With the right resources, industry players can create a competitive and striving start-up environment for green technology innovation in the country 

by S BIRRUNTHA 

A COMPETITIVE and striving start-up environment in the country for green technology innovation is a real possibility. However, the nation as a whole and the individual players will have to surmount a few hurdles first before we can scale up on this front. Funding ranks high as one of the challenges. 

Hence, it did not come as a surprise when clean energy specialist Solarvest Holdings Bhd called for greater funding in the renewable energy (RE) space to promote the development of clean energy technologies in Malaysia. 

Group CEO and ED Davis Chong said with the right resources, industry players can create a competitive and striving start-up environment in the country for green technology innovation. 

“More funding for this field of work is needed. We also need to start thinking holistically by first emphasising on identifying good companies and talents and helping them along the way to make their ideas come to fruition,” he told The Malaysian Reserve in an interview recently. 

Chong highlighted that the group has begun such an initiative with the Solarvest Innovation Lab, a start-up programme to cultivate innovative developments in the field of green technology, financial technology and RE. It is also supposed to be in line with the clean energy verticals that Solarvest intends to venture into, which is one of the three pillars of the group’s five-year strategic plan. 

This fits in with global trends. There is significant opportunity for green businesses in Asia, as the global environmental market expands in the coming years. With Japan and China in the lead, many other Asian countries are growing production of environmental, social and governance. Investments in RE are expanding, while there is potential for other sectors such as nature-based tourism, noted Asian Development Bank’s working paper entitled “Growing Green Business Investments in Asia and the Pacific” released in December 2020. 

Solar Energy 

Touching on solar energy, Chong said with commitments to reaching a 40% RE mix by 2040 and attaining net zero carbon emission by 2050, the group believes sustainability-driven policies will remain the focal point of the government in the years ahead. 

He noted that the next phase in Malaysia’s energy transition is the move toward energy liberalisation. He pointed to the recent virtual power purchase agreement (VPPA) model mentioned by Prime Minister (PM) Datuk Seri Ismail Sabri Yaakob as a prime example of it. 

At the same time, the industry is also hopeful of seeing the establishment of a peer-to-peer energy trading platform which allows prosumers (producer + consumer) and consumers to trade excess solar photovoltaic (PV) electricity without an intermediary. 

“This will mitigate energy flow congestion in the grid and enhance energy and economic resilience by reducing the need for costly grid expansions in later phases,” he said. 

Chong also added that as the centralised electricity market gradually opens, healthy competition will be introduced into the market which would benefit long-term innovation. 

Beyond that, he said the developing regulatory structure in the energy sector will ultimately foster Malaysia as a mature RE player with the ability to provide clean energy security. 

Previously, the government had approved the allocation and redistribution of a RE quota of 1,200 megawatts (MW) for solar resources as an initial step to boost the country’s commitment in the energy transition. 

Ismail Sabri said with the VPPA, the government expects 14,000 job opportunities and new investments worth RM6 billion to be created to support the development of the country’s RE industry. 

The PM said the new quota will be distributed to the implementation of programmes under existing mechanisms including the New Enhanced Dispatch Arrangement (NEDA) and solar installation programmes on roofs of buildings. 

He added that it will be also distributed to exploration of new RE programme implementation methods such as solar park development, electricity supply for the purpose of new data centres, as well as green hydrogen generation. 

Aside from that, he said there will be provision of a new option for the procurement of green electricity supply to corporate companies through the concept of the VPPA, starting in the fourth quarter of 2022, with a 600MW quota offer. 

Elaborating further on the VPPA, Chong said this is certainly a welcome move for the industry and Solarvest. With the introduction of VPPA, corporations are able to make meaningful progress in their sustainability goals with the flexibility of procuring RE at a sizeable scale without needing to be physically connected to the solar energy plant.

Ultimately, this will encourage a higher adoption rate among the commercial and industrial (C&I) segment, and more business opportunities for Solarvest as the leading solar player in the country. Chong also said the VPPA is a good step toward a digitalised RE industry as it requires the use of RE credits to verify the source of the generation.

With VPPAs, he said energy producers could also benefit from the mechanism as prices are negotiated with direct buyers, rather than a single party, creating a more vibrant and competitive market.

The new quota announced by PM will be distributed to the implementation of programmes under existing mechanisms including the solar installation programmes on building roof (Pics source: solarvest.my)

Procurement Disruptions

Recent news reports have highlighted that the solar industry is facing major procurement disruptions caused by high commodities prices and supply chain bottlenecks that led to price volatility in solar-related materials.

Commenting on this, Chong admitted that the price increase and supply chain bottlenecks have not been favourable to the industry.

He opined that from a solar asset development standpoint, this is not ideal as the internal rate of return (IRR) will be lowered as a result. However, he noted that the Energy Commission (EC) has been understanding and helpful to the industry players with the four-year extension of power purchase agreements (PPAs) to 25 years, as well as the extension of scheduled commercial operation dates (SCOD) of these plans to the end of 2023.

“The former will help bring the IRR back up slightly to cushion the price impact while the extension allows us the opportunity to source materials at better pricing,” he said.

As to when prices will stabilise, Chong said he is not able to say given the global uncertainties with the war in Ukraine, geopolitical tensions between powerhouses, and so on. As for Solarvest itself, he said the risk
is still manageable at this point, especially after EC’s actions.

Adoption Barriers

We need to start thinking holistically by first emphasising on identifying good companies and talents and helping them along the way.- Davis Chong

Speaking on major barriers to solar energy adoption, Chong said the initial upfront cost is one of the hurdles to solar energy adoption in the residential as well as the C&I segments. This would be exacerbated when incentives such as the Green Investment Tax Allowance and Green Income Tax Exemption expire in 2023.

In addressing the issue, Chong believes the introduction of more solar financing schemes will be helpful, citing Solarvest’s own financing programme, Powervest, which offers zero-upfront cost financing to potential clients. The programme has successfully encouraged greater participation among C&I players.

As for the residential market, he said the government could look at incentives like personal income tax relief as well as interest-free loans or interest subsidy loans for residents opting to install solar PV on their rooftops.

He said apart from that, consideration on various tax incentives for property developers that opt to build solar energy-ready homes should also be taken into account.

For utility-scale adoption, on the other hand, Chong said the intermittency of solar power is limiting its potential for mass adoption.

“We recommend that subsidies on battery energy storage systems (BESS) be granted to solar energy producers in order to bring down the cost of BESS, making it financially feasible. With that, we will be able to get a stable solar energy supply all the time.

“This is also one of the suggestions to strengthen the country’s grid infrastructure,” he added.

Next Phase Looking ahead, Chong said the group is optimistic about the country’s clean energy transition plan, especially after recent announcements made by the PM during the Fifth International SustainableEnergy Summit 2022.

Among initiatives hinted by the government include the allocation and redistribution of RE quota of 1,200MW for solar resources, implementation of NEDA, the establishment of VPPA, development of green energy islands, development of a RE certificate framework, along with the introduction of a legal framework in monitoring the electric vehicle infrastructure development.

Chong said these developments will no doubt catalyse greater adoption of RE and will be beneficial to Solarvest and the industry at large. He also added that the company remains upbeat on the industry outlook, underpinned by a robust job pipeline in private large-scale power plants, residential and C&I projects.

As at June 30, 2022, the unbilled orderbook stood at RM727 million, which will be progressively recognised in the financial years ending March 31, 2023, and 2024.

Last month, the group had established a subsidiary, Vestech Energy Sdn Bhd, to focus on providing solar solutions to the residential segment to enhance solar adoption rate among homeowners. Through Vestech Energy, it has launched six EcoHome solar plans tailored for landed house homeowners with average monthly electricity bills starting from RM300 and above.

According to Solarvest, the EcoHome solar plans come with solar system size ranging from 4.5 kilowatt-peak (kWp) up to 12.6kWp.

It said each of the plans provides long-term cost-saving solutions with savings of up to 90% on electricity bills.

Separately, Solarvest had received notification letters from the EC to inform that the SCOD for all its three large scale solar (LSS) PV plants under the fourth cycle LSS programme (LSS4 Projects) will be extended until Dec 31, 2023.

The effective period of the relevant PPAs for the LSS4 Projects will be extended from 21 years to 25 years. The extensions are envisaged to provide relief to meet the SCOD and are expected to contribute positively to the future earnings of the group.

Solarvest has also launched its five-year strategic roadmap to transform it from a pure-play PV company into a clean energy specialist with holistic offerings of RE and low-carbon solutions (strategic roadmap).

Under the strategic roadmap, the group will establish footholds across the clean energy value chain via various strategies such as organic growth, mergers and acquisitions and other collaborations and partnerships.

Meanwhile, the group will remain focused on its geographical expansion plan venturing into the Philippines, Taiwan, Vietnam and Indonesia for renewable asset RE development and ownership.