Malaysia consists of Peninsular Malaysia and East Malaysia, which comprises Sabah and Sarawak. Each part has its own utility for its respective territory for generating, transmitting and distributing electricity, such as Tenaga Nasional in Peninsular Malaysia, Sabah Electricity in Sabah, and Sarawak Energy in Sarawak.
This article focuses on relevant legislative aspects that a developer or investor should consider when investing in a power generating facility based on renewable resources for electricity supply in the country, particularly in Peninsular Malaysia.
The country’s applicable renewable energy laws are the Electricity Supply Act, 1990, and the Renewable Energy Act, 2011. Under the Renewable Energy Act, renewable resource is defined as “the recurring and non-depleting indigenous resources or technology as set out in the first column of the schedule”, which lists biogas, biomass, small hydropower or solar photovoltaic as the applicable renewable resources. Electricity generated or produced from renewable resources is called renewable energy.
Approval and licence
Under the Renewable Energy Act, a person who wishes to generate and supply electricity from renewable resources is required to submit an application for a feed-in approval to become a feed-in approval holder. The size of the power generating plant can range from 1MW to 30MW for biogas, biomass and small hydropower, while for solar photovoltaic it can range from 1kW to 30MW.
The act is only applicable for power plants that generate electricity from renewable resources up to 30MW. A feed-in tariff approval can be obtained by submitting the application to the Sustainable Energy Development Authority (SEDA), which is established under the Sustainable Energy Development Authority Act, 2011.
For a power generating plant using renewable resources above 30MW, the developer is required to obtain its licence under the Electricity Supply Act from the Energy Commission, which is established under the Energy Commission Act, 2001. The authors’ experience has shown that the conditions applicable to a developer for its power plant are typically provided comprehensively in the licence issued by the Energy Commission.
Renewable Energy Act
The SEDA is the regulator for the feed-in tariff payable to the developer for electricity generated from a renewable energy installation under a renewable energy power purchase agreement (RePPA) with Malaysian electricity company Tenaga Nasional.
Under the Renewable Energy Act, the following are the key matters that a developer or investor who is successful in its application needs to know:
(1) The feed-in approval is personal to the feed-in approval holder and cannot be assigned or transferred to any other person except with the prior written approval of the SEDA;
(2) A feed-in approval holder shall enter into an RePPA. The typical duration for power generated from biogas or biomass is 16 years, while that from small hydropower or solar photovoltaic is 21 years under their respective RePPAs from the feed-in tariff commencement date;
(3) The SEDA administers and implements a paid feed-in tariff based on the feed-in tariff system. The feed-in tariff rates are provided under the third column of the schedule of the act;
(4) The feed-in tariff is subject to an annual degression rate on 1 January;
(5) The feed-in tariff is subject to technical and operational requirements prescribed by the SEDA with the concurrence of the Energy Commission;
(6) The SEDA may, at any time, impose additional conditions, or vary or revoke any conditions already imposed on a feed-in approval, subject to giving prior notice of such an intention together with a draft copy of the imposition, variation or revocation of conditions;
(7) The SEDA may, from time to time, issue directions requiring compliance or non-compliance of conditions imposed to which a feed-in approval holder may object by way of written submissions. After due consideration by the SEDA, it may require a person to take such specified action as necessary to ensure that the person does not contravene any conditions of its feed-in approval or the provisions of the act. Once the directions are finalised, the feed-in approval holder is required to comply with such directions;
(8) The SEDA may also make rules for various other matters, e.g. technical and operational requirements, criteria for installation, or any other matter for which the act has empowered the SEDA.
Electricity Supply Act
As stated above, any developer or investor who wishes to establish a power generating plant above 30MW and based on renewable energy is required to obtain a licence under the Electricity Supply Act and, subject to the size of the power plant and its location, comply with other legislation. The Energy Commission has an active role as a regulator over any licensee generating electricity under the act, and can invoke its powers under various subsidiary regulations and guidelines.
Recently, as part of Malaysia’s push towards increasing its footprint of electricity generated from renewable resources, the Energy Commission issued a request for proposals (RFP) for large-scale solar photovoltaic plants up to 100MW. Since 2017, the commission has issued three RFPs, and the programme is now in the fourth cycle, called large-scale solar photovoltaic bidding cycle 4.
Any person may submit a bid under the large-scale solar programme subject to complying with the requirements of the RFP, which will typically include a draft power purchase agreement (PPA). A bidder may comply fully with the RFP or, as part of its proposal, submit deviations from any provisions of the draft PPA that, if the bidder is successful, may be negotiated with the utility. The PPA generally provides a moratorium period for the transfer of equity ownership at both direct or indirect levels unless otherwise approved in writing by the government of Malaysia. The selection of successful bidders under the large-scale solar programmes is based on a competitive tariff.
Under the Electricity Supply Act, a single buyer is a unit, department or division of Tenaga Nasional and is empowered to discharge its functions for electricity supply from renewable and non-renewable resources in Peninsular Malaysia. The single buyer also functions under the purview of the Energy Commission. The single buyer oversees the negotiation and implementation of PPAs.
Foreign investment policy
The government of Malaysia permits a foreign investor to hold up to 49% equity ownership in a company incorporated in the country that intends to become a developer for a power generating facility, be it from a renewable source or otherwise.
Based on the authors’ experience, most developers, whether under the Renewable Energy Act or Electricity Supply Act, generally obtain debt financing from Malaysian financial institutions, and entirely in Malaysian ringgit. The debt repayment period is typically 12-15 years. The insurance programme is also based on Malaysian ringgit.
Much of the civil works is typically carried out by Malaysian contractors. The equipment supply may be sourced from foreign suppliers, i.e. original equipment manufacturers, or locally available through licensed distributors.
The future for the generation of electricity from renewable resources in Malaysia will increase mainly from solar photovoltaic and, to a lesser extent, hydropower. The state of Sarawak has a large number of hydropower plants due to its climatic conditions.
The above is intended to provide the reader with an overview of specific renewable energy laws in Malaysia. Invariably, other aspects of the law will also affect a transaction from the development stage until commercial operations, which the developer should properly consider as a matter of diligence.