Energy in Malaysia: Electricity Consumption Growing 3.5% per Annum

Interview with Abdul Razak bin Abdul Majid, Chairman of Energy Commission

First of all I would like to ask you about “efficient use and conservation”, which is something you want to promote. Can you tell us about this message that you would like to transmit to the public?

Electricity consumption is still linked to economic growth activity in this country. At the moment we are growing at about 3.5% per annum and sometimes that creeps up a bit further depending on the general investment climate and economic development. Over the last ten to twenty years electricity has been served rather cheaply typically because of subsidised fuel. Therefore the consumption behaviours we feel can be enhanced to try to put in a bit of conservation in the way that energy is used.

For example, the use of more efficient appliances and motors in industries is something that can be improved worldwide. We feel that when electricity is served rather cheaply or below market price, there tends to be an attitude where it is taken for granted and people assume it is there for them to use without a proper conservation attitude. We are talking about inculcating a new mind set, so that there will be more awareness of these issues. We are not trying to curb consumption, but we are saying that when people consume, they should consume with the knowledge that it is a commodity that has value; if you can add value on to it that is fine but try not to be wasteful.

There are two ways to make the public use less electricity: either by hiking up the prices, which tends to make people very upset, or by informing them to be green and making being green the “in” thing.

We are trying to do both actually. As I mentioned earlier our tariffs have been based on subsidised fuel, so when we slowly try to reduce the subsidy element then the prices are reflective of the costs of supply.  We hope that through this there will be better awareness and people will value electricity more.

Secondly, we are trying to use the direct method of encouraging people to buy and use appliances that are rated as more efficient. For example, if they by air conditioning units, fridges, washers or whatever, they should be rated according to a star rating to categorise the appliances by their efficiency standards. We hope that the industries may also take part in this program as well as malls and shopping centres by displaying appliances by their efficiency standards. In this way the consumers will have a choice and will be able to participate in our conservation efforts.

Malaysia is a growing economy. Do you predict a tremendous growth in electricity consumption? Can the generation capacity match this demand?

Electricity consumption is very much related to the economic activity as I mentioned. I think that we will continue to grow because as the country develops, the consumption per capita will increase as we have seen in previous occasions where the more developed countries tend to use more energy per capita.

Malaysia is on an upward trend and so we see consumption increasing. To cater for this we monitor closely and try to forecast at least twice a year to project consumption patterns. We try to put in the capacity well ahead of the gestation period for example it may take five or six years to set up a core plant and so we have to identify the site, get the environmental approvals and so on ahead of time. We want to be ready so that we have sufficient capacity available to meet the needs of the public.

We do this regularly and we have a special committee that is checked by the Minister and looks at all of the inputs, recommendations, locations of the plants and the type of fuel made in these facilities.

What is the percentage in terms of renewable energy currently? What do you project for the future?

At the moment it is still low. The government has started a program to promote renewable energy. By definition, if you include the hydros that we have quite a lot of in this country, it comes up to more than 10%. If you look at the conventional definition for renewables, the level is still low at about 2%.

If you look at thermal, wind, bio mass and bio gas types of energy, they still are very small in terms of percentage.

However when you include hydros, which are still available in the country, we probably pass the 10% mark. Of course the government is quite interested in pushing it up further to a target of let´s say 20% but that will be nearer to 2030 and it will take a lot of initiative and drive to get that going.

What laws and regulatory initiatives do you think are the most important at the moment? How will they impact the sector?

They government has enacted what we call the “Renewable Energy Act”. This now establishes an agency called the SEDA which is the Sustainable Energy Development Authority. They are the ones who try to promote the use of RE technologies. They can allow for the collection of about 1.6% of the tariff for individuals who consume above a certain level which typically today is above 300 kilowatt hours a month. The 1.6% collected will try to subsidise the new proposals for RE tariffs; this is what we call the ´fit in tariff arrangement or scheme´ which has been in use for the last two years. We have quite a number of consumers fitting in solar PV panels, using wind and bio mass and gas systems. This will gradually pick up but I think it will be in tandem with the demand on the tariff collection mechanism.

How is the sector structured when it comes to regulations, the dominant power generation company and the independent companies?

We have evolved from what we had previously as a supply authority in Tenaga Nasional, they are still there; they have the monopoly over the transmission and distribution network and they still hold about 50% of the generation share in the system today.

The other 50% comes from independent power producers who are given licences to operate a facility for a period of about 21 to 25 years.

Today all of the capacities are intended to be on a comparative basis and it is the government´s policy to try to procure the cheapest source as much as possible to serve the public. We feel that this is quite good; we have seen this as a mechanism to discover the price of supply of electricity. For the time being I think this will hold for a while. Whether the government will allow for retail competition is another step in the evolution of the industry. We are working on some building works; we will perhaps not get there immediately but at least we will prepare for an eventual evolution into a more de-regulated market.

What international benchmark would Malaysia like to emulate or is it a benchmark on its own?

We look at other countries and regimes but I think that we believe that we have our own stamp. We need to tailor our own system and structure based on our fundamental needs. We look at Australia, the UK, the US… it is a mix. We see what is happening in Singapore, Thailand and in Korea. They are countries that are not yet ready to go into a de-regulated system and are holding back portions of the supply chain. For the time being we shall probably be quite cautious because we don’t want to get into a system or structure that will not be beneficial to the overall supply chain that we have. Bearing in mind that we are still a growing economy, we still have a lot of social obligations to perform and tariffs are still a function of government.

For a company that wants to do business in this country, one of the main conditions is the price of electricity when it comes to manufacturing and industry. Is Malaysia competitive regionally?

I believe we offer one of the lowest rates for electricity for commercial and industrial purposes. We are still enjoying subsidised fuel from the government but as we reduce the amount of subsidies the prices will tend to move up. We look around and we know that we are competitive; we are surely cheaper than our neighbours. We are still blessed with a little bit of indigenous gas which helps to try and bring down the total cost of fuel. Therefore the tariffs will be at reasonable rates.

What are some of the major investment opportunities? Is there any space for independent power producers?

Sure, because as much as we are growing at 3 or 4%, there is a need to bring in more capacity as well as to replace some capacities which are ageing by now, to bring in new technologies which will mean more efficient plants or to upgrade plants for environmental reasons.

We believe that we are taking all of this into account and as we plan for capacity renewal, we are also looking into our fuel mix. We are considering what we want to use, whether it be coal or gas or hydro or renewables etc. These are options that we have and we will try to make sure that there is always a factor of fuel security and fuel mix in the generation system.

In your opinion, what will you likely be using in the future?

I personally largely think it will be coal because of the dependence on coal in the world today; we feel that we are best served by a coal plant. Nonetheless, we don’t want to be over dependant on a single fuel and we still want to have a balance of coal and gas, making sure that we will be able to supply. At the same time we don’t want to be over committed on the CO2 and greenhouse emissions effects. Thus gas becomes quite a useful combination into this composition and fortunately we will try to optimise the use of our natural gas which is indigenous, up to a point where we see that the tariff is still at an affordable level. That is the criteria that we use. Security of fuel supply becomes more important than the price that we serve the electricity at.

What do you think is going to be your major challenge regarding capacity?

Obviously there will be some resistance from the public as we try to adjust the tariffs in accordance with the true cost of fuel and the costs of supply. We shall have to do more of an awareness campaign or program to educate the people on the elements of the tariff and how the tariff works. We are also trying to decouple tariffs from any politics; that means to say that the costs of supply need not be a political number but the cost of international market prices of gas, coal or whatever would have to be procured at that level. Therefore the tariff is just a way of computing what fuel goes into your system regards cost of supply. It is not something that is decided on a political background. That will be a challenge because I think the public has become so used to a subsidised service that they don´t question the logic of trying to rationalise subsidy in the electricity supply system.

It will be a challenge but at the same time, the price of coal is decreasing.

That helps. The fact that coal prices are slightly depressed today is useful. However we don’t know what will happen next because oil is quite volatile and coal being a substitute fuel will tend to have some kind of relationship to the oil prices. Gas is anybody´s guess! What happens if there is a shortfall? Then there is a squeeze. And there is also a new chapter on shale gas and the ability of Asian buyers to get into American supplies. In that case, we shall see a total change in the backdrop of the gas market.