Jurisdiction Update: Malaysia – Net Energy Metering Guidelines
Introduction
The Government of Malaysia has introduced various incentives and strategies to encourage the growth of the renewable energy (RE) segment in Malaysia. Particularly in respect of solar energy, several measures such as the Feed-in Tariff (FiT) mechanism and Large Scale Solar (LSS) projects have been introduced to assist in achieving the nation’s RE target.
In 2018, Malaysia will be in its 3rd year in the implementation of its Net Energy Metering (NEM) scheme, as an additional incentive by the Government for the promotion of RE.
Net Energy Metering Scheme (“NEM”)
The NEM scheme replaces the FiT mechanism1, a special tariff system which obliges distribution licensees such as power utility companies (e.g. Tenaga Nasional Berhad) to buy from the RE producers the electricity produced from RE resources (i.e. solar photovoltaic (PV), biogas, biomass, small-hydro and geothermal), for a price prescribed by Malaysia’s Sustainable Energy Development Authority (SEDA).
The NEM scheme on the other hand is a billing mechanism that provides solar PV system owners with credits in consideration for the excess electricity they generate and export to the national grid.
In this regard, a solar PV system owner will first consume the electricity produced from the solar PV system for its own consumption (e.g. home, office, business, etc.) instead of importing and buying electricity from a utility company.
Any excess electricity generated from the solar PV system which is unutilized can then be exported and sold to the utility company at a rate known as the displaced cost, to be prescribed by the EC.
Instead of being paid for the excess electricity exported, the NEM participant will be given credits in Ringgit Malaysia (local currency) for consumption of same amount of electricity later, to be set-off against future electricity bills.
These monetary credits could be carried forward from one billing period to another, for a maximum period of 24 months, subject to the NEM participant having a legal contract for the supply of electricity by a utility company. Any available credits after the 24 months will be forfeited.
Unlike the FiT mechanism, the concept of NEM is that priority is for self-consumption. In this regard, participants are not actually trying to sell electricity to the utility companies but instead are trying to avoid buying electricity from the utility companies and importing from the national grid when their electricity consumption is high.
As the investment cost of installing a solar PV system to power up an upper-middle-income household may be between Ringgit Malaysia (RM) 60,000 – RM100,0002, the NEM scheme may be more attractive to high electricity consumption consumers especially industry or manufacturing companies.
Residential electricity consumers with very low consumption may find that the investment cost to participate under the NEM scheme may not be worthwhile.
The NEM would also benefit those who are looking to be free from any increases in the tariffs set by the utility companies. Currently, tariffs in Malaysia are relatively low, however, any increase in tariffs can be expected to impact consumers.
NEM Scheme Guidelines
The Government, through the Energy Commission of Malaysia (“EC”), has in 2016 issued guidelines (“Guidelines”) for the purpose of implementing the NEM scheme, in line with the EC’s function to promote RE3. The following are a few key clarifications as provided under the Guidelines:
Source of Energy
Unlike the FiT mechanism, the NEM is strictly for RE generated from solar PV resources. However, other RE resources such as biogas, biomass or micro hydro may be allowed on a case to case basis at the discretion of the EC.
Target Capacity
The NEM programme is of 500MW capacity for a period between 1st November 2016 until 2020 with 100MW capacity limit a year for Peninsular Malaysia, and another 100MW for the state of Sabah and the Federal Territory of Labuan.
Further, the annual allocation of the capacity according to categories of consumers (domestic, commercial and industrial) will be reviewed and announced annually by SEDA (as the implementing agency) based on the outcome of the yearly offtake of the capacity quotas.
Eligibility to Participate
The Malaysia NEM programme is available to all residential, commercial (including government buildings) and industrial sectors as long as they are the registered customers of TNB (peninsular Malaysia) or Sabah Electricity Sdn Bhd (Sabah and Labuan).
However, blacklisted customers (such as those who have not paid their bills or have committed any offence under the Electricity Supply Act 1990) are not eligible to apply for the NEM scheme.
Licensing Requirements
In addition to satisfying other eligibility criteria set by EC, any commercial and industrial installation above 72 kW for three phase system and above 24 kW for single phase system requires the NEM participant to apply for a generating license from the EC for operation and supply of electricity from the solar PV system4.
As for domestic (residential) participants, they are not required to have a license to operate and supply electricity from a solar PV system under the NEM scheme, in any case.
Types of Installation
The NEM mechanism will generally only allow excess energy from rooftops of buildings, garages and car parks to be exported to the national grid. However, any ground mounted systems may also be allowed by the EC, on a case to case basis.
Conclusion
The Government of Malaysia continues to look at other incentives to further improve the take up rate of RE, with the NEM scheme being a good mechanism to encourage participation of the public to generate their own electricity for self-consumption and reducing imports from the national grid.
The issuance of the Guidelines by the EC would provide electricity consumers with better understanding of the NEM scheme so that they may benefit by participating under the NEM scheme and setting off their own consumptions to generate cost savings.
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- https://www.pv-magazine.com/2017/05/08/malaysia-releases-net-metering-guidelines/.
- https://www.malaysiakini.com/news/398970.
- Section 14 of the Electricity Supply Act 1990.
- Section 9 of the Electricity Supply Act 1990.
Written by:
Sharizan Sarif (Partner) sharizan@azmilaw.com
Ahmad Danial Abdul Rahim (general@azmilaw.com)
