new draft of the petroleum law has been tabled. After the bill is amended, Hluttaw will enact in. However, before in comes into force, it can be amended if the people provide suggestions.
Will the new law be effective in the case of the oil block tenders that will be called soon and for the tenders called before the law is passed? These are questions that must be asked. Traditionally, the old law is overshadowed by the new.
It is important that the amendments make the landscape attractive to investors. If the government wants to encourage investments, it needs to think more about the benefits for both the country and investors. Restrictions need to be eased as it is important for the country to receive taxes from investors while streamlining the process for investors to bring money into the economy.
The question of whether there will there be interest in new oil and gas blocks should also be looked into.
It is expected that new blocks and blocks from previous tenders which did not see any interest will be offered to investors. A degree of interest in the offerings is anticipated as it is believed that some of the blocks offer potential.
However, the oil exploration business is risky by nature and no one can say with certainty whether efforts will pay off.
Some 18 inland blocks and 12 offshore blocks may be included in new tender. It will also include permissions to redevelop old oil fields. As some inland blocks hold potential to produce oil, they will be the focus of attention.
Who will compete in the tender?
It will be interesting to see which oil companies will participate in the international oil site tender expected to be made in beginning of next year. In 2014, many big oil companies participated and entered production sharing contracts with the country. The government also negotiated with companies that needed more time before entering the country’s oil and gas sector.
Companies that won tenders in 2014 carried out seismic studies only in offshore blocks and started exploration and drilling. As soon as the companies initiated exploration, they were required to pay a bonus to the government and commit to drilling a well under the conditions of their contracts.
If no one explores, no discoveries will be made – no risk, no success. Oil companies actually doing good work must be encouraged.
The coming year will be an important one as it is necessary to attract capable international oil companies. Myanmar will not benefit if the tender attracts only small players.
This year, an exploration well was dug in the AD-1 Block by China National Petroleum Corporation, resulting in the discovery of a potential natural gas source. Australia’s Woodside Energy Ltd dug a well in the A-7 Block which came up dry. Meanwhile, a MPRL-Woodside-Total appraisal well in Shwe Yee Htun 2 tested natural gas production.
One success for Myanma Oil and Gas Enterprise (MOGE) was the Myanaung Well 172 which produced over 100 barrels of oil. It is a record for Myanaung which has seen declining production for many years. MOGE is using exploration wells to see if there is gas in the old field. PTTEP from Thailand and Petronas from Malaysia are also drilling development wells in old oil fields.
There were few exploration wells drilled this year. If no one explores, no discoveries will be made – no risk, no success. Despite discoveries offshore, production is not certain. It takes time. Oil companies actually doing good work must be encouraged.
It’s important to note that the new petroleum law should provide more benefits for investors. Only by doing so will foreign investments flow into the country. If the conditions are difficult for them, they will be reluctant to invest. It’s crucial to find more new oil and gas fields. Money should not to be spent on uncertain fields.
Tendering for new work sites should be welcomed. Reputable and capable petroleum enterprises are needed to do business in the country. It’s important to take care not to select corporations with low budgets and poor track records.
Oil and natural gas production should be boosted up by effectively conducting inland quests for oil and gas by the Myanmar Oil and Gas Enterprise (MOGE). It is our responsibility to provide as much supply as possible to meet growing demand. It’s necessary to have dependable amount of oil and gas in hand. The coming year is expected to see as a year of remarkable success.
U Than Tun is former Director of Myanma Oil and Gas Enterprise and is now Advisor for Arc and Partners Co.
The Ministry of Electricity and Energy has announced the signing of a power purchase agreement (PPA) for the Upper Baluchaung hydropower project with Neo Energy Oasis Co Ltd, the builder of the project.
The PPA was signed between Electric Power Generation Enterprise (EPGE), a unit of the ministry and Neo Energy Oasis on December 28.
Within three years of the signing of the PPA, the project will be able to feed power to the national grid, said Union Minister for Electricity and Energy U Win Khaing.
The Upper Baluchaung project, which started in 2011, is being implemented under a build, operate and transfer (BOT) deal and is now 45.5 pc completed.
The hydropower project features two power plants with a total capacity is 30.4megawatts. The installed capacity of the first power plant is 20.4mw and 10mw for the second.
Under the design, annual power generation is projected to be 134.482 million kilowatt-hours and once completed, it is expected to supply electricity to villages in southern Shan State’s Nyaungshwe Township and its surroundings, and U Win Khaing said, adding the project is expected to be finished on time.
The project will support the economic development as well as the country’s development as it will provide job opportunities for about 500 people during construction period and for about 30 local engineers when power plants start to operate, and support economic development. Some 2 pc of annual net profit will be used for environmental conservation programme and corporate social responsibility projects the minister said.
THE country’s power supply remained stable for the past 12 months despite a crippled Energy Regulatory Commission (ERC) that left the agency “powerless in making decisions critical to the energy sector.”
“We were able to surpass all challenges. There were difficult times but we just kept on going,” commented Alfonso G. Cusi, secretary of the Department of Energy (DOE).
Ramon Ang, Agnes Devanadera, Eric Francia and Joseph Nocos
Industry players also view 2018 as challenging, given the country’s power sector regulatory crisis, but are grateful nonetheless that they all hurdled the rough patches.
“As expected, we had enough supply reserves. There was no major power outage incident, as far as I can recall. There was a delay in some of the power projects that were supposed to come online so that resulted a little bit elevated spot market rates,” AC Energy President Eric Francia noted.
The power arm of Ayala Corp. wants to achieve 5 gigawatts (GW) from a balanced mix of renewables and thermal assets by 2025. Francia said the company is currently “in a nice position, close to 50-50.”
Conglomerate San Miguel Corp. (SMC), which has 3,000 megawatts (MW) of power generating capacity, representing 22 percent of the Luzon grid and 17 percent of the national grid, is “grateful for the year that was.”
“It’s been a good 2018. While our country faced some challenges on the economic front, the Philippines remains strong. I believe there’s more than enough reason to be optimistic and bullish about the coming year,” said SMC President Ramon Ang in an interview.
2 suspensions
Four ERC commissioners—Josefina Patricia Magpale-Asirit, Geronimo Sta. Ana, Alfredo Non and Gloria Victoria Yap-Taruc—were twice suspended by the Office of the Ombudsman within a seven-month period after they were administratively held liable for allegedly failing to fulfill their duty to protect the interests of consumers.
The suspension resulted in a backlog of crucial paperwork for power supply agreements (PSAs) and projects in an energy-starved country.
As a collegial body, the presence of at least three ERC commissioners is needed to constitute a quorum to enable the commission to adopt any ruling, order, resolution, or decision in the exercise of its quasi-judicial and quasi-legislative functions.
The ERC was able to overcome its problematic situation even as two of the four commissioners reached retirement age. The commission was complete again following the appointment of renewable-energy advocate Catherine Maceda and Davao-based lawyer Alexis Lumbatan. They replaced Non and Yap-Taruc.
With the regulatory body’s membership back at normal levels, ERC Chairman Agnes VST Devanadera said the commission is eager to work on eliminating its backlog of 480 cases, including pending PSAs.
“The important thing is that we have a quorum now. We have to double our efforts,” commented Devanadera.
‘Good 2018’
In looking back on what he considers “a good 2018,” SMC president Ang said in an interview that SMC continues to leverage on the positive trends. And, despite a few challenges, its businesses were able to deliver strong results.
Alsons Power Group, the energy business of the Alcantara family, said the Duterte administration was able to create an environment where investments in power generation can actually take place and prosper.
Alsons Power Vice President for Project Development Joseph Nocos also noted the efforts exerted by the DOE and the ERC to foster renewable-energy projects. “The DOE has been helpful in creating a regulatory environment within which our projects can be expeditiously implemented. We did not experience any problems in securing our permits and as far our RE projects are concerned. This is a concrete way of attesting this administration’s commitment to RE development,” said Nocos.
Alsons Power, Mindanao’s first and most experienced independent power producer, currently operates four power facilities in the island with a total generating capacity of 363 MW, serving key cities such as Cagayan de Oro, Davao, Iligan, General Santos and Zamboanga.
It is also entering the RE sphere through run-of-river hydroelectric power projects with a total hydro capacity potential totaling more than 145 MW in Negros Occidental, Sarangani, Davao Oriental, Zamboanga del Norte, the two Agusan provinces and Surigao del Sur.
‘Key policies matter’
While 2018 was generally favorable for power industry players, AC Energy would like the ERC to immediately implement three policies aiming to lower electricity rates and foster healthy competition.
Top of my mind, said Francia, “is the CSP [competitive selection process]. I believe there are active hearings, at least, on the side of ERC. We hope that this is expedited.”
The DOE and the ERC are working to harmonize their respective CSP rules. While this has yet to be finalized, power firms are having a difficult time in contracting power capacity from suppliers. “I think it’s critical for the CSP rules to be clarified and implemented soon. It should be a top priority,” noted Francia.
The two other key policies are the RPS (Renewable Energy Portfolio Standards) and RCOA (Retail Competition and Open Access).
“On RE, the impact of RPS is really for 2021-2022. So, there is no rush to build RE given oversupply situation. Last, but not least to me, is RCOA. I am still hopeful the TRO [temporary restraining order] gets resolved soon. So, those are the three key policies that will matter a lot in this industry,” said Francia.
RCOA basically allows consumers to select from where and what kind of electricity to purchase. This is expected to drive down electricity costs and promote transparency in the energy sector. It has yet to be fully enforced, mainly on account of the TRO pending before the Supreme Court.
Meanwhile, RPS mandates generators, distribution utilities, and suppliers to source a specified portion of their electricity requirements from eligible RE resources.
Outlook
Just like in 2018, energy officials expect adequate power supply in 2019, given an additional capacity of about 2,375 MW that will come from new power projects across the country.
“The DOE is confident in our projections for 2019, that we will be able to meet the demand considering the incoming capacities in Luzon, the Visayas and, of course, Mindanao,” said DOE Assistant Secretary Redentor Delola.
For Luzon, he said peak power demand is expected to reach 11,200 MW, from the 10,800 MW recorded in May last year. Delola said Luzon could experience tight supply because the 650-MW Malaya thermal plant in Rizal province is no longer designated as a must-run unit.
But with additional capacity coming from the first unit of GN Power Dinginin coal plant—around 300 MW, per Delola—and the 335-MW Masinloc plant, there will be enough supply for the expected growth. Delola said the 2019 forecast peak demand in Luzon is considered a “normal growth.”
The DOE official said, “If we will have problems next year, there won’t be a red alert, only yellow alert.”
A yellow alert notice means operating reserves have dropped below the required 647-MW contingency in Luzon, or equivalent to the largest unit in Luzon, the 647-MW coal-fired power plant in Sual, Pangasinan.
A red alert notice is issued by the grid operator when the power reserve left on the grid is regulating reserve or equivalent to 4 percent of the current demand. Power interruption may occur.
In the Visayas, Delola said peak demand is expected to hit 2,300 MW in 2019 from 2,100 MW this year.
The DOE expects Therma Visayas Inc.’s (TVI) 340-MW power plant in Toledo, Cebu, to become operational within the year, “plus HVDCC [High Voltage DC Coupled Charging].”
In Mindanao, Delola said peak demand could hit 2,200 MW. The department expects some 1,400 MW of excess power.
Luzon is the biggest power user, with a peak demand that is fivefold that of the Visayas and Mindanao.
Of the three major grids, “the biggest growth is happening in Mindanao. But they have a smaller base, so in terms of capacity, [the increase is bigger] in Luzon and in the Visayas,” explained Delola.
“It’s really [the] influx of economic development and we’re looking at the possible effects of the electrification program because if we will be able to serve more areas then consumption will increase, as well.”
Francia agreed with the DOE’s forecast, saying the power sector is expected to “maintain equilibrium” because of the new power plant projects coming in.
“We could experience tightness for summer for the first half of 2019, but then in the second half, once these plants come online, there will be additional capacity that could be worth two years of Luzon’s growth,” said Francia.
Ang expects a better 2019 for SMC. “We are hoping for an even better and more robust business environment for 2019. We look forward to continue doing our part to bring about progress for our nation, and serving our countrymen in many aspects of their lives.”
TRAIN 2’s challenge
There’s a challenge, meanwhile, from the second tranche of this administration’s tax reform program, to be implemented in 2019. It is expected to increase power rates by an estimated P0.1111 per kWh.
Another hike, expected at P0.1311 per kWh, is due in 2020.
The first phase of the Tax Reform for Acceleration and Inclusion law already raised electricity prices by P0.0904 per kWh.
The Independent Electricity Market Operator of the Philippines (Iemop), operator of the wholesale electricity spot market (WESM), said the numbers are based on the assumptions of Manila Electric Co. (Meralco) related to its sourcing power mix.
“This study was done when the TRAIN law was just new, [including] incremental tax that will be imposed under that law, and these are the figures based on certain assumptions. We made use of Meralco assumptions of their supply portfolio and their sourcing between bilateral and WESM,” said Iemop President Francis Saturnino Juan.
“So, these are the incremental amounts, but of course if the price of fuel itself will increase, then that will add to this incremental increase in 2019 and 2020 because of the staggered increase in the implementation of the law,” Juan said.
WESM, he pointed out, is an indication of the capacities needed to meet the country’s growing demand for power. “These projections were taken from DOE for Luzon, which has a 4.9 percent growth rate that is forecasted. If no additional capacity will be put online by 2022, you will see now that supply margin reducing and you can expect that there will be an increase in WESM prices,” he said.
At bottom, the DOE foresees adequate supply in 2019, but consumers and industry players nonetheless would rather not assume that everything will be fine. To them, the Year of the Pig may bring its own surprises for the country’s power sector, and they’d rather be ready for anything.
Metro Manila (CNN Philippines, January 1) — Filipinos will pay more for fuel at the beginning of 2019 because of an additional excise tax provided by law.
Under the Tax Reform for Acceleration and Inclusion (TRAIN) law, an additional ₱2 per liter excise tax is imposed on diesel and gasoline, ₱1 for every liter of kerosene, and ₱1 for every kilogram of cooking gas or liquified petroleum gas (LPG) beginning January 1, 2019.
Senate economic affairs committee chair Win Gatchalian said the increase in fuel excise taxes would impact pump prices by around ₱2 to ₱3 per liter.
But gas prices should not shoot up immediately. In fact, at least one gas company would roll back pump prices by up to ₱1.90 per liter.
However, Gatchalian warned that there may be oil firms which would take advantage of the latest round of fuel tax hikes by increasing prices of fuel imported before the implementation of the additional taxes.
The senator said the DOE should closely monitor the inventories of oil firms to avoid them from profiteering off the tax hike by selling old oil stocks at a higher price, even if they bought it cheaper.
The government initially suspended the implementation of the second of three consecutive yearly fuel tax hikes under TRAIN amid rising prices of goods, only to change its stance when oil prices in the world market slumped.
Filipinos would be dealing with even heftier oil taxes when the clock strikes midnight on the first day of 2020, when gasoline would cost ₱11.20 higher per liter, while diesel and kerosene would climb by ₱5.04 and ₱5.60 per liter, respectively. LPG would also cost ₱3.36 higher per kilogram by that time.
At its initial rollout this coming 2019, Singapore-based Trina Solar is targeting to chalk up 10-percent or a range of 5.0 to 6.0 megawatts of the emerging market of solar installations for residential end-users in the Philippines.
Trina Solar Philippines country manager Junrhey Castro indicated that the Philippines has a huge potential for solar homes on small-scale – given that many banks are also willing to lend to homeowners intending to shift to clean energy sources.
Upfront costs for homeowners intending to go solar could range from R100,000 to R200,000, he said, noting that cost viability had gone more affordable compared to the exorbitant R1.0 million or higher investment that only the more affluent residential market could afford in recent years.
Castro said they generally partner with distributors on the targeted rollout of solar solutions to Filipino homes – coupling that with enhancing the technical capacity of installers, including among Filipino talents.
He emphasized that the market introduction of solar among residential end-users in the Philippine market “is in line with the nation’s target of becoming energy self-sufficient and having a cheaper and more reliable source of energy.”
Castro noted their “Trinahome” solar solution brand will be “the first plug-and-play residential and commercial solution in the Philippines,” coming with a 25-year warranty and underpinned by the technology of a globally acclaimed supplier.
He added “this solution is targeted towards residential and small-to-medium-sized commercial applications for distributed power generation.”
With this technology choice for green-leaning Filipino homes, Castro emphasized that this will be a game-change not just for the energy sector but even individuals wanting to make a difference in their preferences on electricity usage.
To enable them to shift, Castro said there are enabling policy underpinnings such as the Green Energy Option Program (GEOP) that individual consumers can avail of.
Like all other solar-anchored solutions and offers, Trina Solar is similarly dangling cost savings to shifting end-users – and that could come after the estimated payback of 4-5 years on their respective upfront costs on installations.
“The Philippines has some of the most expensive electricity prices in Asia,” Castro said, qualifying further that since this is a major expense for households and businesses, the cost-competitive proposition for solar is becoming an enticing precept to consumers.
“Solar energy is cheaper than energy from the grid, since your rooftop becomes your own power generation source,” he stressed, adding that “the cost of solar systems has significantly decreased in the past years – thanks to the new manufacturing technology and economics of scale.”
The Philippines is exploring possible energy cooperation with the Province of Alberta, Canada’s energy capital, in anticipation of Malampaya’s gas reserves depletion by 2024.
“There are great potentials for energy cooperation between the Philippines and the Province of Alberta, Canada,” Deputy Philippine Consul General in Calgary Zaldy Patron said in a statement.
Patron was recently in Manila where he made presentations with officials of the Department of Energy (DOE), Philippine National Oil Corporation (PNOC) and PNOC-Exploration Corporation (PNOC-EC) to promote energy cooperation between the Philippines and Alberta.
Alberta is one of the two Canadian provinces under the jurisdiction of the Philippine Consulate General in Calgary.
Patron said the Philippines could look at Alberta as a supplier of liquefied natural gas (LNG), an energy source that has been part of Canada’s energy mix since 1859. Canada has the fifth largest gas reserves in the world.
The Province of Alberta has identified LNG, LPG and crude oil as among its high growth potential export sectors to Asia.
Patron invited DOE and PNOC to attend the Global Petroleum Show (GPS) in Calgary on June 11-13, 2019 so they could expand their network in the world oil and gas industry.
Held in Calgary every June, the GPS is North America’s leading exhibition and conference on gas and oil, attracting about 50,000 international and domestic oil and gas executives from over 20,000 companies.
Patron noted that an estimated US$6 billion worth of business deals are concluded during this exhibition, and more than 100 industry leading experts share their knowledge and understanding during the various strategic and technical conference sessions.
Additionally, Patron discussed possible collaboration between the Philippines and the University of Calgary and the University of Alberta, two leading universities in Alberta offering energy-related courses and programs, to train Philippine energy officials.
Those who attended Patron’s presentation were Energy Undersecretary Donato Marcos, Assistant Secretary Leonido Pulido Jr., chief investment specialist Lisa Go and chief science research specialist Ma. Laura Saguin. PNOC, on the other hand, was represented by department manager Adalia Endaya, and the PNOC-EC vice president Jaime Bacud.
Regulatory obstacles in Indonesia could hamper coal production in 2019 and uncertainty about China’s import policy could also curb exports, even though a number of producers have announced tentative plans to raise output in the coming year.
A period of high prices that began in 2016 and lasted throughout much of 2018 on strong demand from main buyers China and India has prompted Indonesian producers to raise output where possible and several mining companies have announced plans to raise production even further in 2019.
China’s coal consumption rose during 2018 on increased demand from its electricity, steel, construction and chemical industries. Total imports of all types of coal reached 271.19mn t in the first 11 months, already narrowly exceeding the country’s import quota for full-year 2018, which had been set at parity to 2017 imports. India’s overall imports have also been driven up by surging power demand amid industrial and manufacturing growth, with its imports of Indonesian coal amounting to the lion’s share at 92.4mn t in the first 11 months, or just under 93.17mn t for full-year 2017, according to customs data.
Indonesia exported 356.5mn t of all types of coal in January-October, up by 35.5mn t from a year earlier, according to the latest data from government statistics agency BPS. This could theoretically put exports at an annualised rate of around 427.8mn t for 2018, although the Argus Seaborne Thermal Coal Outlook has forecast these exports at closer to 415mn t, given the weaker China seaborne demand from November. But even projected Indonesian exports of 415mn t would substantially exceed those of 2017 when Indonesia exported 389.47mn t, up from 369mn t in 2016.
The government raised the 2018 production target to 507mn t in September, although the Indonesian coal mining association (APBI-ICMA) does not expect the industry to reach this target, given the big drop in prices from November when China announced plans to tighten enforcement of its import quotas. Prices for the most actively traded fob Indonesian GAR 4,200 kcal/kg (NAR 3,800 kcal/kg) coal fell by 33pc from $47.19/t at the start of the year to $30.52/t on 21 December, according to Argus assessments, with the sharpest falls registered last month when a low of $28.73/t was recorded.
APBI-ICMA has also said it expects output to fall slightly in 2019 from 2018 to 480mn-500mn t. The likely total production for 2018 was not provided, although the government revised the production target in September from 485mn t to 507mn t, but did not announce any change to the domestic market obligation (DMO) that had been set at 121mn t.
Production plans
Some of Indonesia’s biggest producers such as Bumi Resources, Bukit Asam, Geo Energy, Delta Dunia and Harum Energy are looking to raise output in 2019 amid anticipated increased demand from India as well as new emerging markets such as Vietnam, Thailand and Cambodia, even as uncertainty looms over China’s import quotas for 2019. But the Indonesian government has not set an output target for 2019 yet or a DMO, which is normally set at 25pc of a producer’s output. This is making it harder for many producers to plan and industry insiders say some of the companies’ announcements about 2019 production hikes could prove overly ambitious.
Indonesia’s largest coal mining firm, Bumi Resources, has said it aims to boost its production in 2019 to 90mn t, subject to approval from the energy and mining ministry (ESDM), from an expected 83mn t in 2018. The firm produced 62.6mn t in January-September.
State-owned producer Bukit Asam has said it is aiming to raise its production by 7-8pc in 2019 to meet strong domestic power generation demand and on expectations of increased interest from Japan, Taiwan and the Philippines in its high-calorific value (CV) coal. The firm, which produced 19.7mn t in January-September, says it is on track to achieve its 25.54mn t target for 2018.
Bukit Asam is focusing on boosting output of high-quality coal GAR 6,100 kcal/kg and 6,400 kcal/kg coal from around 900,000t in 2018 to 3mn t in 2019 to take advantage of the higher prices these grades command in the premium seaborne markets of Japan, Taiwan and the Philippines.
Geo Energy, which was earlier in 2018 targeting 11mn-12mn t of coal output, will end up producing 7.5mn t, down slightly from 7.7mn t in 2017, largely because of China’s imports curbs, the company said. Chinese buyers take up 90-95pc of Geo Energy’s production. Geo Energy is targeting 14mn t of coal production in 2019, as it expects to take advantage of China lifting its imports curbs post the lunar new year from February 2019.
Delta Dunia produced 4.6mn t of coal in October, taking total output for January-October to 34.9mn t from 33.9mn t during the same 10 months in 2017. The company now expects to achieve output of 5mn t/month for November and December to hit the lower end of its 45mn-50mn t production target.
Harum Energy aims to produce 5mn-5.5mn t of coal in 2019, an increase of at least 8.7pc on the company’s expected 2018 output of 4.6mn t, in a bid to offset the effects of lower coal prices on company revenues. In particular, Harum aims to develop sales in emerging markets in Asia, such as Vietnam, the Philippines and Bangladesh. The largest foreign markets that Harum Energy currently supplies to are South Korea, Malaysia and China, which made up 34pc, 25pc and 19pc, respectively, of the company’s orders in January-September.
Some Indonesian producers are positioning themselves more defensively and starting to consider reducing output, although few have gone on the record announcing this. Others plan to keep output stable in 2019 given lower prices and uncertainty around China’s buying. Indonesian mining firm Kideco plans to keep production flat in 2019 at around 34mn t from 2018.
Indonesian coal mining company Adaro Energy has set a production target of 54mn-56mn t for 2019, it said in its work plan and budget submitted to the ESDM. Adaro will keep its 2019 production targets unchanged year on year amid uncertainty over Chinese import demand in the near term.
Sticking points
But despite plans by some firms to raise output, regulatory obstacles in Indonesia could further hamper coal production in 2019, according to APBI-ICMA. The biggest potential sticking points are uncertainty surrounding mining licences and some companies’ struggle to meet their DMOs.
Legacy mining licences, known as PKP2B contracts, will begin to lapse in 2019 and the process for extending or converting these remains unclear. This might force firms to freeze output expansion plans while they await clarification. Eight first-generation PKP2B concessions are due to expire in 2019-26, starting with Harum Energy’s Tanito Harum concession on 14 January.
Another factor that could limit production is the DMO requirement for producers to sell 25pc of their coal production on the domestic market. Firms that fail to meet this requirement are prohibited from increasing output and face having their output limited to four times their domestic sales volume. Some mining companies, especially the smaller ones, have struggled to sell their coal domestically because they do not produce the required specifications. Domestic power producers require coal in a 4,200-5,000 kcal/kg GAR range.
APBI-ICMA has also warned that it expects Indonesia’s dominant state-owned power producer PLN to consume only 22pc of the 25pc of production set aside under the DMO in 2018
The DMO was set at around 121mn t for 2018, but the association expects PLN to take around 92mn t at most, leaving around 29mn t unallocated. Although there are a few small private power generators, mainly in the form of captive power plants, these are not likely to make a serious dent on the unallocated volumes. This is also contributing to planning difficulties for producers as they try to second-guess likely Indonesian government policy on DMO targets as well as unpredictable Chinese demand.
Solar energy investments will be more affordable for Malaysians following the changes to the Net Energy Metering (NEM) programme, which was announced by the Ministry of Energy, Science, Technology, Environment and Climate Change (MESTECC) in October.
From next month, residential consumers who generate solar energy for their own use under the NEM programme can sell their excess electricity to Tenaga Nasional Bhd (TNB) at the same rate that they buy from the utility. There will no longer be a difference between the selling and buying price of electricity.
This is an improvement to the NEM programme, whereby excess solar energy is sold to TNB at a displaced cost of 31 sen/kWh, compared with the domestic electricity tariffs charged by the utility, which can range from 21.8 sen/kWh (for the first 200kWh per month) to 57.1 sen/kWh (901kWh onwards), according to TNB.
The lower selling price was said to have contributed to the low take-up rate of the previous NEM programme. Under the old scheme, some 500mw of electricity could be sold to the utility from 2016 to 2020. Participants in Peninsular Malaysia could sell up to 90mw a year to the utility while those in Sabah could sell up to 10mw. The unused quota from each year can be carried forward to the following year.
According to data from the Sustainable Energy Development Authority Malaysia (SEDA), only 0.0274mw was taken up in 2016, but this grew to 4.9892mw in 2017 and 18.5096mw in 2018. The response in the domestic sector has been weaker than in the commercial and industrial sectors.
“A true net energy metering would be based on a 1:1 basis and this would give better returns to the owners of solar photovoltaic (PV) systems. Consumers should consider the new NEM programme as it has been improved from a net billing concept to a pure NEM scheme. This will help improve the return on investment for PV systems under the NEM and increase electricity savings per month,” says SEDA acting CEO Dr Wei-nee Chen.
For the 2019/20 period, 48mw of the 50mw allocated was still available for the domestic sector as at October. The excess electricity will be sold for energy credits that can be used and stored for up to 24 months. The NEM programme is now only available in Peninsular Malaysia while the previously assigned quota for Sabah has been converted into a self-consumption scheme.
Shorter payback period
Chen observes that the average household could install an 8kW solar panel system that costs RM36,000. Such a system could generate 800kWh of electricity a month while the returns depend on the household’s electricity tariff band. “Taking a ballpark figure of 50 sen/kWh, [from January] the payback period for the system will be 7.5 years with no loans,” she says.
The NEM makes sense for industrial factories with large rooftop space and commercial or domestic consumers with high electricity bills, she adds.
Alan Bong, business development manager of solar installation company Solarvest Energy Sdn Bhd, estimates that the payback period will be between 6.5 and 9 years. The cost of a full turnkey solar PV system, depending on the size, could range from RM5,000 to RM6,500 per kW.
The size of a PV system for a domestic consumer can range from 4kW to 12kW (single-phase power) or 72kW (three-phase power.) The maximum cap is in line with the NEM guidelines issued by the Energy Commission. Based on Bong’s estimates, a 4kW system could cost up to RM20,000 or more.
“With the 1:1 ratio for the export tariff, it makes more financial sense for domestic consumers to participate in the NEM scheme, particularly those who are paying more than RM330 a month in electricity bills,” he says.
“For example, a household in the Klang Valley that spends about RM330 a month will see savings of up to 60%, which is about RM200 to RM250 a month with a 4kW system. A system of that size would require about 258 sq ft of roof space to fit the solar panels.”
Ko Chuan Zhen, co-founder and executive director of solar installation company Plus Solar Systems Sdn Bhd, estimates a similar payback period of 8 to 10 years, considering the purchase of a 4kW to 12kW system, which is priced between RM24,000 and RM66,000.
According to an article in Personal Wealth on the previous iteration of the NEM in September last year, SEDA’s then chief operating officer Akmal Rahimi Abu Samah estimated that the payback period would be about 10 years for a consumer who pays the highest tariff block and purchases a solar panel that costs RM6,000 to RM7,000 per kW. For context, a 12kW system is suitable for a bungalow, he said.
In his view, the previous NEM programme would make sense for those with electricity bills that exceed RM500 a month because by generating electricity themselves, they can save money that they otherwise would have to pay TNB.
Ko believes that the cost of solar panels will continue to fall, although uncertainties in the market due to changes in China’s policy for imported solar panels as well as the US-China trade war may influence prices. Regardless, the revised NEM programme is good for residential, commercial and industrial players.
“I think it is attractive for the commercial and industrial market, but it is also encouraging for the residential market. In the past, when they were not at home in the daytime and not using electricity, they were only able to sell that through the displaced cost per unit and not the [lower] tariff rate,” he says.
New incentives to spur renewable energy generation
In addition to the revised NEM programme announced in October, the government announced several incentives to spur solar leasing and the trading of Renewable Energy Certificates (REC) as well as to attract Malaysians to invest in renewable energy.
“Behind-the-meters solar photovoltaic (PV) business models are emerging, such as solar leasing, power purchase agreements (PPA) and a hybrid of both. All these business models can be via direct deals between a solar investor and a client or by entering into a tripartite agreement with Tenaga Nasional Bhd under the Supply Agreement for Renewable Energy (SARE) programme,” says Dr Wei-nee Chen, acting CEO of Sustainable Energy Development Authority Malaysia (SEDA).
Through solar leasing, consumers can pay for the set up and use of solar panels under a monthly plan. If they choose to work with TNB, the utility will collect the monthly payments from them and remit these to the solar investor in exchange for a fee. The solar investor refers to a company that will install and own the solar panels.
“Consumers would have to look for their own solar lessor or investor. Going with TNB reduces the risk of consumers not paying because the utility can just cut off the main electricity supply if they owe money,” says Chen.
According to her, solar leasing makes sense for companies that want to manage their cash flow over a period of time before owning a system. The solar PPA, which is based on payments for the electricity generated, is ideal for companies that do not want to own the assets.
Solarvest Energy Sdn Bhd currently has a solar leasing option called the PowerLease Programme for commercial and industrial consumers. It will negotiate a monthly payment plan for a specified period of time.
“Under the leasing agreement, the consumer would pay the lessor for the electricity produced by the solar PV system at 5% to 10% lower than the TNB tariff. The leasing period is 20 to 25 years. At the end of the period, the system will be handed over to the consumer,” says Bong.
According to Ko Chuan Zhen, co-founder and executive director of solar installation company Plus Solar Systems Sdn Bhd, companies that want to benefit from tax and cost savings can just purchase the solar panels outright and obtain financing from banks. “They will have direct ownership of the solar panels. Even though they are taking a loan to own the asset, they qualify for a tax incentive from Malaysian Investment Development Authority for investing in green technology, which only applies to companies that own the asset,” he says.
Companies that prefer not to own the solar panels or benefit from corporate tax savings could go for the PPA model, he adds. “The concept is that the asset will be owned by the solar company, which rents their roof. We will sign a private PPA with them for a number of years, depending on how we negotiate the contract.”
Solar panel installation companies will have to carefully negotiate and select their clients, however, as it could be a long-term contract that spans decades. That is why it currently makes more sense for them to serve industrial or commercial clients, says Ko. “For residential segments, I think the payback from investments is not really there yet as the collection of payments will be more uncertain compared with companies.”
Bong agrees. The solar leasing concept is still new in the country, so companies like his will have to be careful in selecting clients. But he believes that eventually, solar leasing options will be available to domestic consumers too.
By next month, SEDA will have a directory of solar lessors or investors.
Trading environmental attributes
The trading of RECs is currently targeted at large companies. These are issued when 1MWh of electricity is generated by a renewable source of energy and delivered to the electricity grid.
In the REC market, which is available in the US and Europe, solar PV owners can sell their environmental attributes (EA) — the electricity generated from renewable energy — to a buyer, which are usually corporates that wish to power their premises with clean energy.
Similar trades can be done locally soon. Chen says this would particularly appeal to companies that are part of the global RE100 initiative, where 100 multinational businesses have committed to source 100% of their global electricity consumption from renewable sources by a specified year. The IKEA group and AEON are among these 100 companies.
“This will bring an additional channel of revenue for the PV owners. The corporate buyers of RECs will be the companies that ascribe to the RE100 sustainability framework,” says Chen.
The way one can sell the EAs is by being verified by a third party, such as SEDA, which was appointed by US-based technology service provider for sustainable energy APX Inc as the authorised verifier of the Tradable Instrument for Global Renewables (TIGR) Registry. After verification, companies can put their EAs up for trading in the REC registry platforms. Currently, there are two global platforms for the REC market — the I-REC and the TIGR registries.
It may be more difficult for domestic or individual REC providers to sell their EAs due to their relatively smaller size, but there could exist traders in the market who can package their RECs together. “Alternatively, a trader can aggregate the RECs generated by individuals to be sold to corporates,” says Chen.
The prices in the market will be determined by the supply and demand, type of renewable energy and age of the RECs. For example, those that are more than two years old may not be as valuable, according to Chen. The distance between the buyer and the REC provider also matters because some buyers require the provider to be in the same grid jurisdiction.
“Many companies are aware of the need for compliance with environmental, social and governance principles, but they are not aware that they can tap the REC market for that purpose. Then, the supply chain needs to be there as well, which are the small and medium enterprises,” says Chen.
“It is still a new market in Malaysia. Nevertheless, with more corporates facing international obligations to be environmentally conscious, RECs will be an affordable way for them to achieve their climate goals.”
