available to OEMs which produce equipment related to direct combustion, boilers and furnaces, steam turbines and generators, fuel handling and storage systems, and environmental control systems. Existing major foreign players in the sector include GE Energy, Babcock & Wilcox, Volund ApS and Vyncke NV.

The solar sector, in particular, has the strongest potential for growth. Malaysia 's location in the equatorial region is ideal for large scale solar power installations. Some companies in the solar power sector such as First Solar Inc. have already made announcements on manufacturing plant expansion in Malaysia in 2007. Nonetheless, for sectors such as biofuel, moderate growth is expected in the next few years. This is due to growing international pressure for stricter environmental standards in the production of biofuel, making industry prospects more difficult to forecast. It is also worth noting that while the EU has introduced regulations mandating the use of biofuel, other countries have been more circumspect. Even in the EU, there are growing pressures for a rethink of its mandatory biofuel targets.

The Ministry of Energy, Water and Communications estimated the combined energy value for the two segments, palm oil biomass and solar, to be USD 2.7 Bn per annum. A study conducted by an American university confirmed this when it ranked Malaysia as one of the top five developing nations most likely to attract biodiesel investments. The reasons cited were that Malaysia has a strong agricultural industry, as well as relative economic and political stability. As Malaysia doggedly pursues its vision of becoming a developed country by 2020, the demand for energy, and with it RE, will ascend even greater heights.

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