LUNCHEON TALK BY
YB DATO’ SRI PETER CHIN FAH KUI,
MINISTER OF ENERGY, GREEN TECHNOLOGY AND WATER
MALAYSIAN INTERNATIONAL CHAMBER OF COMMERCE & INDUSTRY (MICCI)
TUESDAY, 24TH APRIL 2012, 12.30 PM,
HOTEL RENAISSANCE KUALA LUMPUR
“THE FUTURE OF ENERGY IN MALAYSIA”
Yang Berusaha Tuan Haji Badaruddin Bin Mahyudin,
Deputy Secretary General (Energy),
Ministry of Energy, Green Technology and Water Malaysia
Mr Charles Ireland,
Guinness Anchor Berhad and President, Malaysian International Chamber of Commerce & Industry (MICCI)
Mr Stewart Forbes,
Malaysian International Chamber of Commerce & Industry (MICCI)
Members of MICCI,
Ladies and Gentlemen,
A Very Good Afternoon, Salam Sejahtera and Salam 1 Malaysia
1. First and foremost, I would like to thank the Malaysian International Chamber of Commerce & Industry (MICCI) for inviting me to deliver the luncheon talk on the “FUTURE OF ENERGY IN MALAYSIA”. As we are all aware, energy is the foundation that supports and spurs the socio-economic development of a country. Development is not possible without energy and sustainable development is not possible without sustainable energy. As members of international companies operating in Malaysia, I am sure that you all are very much concerned regarding the energy scenario for Malaysia. In this regard, I would like to take this opportunity provided by MICCI to present our position on energy as we move into the future. Before I proceed, I would also like to clarify that although I am known as the Minster of Energy, in actual fact, my responsibility covers only matters related to electricity. Oil and gas comes under the purview of the Right Honourable Prime Minister, although as the co-chair for the National Key Economic Area of Oil, Gas and Energy under the Economic Transformation Program (ETP), I do assist the Prime Minister in overseeing some of the O&G initiatives that are outlined under the ETP.
2. In my presentation this afternoon, I shall touch on a variety of energy-related topics, namely Energy Security, Fuel Supply and Pricing, especially Gas Pricing, Renewable Energy, Energy Efficiency and Conservation, Nuclear option and Restructuring the Electricity Supply Industry.
Ladies and Gentlemen
3. Energy Security is very crucial in supporting Malaysia’s socio-economic growth trajectory towards becoming a high income nation in 2020. However, the underlying concern in Malaysia with respect to its national energy security is how to ensure continuous supply of our fossil fuels at affordable prices as a result of depleting indigenous oil and gas resources. With Malaysia expected to revert to being a net oil importer by around 2015, such a situation will pose considerable long-term economic, environmental and energy security challenges.
4. Energy Security as defined by developed and developing countries is basically predicated on 4 A’s, namely Availability, Affordability, Accessibility and Acceptability. Availability refers to the availability of energy resources and energy infrastructure; Affordability refers to cost to users and risk to the economy; Accessibility refers to barriers and constraints to fuel supplies and supplier diversity; and Acceptability refers to increasing sensitivities to the environmental and social objectives. In the Malaysian context, these 4 A’s have been addressed through the National Energy Policy that was introduced in 1979 which aims to ensure an efficient, secure and environmentally sustainable supply of energy.
5. The Government also introduced the National Depletion Policy in 1980 to safeguard the exploitation of natural oil reserves. With the discovery of gas in the 1970s and the declining national oil production, natural gas then became the predominant fuel source to sustain national economic growth and also as the primary fuel. With the introduction of the Four-Fuel Diversification Policy in 1981 that listed oil, hydropower, gas and coal as key fuel sources, imported coal began to play a more prominent role in our fuel mix for electricity generation. This policy was then succeeded by the Five-Fuel Diversification Policy in 2000, with the addition of renewable energy as a fifth fuel source. All these policy initiatives were conscious efforts by the Government to diversify our fuel sources for power generation to ensure sufficient and reliable power at affordable prices.
6. Although in the past, indigenous gas was used primarily for the power sector, which also catalysed the gas industry in Peninsula Malaysia, there has been in the last two decades an increasing demand for the use of local gas as feed stock for petro-chemical industries and other uses in the non-power sector. In parallel, there has also been a firm demand for export gas, mainly in the form of Liquefied Natural Gas (LNG). As a natural consequence, the “cheaper” gas discovered earlier is evidently depleting and new gas has to be sourced from more expensive reserves.
Ladies and Gentlemen
7. The demand for electricity in Malaysia is growing in tandem with its GDP growth. It received a welcomed boost from the rollout of projects under the rolling 5-year Malaysia Plans and the on-going Economic Transformation Programme (ETP). The forecasted growth for electricity has shown an increase of 3.7% in 2012 compared to 3.1% in 2011. This growth has been driven by strong demand from the commercial and domestic sectors. For the period till 2020, the average projected demand for electricity is expected to grow at 3.1%. Based on this forecast, the country is going to need even more energy as it strives to grow towards a high-income economy. An estimated 10.8 gigawatts of new generation capacity will be needed by 2020 given that 7.7 gigawatts of existing capacity are due for retirement. By 2020, the total installed capacity will see an increase of 16% over the total installed capacity in 2012. Of this new capacity, gas and coal will continue to feature strongly in the Peninsular energy mix for power sector, with coal probably taking up a bigger share on the basis of rising gas prices.
8. With depleting local gas reserves and the need to adhere to stricter environmental regulations whilst still having to meet the requirement for growing electricity demand, the consideration of new options in the future generation fuel mix are inevitable. In this regard, my Ministry together with the other relevant agencies is reviewing the generation fuel mix to ensure security of supply through sustainability, adequacy of fuel supply, diversity in fuel supplies and affordable prices. Let me touch on these topics briefly.
Security of Fuel Supply
9. The dependence on a particular fuel type has implications with respect to the security of the source of supply and price of that fuel. The topical issue is the depleting quantities of local natural gas in the region and the need to remove the subsidies and move the price of gas to market price. Other issues might also affect the fuel source such as logistic problems, trade embargoes, weather inclement, etc in the fuel supply chain, e.g. imported fuel (coal or oil). About all of the coal that is used in power generation in the Peninsular is imported, mainly from Indonesia. To ensure the security of supply, we therefore need to diversify our coal fuel suppliers and look to new sources of supply like Russia for our coal requirements. Another option that is being explored is the building of mine-mouth power generation plants and transmit them across national borders. This will lead to the realization of the ASEAN Power Grid that has been endorsed by the ASEAN Ministers of Energy to enhance the security of regional supply of electricity.
10. In terms of hydropower, the Peninsular has limited options and whatever that is present is basically for peaking duties only. On the other hand, Sarawak has vast potentials of hydropower with estimates of about 20,000 MW potential. The challenges to this is to develop this potential in an environmentally sustainable manner and then transmit it through undersea cable where a large section of it lies in Indonesian waters.
11. The Government is studying nuclear as a long-term fuel option for power generation. The use of nuclear invariably requires a long lead time not so much in the aspect of technology, which is fairly well established but to win over the socio – political environment in each country in accepting nuclear technology for power generation. The building of technical and human resource capability to support such an initiative is also required. Moreover, there is also an inherent lead time for approval from agencies like the International Atomic Energy Association (IAEA). In this context, the Government is carrying out studies as stipulated by the IAEA to determine the feasibility and viability for Malaysia to embark on nuclear power generation. Based on the outcome of these studies and the receptiveness of the population, the Government will then decide on embarking on the nuclear route for power generation.
12. With the depletion in piped gas from local sources, the use of LNG could prove to be one of the future solutions for electricity generation. PETRONAS is in the process of building a Regasification terminal in Melaka and this terminal is expected to be ready by September 2012. The Government has also decided to liberalise the importation of LNG through open market access. The necessary amendments to the Gas Supply Act are now being made to regularize this matter.
13. The issue of reliability here is two-fold. One concerns the reliability of the fuel supply and fuel sources whereas the other involves the reliability of the power system. The issue of reliability related to fuel supply and sourcing is somewhat related to the issue of security of fuel supply whereas the second issue of power system reliability has become more pertinent in the last decade. Case in point is the Peninsular Malaysia system which has a large (60%) composition of gas turbine plants that all use natural gas for reasons of efficiency and supply infrastructure. In the event of unexpected fuel supply disturbances, the consequential situation can result in costly implication to the industry and the nation.
Diversity and optimization of resources
14. Apart from ensuring diversity of fuel sources, a balanced fuel mix is a measure to optimise the generation costs of the entire system and could even extend to the entire region, especially with the current trend cross-border power transactions or exchange. By diversifying, it would also provide a ‘hedge’ against any supply problems or sharp price escalations of a particular type of fuel.
15. Long-term concerns over energy security imply that we need to be highly proactive and judicious in the way we manage our energy resources in terms of selection of power generation technology and utilization. In order to build a sustainable energy platform for growth, we need to manage our heavy reliance on fossil fuels. Instead, we should move towards cleaner power generation and, simultaneously, intensify the development of Renewable Energy or RE as the fifth fuel resource as well as instituting demand side management, Energy Efficiency and Conservation agenda which may be regarded as another substitute source for national energy balance.
16. We also recognise that Malaysia’s energy consumption level versus productivity is lower than her peers in the region such as Singapore and Japan. Thus, there is an urgent need for conscientious efforts to promote the efficient use of energy. It is only with more awareness among the energy industry and consumers to practice efficiency in energy production, transportation and utilisation that we can realise this objective. Let me now then touch on the efforts related to the promote Renewable Energy in Malaysia and also on Energy Efficiency and Conservation measures that are and will be put into place in the country.
Renewable Energy in Malaysia
Ladies and Gentlemen
17. As mentioned earlier, Malaysia is blessed with fossil fuel resources, namely oil and gas that has fuelled the nation to the state it is now. Overdependence on fossil fuel has meant that producing power from renewable sources has taken a back seat. To a certain extent, Malaysia has not totally dismissed renewables in the past as a source of energy. We have been using hydropower for electricity generation and some of these plants are still working today. Apart from that, biomass plants have also helped power palm oil mills throughout the country.
18. With greater worldwide awareness on carbon mitigation measures to combat green house gases (GHG) emissions, there are now more concerted efforts to promote and encourage the use of renewables for power generation. The Government had approved The National Renewable Energy Policy and Action Plan on 2nd April 2010. One of the main elements of this policy was the introduction of the Renewable Energy Act which entails the implementation of the Feed-In Tariff (FiT) system. The FiT is a premium in which the RE power is sold according to each RE sources. The introduction of the RE Act also provide a mandatory requirement for the utility to accept and buy RE power. Both the RE Act and the FiT System was enforced on 1st December 2011. On 1st September 2011, the Sustainable Energy Development Authority of Malaysia (SEDA Malaysia) was officially established to undertake the role of a one stop centre to promote sustainable energy and to help facilitate the RE industry.
Implementation of Feed-in Tariff in Malaysia
19. The FiT system was implemented 1st December 2011. As of 29th February 2012, 377 projects with a combined capacity of 311.56 MW were approved by the e-FiT system. The breakdown is as per below.
No. RE Source No. Of Application Capacity (MW)
1 Biogas 10 14.48
2 Biomass 8 91.80
3 Small Hydro 11 65.25
4 Solar PV 348 140.03
Total 377 311.56
Energy Efficiency and Conservation (EE&C)
Ladies and Gentlemen
20. The Government had carried out many energy efficiency initiatives in the past with notable achievements. However, we believe that we can achieve better results if the country has a more comprehensive and systematic approach towards energy efficiency. In this respect, the National Energy Efficiency Master Plan (NEEMP) has been developed to strategize our efforts in addressing the issues of energy security, global warming and climate change. The Master Plan had also been reviewed by the Peer Review Team from the Asia Pacific Economic Cooperation (APEC) and we take positively their comments and confidence in this Master Plan.
21. The proposed National Energy Efficiency Master Plan has set a target for a period of 10 years from 2012, where the total accumulated energy savings from the 3 sectors identified which are Industrial, Commercial and Residential is 79.8 TWh. This will enable the reduction of 59.16 million tonne of CO2 from polluting our environment and warming our mother earth. In terms of energy security, the total energy saved is equivalent to the power generated from a 3.6 GW generation capacity based on current generation load.
22. Each of these deliverables represents a targeted reduction of at least 9.5% in 2021 over business-as-usual (BAU) energy consumption scenario. These targets however are to be achieved through effective implementation of the strategic actions which has laid down the programmes that would be implemented within the 10 year plan. The programmes have been carefully crafted to overcome the barriers identified that persistently hinder the success of Energy Efficiency and Conservation (EE&C).
23. In order for us to ensure that efficient energy management is practiced at all levels of society and in all social and economic activities, there must be greater understanding, support, co-operation and willingness from Government, industries, companies and individuals. We need to work together in order to enjoy a more sustained and cost efficient power supply for us and our future generation.
Challenges In Reform Of The Electricity Industry
24. The Malaysia Electricity Supply Industry (MESI) has evolved from being a government utility department to listed company that provides electricity throughout the Peninsular. Due to the legacy issues that are inherent in the industry, the Government has decided to reform the MESI. A study was commissioned that identified 9 reform initiatives that need to be addressed in order for MESI to be sustainable and meet the goals of the nation. Our challenges have always been to balance the needs of customers and the cost to meet them. However, in our consideration, we will uphold the 3 key drivers in industry liberalization, namely System Security and Reliability, Economic viability and Environmentally Sustainable.
25. Many countries have implemented industry reforms in order to address all or some of the following objectives:
• Firstly, to increase cost efficiencies through efficient investment that ensures value for money (e.g. the longest long term capital costs) as well as efficient operations that ensure the lowest operational costs to the industry (e.g. reserve share trading). In addition, efficient consumption to optimise demand side management, as well as energy efficiency measures would also help to increase cost efficiencies;
• Secondly, to reduce Government exposure by increasing private participation and private external investment. This would require less government involvement in day to day operations and free up government capital and credit; and
• Thirdly, to increase competition by introducing more competition and contestability in both supply and demand side that increases consumer choice. Competition can also be increased through technology neutrality strategies that increase third party access, and open regulatory arrangements that allow new technologies equal access.
26. To deliver the above objectives, many countries have adopted the following characteristics:
• Price signals that are cost reflective through accurate energy pricing and network charges as well as transparent subsidies (if any) that do not distort price setting, that is to say, end-user subsidies and not input subsidies;
• Efficient, transparent economic regulation, for example, segmentised, building block approach, incentive based regulation, benefit sharing, etc. coupled with a robust public consultation process for determining costs, revenues and prices, as well as clear policy statements and defined rules for economic regulation, with an independent regulator; and
• Effective 3rd party access through defined rules for fair and reasonable access and connections to networks and markets, as well as a strong legal and regulatory framework to support access (for example, in licensing).
Ladies and Gentlemen
27. We in Malaysia have scanned the industry developments and reforms that have been implemented in other countries to ensure that the industry reform that we institute in Malaysia are in line with our aspirations. Going forward, we will ensure that the energy supply in Malaysia is sufficient, reliable and cost effective to ensure our regional competitiveness in trade and industry.
28. With that, I would like to conclude by again thanking the MICCI for inviting me to deliver this luncheon talk and I would be more than happy to take a few questions from the floor.
Ministry of Energy, Green Technology and Water
Putrajaya, 24th April 2012