Thursday, August 12, 2010

Special Report: Renewable energy, a new industrial sector for Malaysia?

Special Report: Renewable energy, a new industrial sector for Malaysia?

Nadia S Hassan
The Edge Malaysia
August 2, 2010

Even as the power sector gears up for an increase in capacity with the start of Tenaga Nasional Bhd expansion of its coal-fired Janamanjung plant in Perak, renewable energy (RE) is slowly starting to make its presence felt in the industry.

This can be seen not only through Tenaga signing more power purchase agreements for power from biogas, biomass and mini-hydro, but also through the increased interest in setting up RE manufacturing facilities.

According to Matthias Dehner, of the German Federal Foreign office, Southeast Asia is on the radar screen of many German companies involved in RE.

There is currently an export initiative in the works, being driven by the German government, that would allow them contact with companies in Asia. In particular, they have expressed keen interest in Southeast Asia. Further details should be known within half a year, Dehner tells The Edge in a recent interview in Berlin.

One of the companies looking at this region is Enercon GmbH, which is currently among the top three global wind turbine manufacturers.

 We already have a presence in India. The countries we are possibly looking at in the future include Thailand, Vietnam and Indonesia, says Enercon spokesman Marek Pogodzinski.

However, while the outlook for RE appears bright, the level of investment in Malaysia from foreign players is still relatively low. According to figures provided by the Malaysian Industrial Development Authority (MIDA), as at March total investment in RE came to RM2.8 billion.

Of that, only 24.9% or RM690.7 million constituted foreign investment, with the remaining RM2.1 billion coming from domestic investment. To put the numbers in perspective, according to MIDA total capital investment in Malaysia was RM32.6 billon in 2009. For the first three months of this year, the total capital investment in manufacturing came to RM5.2 billion.

In the past five years, the two major foreign investors in this sector have been South Korea and Singapore. The amount that they are looking to invest varies from project to project and ranges from RM500,000 to RM300 million,says a MIDA spokesman.

He adds that going forward, the current interest in RE investment remains chiefly Asia-centric with companies from South Korea, Singapore and Japan.

The government has also introduced the National RE Policy to promote RE as a whole, and is currently working on the framework,says the MIDA spokesman.

Though there are currently no listed entities with RE as their core business, this could very well change over the next five years.

In February, it was reported that EQ Solar Technology International Sdn Bhd, a subsidiary of China s Hangzhou Energy Solar Co Ltd, plans to manufacture solar panels in Johor Senai Hi-Tech Park. According to EQ Solar, the company is planning to invest US$500 million (RM1.6 billion) in the project, and it represents the parent company s first plant outside China.

It was also reported that EQ Solar was looking at the possibility of listing on Bursa Malaysia over the next two to three years, once its facility is up and running. Other prominent overseas players that currently have plants in Malaysia include Q-Cells SE, and US companies First Solar Inc and SunPower Corp.

According to SunPower managing director Robert Vinje, the company chose Malaysia due to a handful of factors including the existing semiconductor sector and government support.

We invested RM2.2 billion initially, and our Malaysian factories can put together an annual solar energy capacity of 1.4 GW and serve our international markets throughout the world, says Vinje.

Another industry player agrees, saying, Although investments are still at the early stages, and most are domestic, the interest is definitely there. Malaysia advantages include a ready supply of semi-skilled labour as well its close proximity to China. China at the moment is the largest market for RE.

Currently, SunPower is expanding its first factory, which will be a yardstick for any further investment.

If this first factory expansion continues well, we would be interested in talking with MIDA to possibly continue our expansion in Malaysia,says Vinje.

Future and local companies  forays
It should be noted, however, that most of the hardware related to RE is all for the export market. While this is not surprising, it places Malaysia in the uncomfortably familiar position of not being the low-cost base that it used to be, but still with issues in moving up the value chain.

What it means is that investors could decide a few years down the road to pull their operations out of the country and move to countries such as Vietnam,â says an industry player.

Another issue is the lack of domestic demand for RE hardware. Although the government has set a target for RE to contribute at least 5.5% to the country s generation mix by 2015, progress has been slow.

This is because the feed-in tariff for RE has not been attractive up until now, says the industry player. This point is further driven home by Pogodzinki s comment that one of the criteria that Enercon look at when investing outside Germany is a country s feed-in tariff.

To be fair, the Malaysian government does appear to be making a substantial push for RE, with the announcement that it plans to implement a new feed-in tariff by 2011, following the tabling of a Renewable Energy Bill in parliament.

And despite the low level of foreign investment in RE, there are definitely plans in motion for a handful of local listed companies to take on domestic and foreign projects.

Berjaya Solar Sdn Bhd, a wholly owned subsidiary of Berjaya Corp Bhd, has a proposal in the pipeline to develop an RM180 million solar photovoltaic plant in Selangor which it is hoping will be commissioned by 2011, pending a study.

Copyright 2010 The Edge Communications Sdn. Bhd.All Rights Reserved

The Edge Malaysia

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