Generating Renewable Energy from Oil Palm Biomass - The Fi T Policy Framework

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Generating Renewable Energy from Oil Palm Biomass - The Fi T Policy Framework
  Generating renewable energy from oil palm biomass in Malaysia: The Feed-in Tariff policyframework Mohd Shaharin Umar*, Philip Jennings, Tania Urmee School of Engineering and Information Technology, Murdoch University, 90, South Street,Western Australia 6150, Australia a r t i c l e i n f o Article history: Received 10 November 2012Received in revised form25 September 2013Accepted 20 January 2014Available online 13 February 2014 Keywords: BiomassOil palmSmall Renewable Energy Pro-grammeFeed-in Tariff Sustainability a b s t r a c t The renewable energy (RE) industry in Malaysia began in 2001 in the context of the growing concern about future depletion of conventional fuels and the global environmental con-cerns about greenhouse gas emissions. The Small Renewable Energy Programme (SREP) is atool that was first designed to drive the development of the industry based on the abun-dance of oil palm biomass reserves and other identified renewable energy resources. Due tothe slow uptake of this scheme, a new system, the Feed-in Tariff (FiT) was introduced in2011 to stimulate the industry. By considering the deficiencies of the previous scheme, thispaper examines the sustainability of the FiT policy framework in steering the futureexpansion of small-scale biomass renewable energy businesses in Malaysia. Resulting fromthe evaluation of the current policy settings and a market based appraisal, this workoutlines strategies for enhancing the scheme and suggests future studies aimed atimproving the flaws in the present system. ª  2014 Elsevier Ltd. All rights reserved. 1. Introduction The International Energy Agency (IEA) in its  New Policies Sce-nario  predicts that the world energy demand is expected tocontinuetoincreaseannuallybyabout1.2%from2008to2035,with 70% of the demand coming from the developing coun-tries [1,2]. This increase will be largely (87%) met by energyderived from finite, non-renewable fuel sources [2].While the demand for energy is predicted to continue torise for the next few decades, energy security is becoming aserious issue, as traditional fuels are non-sustainable and arefastdiminishing [1,3].TheIEA[2]attributestheriseofthetotal global energy demand to the expected growth of the worldpopulationand globaleconomicexpansion.Asanapproachtoalleviatethe problemsassociated with the currentmethods of energy production, Ong et al. [4] assert that an energy mix isthe best alternative for security of supply and to protect thecountry from external issues. Renewable technologies there-fore are a good option, but they must be appealing to themarket,cost-competitiveandsupportedbyasignificantpolicyframework and resource base.The use of renewable energy sources continues to growstrongly and has begun to replace fossil fuels and now pro-vides 16% of global final energy consumption in 2009 [5]. Theshare of the market provided by mature renewable energytechnologies, including wind, photovoltaics and biomass, isprojected to climb from 19% in 2012 to 46% or about *  Corresponding author . Fax:  þ 61 893606346.E-mail addresses:, (M.S. Umar).  Available online at ScienceDirect biomass and bioenergy 62 (2014) 37 e 46 0961-9534/$  e  see front matter  ª  2014 Elsevier Ltd. All rights reserved.  19,000TWh(terawatthours)in2050[6].Biomassisexpectedtobecome the most prominent renewable energy source with afour-fold increase to 23% of total world primary energy by theyear 2050. Interestingly, agricultural crops and forest residuesare predicted to generate about half of the 15,000 milliontonnes of biomass around the globe [6].In Malaysia, oil palm biomass power stands out as apromising technology for contributing to a more sustainableclean energy market. Nonetheless, the renewable technologycan only be lifted to a greater height with strong policy sup-port. Unfortunately, the former Small Renewable Energy Pro-gramme (SREP) mechanism failed to increase the share of biomass projects, thus affecting the overall national renew-able capacity target. The past policy drawbacks provide usefullessons for the country to avoid such mistakes in formulating future energy policy.Thus, this paper aims to examine and identify the areasthatrequire moreattention in order to ensure thatthe currentrenewable energy policy framework is socio-economicallysustainable and reliable to drive the industry forward. Re-sults from this policy investigation are expected to outline thestrategies to improve the FiT system and identify potentialresearch areas for future studies. This is achieved by con-ductinganassessmentofthestrengthsandweaknessesofthepolicy settings which pave the way for understanding theessence and character of the present system. Apart from theevaluation of the secondary source materials, particularly thegovernment reports and industry-related academic publica-tions, the lead author’s vast experience in energy policymaking provides valuable insight about the industry and thegoverning legal framework.Realising the Malaysian FiT scheme is relatively new, theauthorsareawarethatthereisverylittlepublishedliteratureorpeer-reviewedacademicresearchtoexamineitssustainabilityin supporting industry development. Most of the existing studiesfocusoncommonissuesthatimpedethegrowthoftherenewable energy industry in Malaysia, including a recentpublicationthatexaminestheoverallperformanceoftheSREP[7]. Hence, this paper aims to fill that gap.This paper is organised in 5 sections. It begins with anoverview of enabling factors that catalysed the growth of therenewable energy market in Malaysia (Section 2). Theseinclude the future energy demand, influence of domesticeconomic growth towards energy consumption and thecompetitive advantage of the oil palm sector, which has adirect impact on the development of the oil palm biomassrenewable energy industry. Section 3 provides a snapshot of the renewable energy policy systems which shape the in-dustry landscape. The forward strategies are presented inSection 4 after an extensive discussion of the strengths andweaknesses of the FiT system. Section 5 summarises the keyfindings and conclusions of this work. 2. Enabling factors 2.1. Future energy demand Crude oil supply is expected to exhibit a downward trend aspart of the global primary energy mix towards the year 2035.This is a result of resource depletion and associated fluctua-tions in the global oil market price and government policies infavour of low carbon energy sources. Chuah et al. [8] antici-pate that other energy sources, such as natural gas andmodern renewable energy (including biomass sources), willexpand to fill the gap in global energy demand. The globaldemand for both of these sources is forecasted to rise by 44%and 16% respectively, between 2008 and 2035 [2]. As forMalaysia, it is fortunate to be blessed with plenty of energyresources in the form of oil, natural gas and renewable sour-ces [4].Notwithstanding, like other economies, Malaysia is over-dependent on hydrocarbon sources for its power sector andthese are vulnerable to externalities such as global marketvolatility and the gradual exhaustion of these traditional re-sources.Therecordindicatesthatwithin14yearsfrom1995to2009, electricity generation in Malaysia has increased by 154%while annual electricity consumption has risen by 9.2% [9].Based on the business-as-usual (BAU) scenario, the final en-ergy demand (referring to the quantity and types of energythat are delivered to the final user) is projected to grow at anannual average rate of 4% and to reach a maximum demandfor electricity of 23,088 MW by 2020 [1]. The upward trend of electricity demand over recent years can be observed in Table1, with a steep rise from 11,833 MW in 2002 to 16,332 MW in2010 or more than 38% increase [3,9]. Unfortunately, about94.5% of electricity production in Malaysia is derived from thecombustion of carbon based fossil fuels [9].As such, the escalation in energy consumption, conven-tionalfuelmarketpriceuncertaintyandglobalclimatechangeobligations explain the urgent need for more green solutionsto replace large-scale power generation plant and producereliable power. Concerted efforts to reduce emissions shouldcomplement a commendable public policy to move thecountry away from dependence on a single source of energy.On the other hand, Malaysia is 34% more energy intensivethan other peer countries and this indicates the need for amorebalancedanddiversifiedsupplyanddemandsideenergymanagement. 2.2. Economic growth It is common for industries to grow in size and capacity as aconsequence of the economic growth of the nation. Over theyears, Malaysia has enjoyed steady and robust economicgrowth.AccordingtoEPU[10],theMalaysianGDPisforecasttorecord an upward trend over the period of 2011 e 2015 with anaverageannualgrowthrateof 6%.TheGDPgrowth duringthisperiod will be driven by the services sector (7.2%),manufacturing sector (5.7%), agricultural sector (3.3%) andconstruction sector (3.7%). As shown in Table 2, the agricul-tural sector contributes a 5.6% share of the country’s GDP, Table 1 e  Electricity supply and demand in Malaysia [3]. Capacity size Year2002 2004 2006 2008 2010 Peak demand (MW) 11,833 13,848 14,375 15,540 16,332Installed capacity (MW) 15,483 19,423 20,125 21,637 24,187 biomass and bioenergy 62 (2014) 37 e 46 38  which comes after the services sector (61.1% of GDP) andmanufacturing sector (26.3% of GDP) [10].On the regional stage, Malaysia has experienced strong economic growth in recent years. Now it is among the fastestgrowing emerging economies in Asia with an economicgrowth rate averaging over 8% between 1970 and 1980 and5.2% from 1980 to 1990 [11]. Beyond 1998 the annual GDPgrowth of most the Asian economies, including that of Malaysia,declinedtoanaverageof4.3%perannum,duetothechaos of the Asian Financial crisis. Malaysia’s GDP grew at anaverage rate of 9.2% during the 1991 e 1997 period, surpassing most of the industrialised economies in Asia (Table 3). Since2001 the Malaysian economy has continued to grow at a moremodest rate of 4.3% per annum, which is similar to that of other ASEAN countries.As part of its wider economic transformation plans, tomove away from low value to high value industries, Malaysia,during the 9th Plan had established five economic clusterswhich include: the Iskandar Malaysia corridor in Johor; theNorthern Corridor Economic Region (NCER), which covers thestates of Kedah, Penang, Perlis and part of Perak; the SarawakCorridor on Renewable Energy (SCORE) that is concentrated inSarawak;and the SabahDevelopment Corridor (SDC) in Sabah[10,13]. These economic areas are designed to be the key en-gines of growth to promote balanced regional developmentbased on the common resources available. The map in Fig. 1depicts the newly-developed economic corridors in Malaysiawhich will spearhead the economic development of thecountry over the next 5 years.Under the 10th Plan, the future economic landscape of Malaysiais built onthe EconomicTransformation Programme(ETP) and the New Economic Model (NEM) [12]. This tremen-dous economic structural reform would reinforce the mo-mentum of future economic growth towards achieving aprogressive and high income nation by the year 2020 [11,12].The blueprints provide a basis for enhancing Malaysia’s eco-nomic profile by focussing on 12 key growth engines or theNational Key Economic Areas (NKEAs). More interestingly, theoil, gas and energy sector is recognised as one of the maincomponents in the roadmap, contributing a significant shareof 16% of the Gross Domestic Product (GDP) in 2000 to about19% in 2009.These comprehensive economic reforms will greatly in-fluence Malaysia’s long term investment patterns. Increasedeconomic intensity will produce a need for a reliable, highquality and cost effective energy supply [3,14]. When theentire ETP planning comes on stream, the energy demandgrowth especially in residential, manufacturing and trans-portation sectors is projected to escalate. A work by Lean andSmyth [11] finds that over the coming years the demand forenergy in Malaysia will surge at a rapid pace, proportional tothe growth of industries. In addition, Gan and Li [15] predictthat energy use will increase three-fold by the year 2030. Thediversification of energy sources is therefore crucial andMalaysia will need to replace fossil hydrocarbon sources inorder to accommodate the increase in energy demand acrossall sectors of the economy. 2.3. Competitive advantage of the oil palm sector AccordingtoTanetal.[16],theworlddemandforvegetableoilis rapidly increasing in tandem with vast economic and pop-ulation growth in developing countries as well as the urbani-sation trend. By volume, oil palm accounts for 41.31 milliontonnesof thetotal worldconsumption ofmajorvegetableoils,overtaking soybean, rapeseed and sunflower seed oil with41.28 million tonnes, 18.24 million tonnes and 9.91 milliontonnesrespectively in 2008[17]. Theglobaloilpalm demandisexpected to continue growing and reach 256 million tonnesCPO/year by the year 2050 [18].At an international level, Malaysia is recognised as theworld’s second largest producer and the largest oil palmexporter with 17.7 million tonnes or a 41.3% share of the totalworld oil palm production in 2008 [17,19,20]. In the last twoconsecutive years 2011 and 2012 the statistics indicated thatthe country exported 17.99 million tonnes and 17.58 million Table 2  e Gross domestic product (GDP) by sector inMalaysia for 2011 e 2015 [10]. Sector Annual growth (%) Share of GDP (%) Services 7.2 61.1Manufacturing 5.7 26.3Construction 3.7 2.1Agriculture 3.3 5.6Mining 1.1 4.9 Table 3  e Gross domestic product (GDP) of Asianeconomies, 1991 e 2009 [12]. Economies Annual GDP growth (%)1991 e 1997Annual GDPgrowth (%)2001 e 2009 China 11.5 10.1Malaysia 9.2 4.3Singapore 8.6 4.2Vietnam 8.3 7.3Republic of Korea 7.5 3.9Taiwan 6.7 3.1Indonesia 6.9 5.1Thailand 6.7 3.9India 5.3 7.2Philippines 3.1 4.4 Fig. 1  e  The five economic corridors in Malaysia [13]. biomass and bioenergy 62 (2014) 37 e 46  39  tonnes of oil palm respectively to more than 100 countries allover the world with an average of 2.1 million tonnes suppliedto 24 European Union (EU) economies [21]. The bar chart inFig. 2 illustrates the strong domination of the industry byMalaysia and Indonesia, as the major global oil palm pro-ducers in the year 2008.Despite the environmental controversy, Malaysia hascommitted to the international agreement during Conferenceof the Parties (COP) in Rio de Janeiro, 1992 and reiterated atCOP15 in Copenhagen 2009, to keep 50% of its land as forestedareas. Through sustainable forest management, in 2007 thecountry remains covered with 18.30 million hectares (or 55%)of natural forest with 4.69 million hectares (or 14.9%) of itsland used for oil palm cultivation activities [22]. More inter-estingly, Malaysia continuously stands among the mosthighlyforested countriesin Southeast Asia and the world[22].In order to maintain consistent growth of the oil palms, whilemitigating environmental degradation and minimising landuse change (LUC) due to uncontrolled deforestation, the in-dustry is replacing low value crops with other export com-modities including of oil palm crops [19,23]. Moreover, theplantation growth of prominent crops like oil palms followsustainable practices, including the utilisation of idle agri-cultural land and optimisation and certification systems [22].High productivity and effective land use are part of the sus-tainable development strategy for the industry expansion. Incomparison, the annual production cost of oil palm inMalaysia was twice as cheap as the production cost of othermajor vegetable oils like rapeseed oil in Europe and soybeanoil in the United States of America (USA) with a cost of USD239/tonne compared with USD400/tonne and USD459.90/tonne respectively in the year 2001 [24]. In regard to agricul-tural land use, oil palm cultivation occupies less than 4.74% of the world’s agricultural land, but represents 33.6% of the totalglobal market share of vegetable oils [19]. In contrast, itscompetitor soybean and rapeseedutilise 42.50% and 12.25%of total planted area respectively for a similar output [16,17].Overall comparison on the average of oil yield (tonne/ha/year)indicates that oil palm cultivation has a significantly higherproductivity index with 3.62 against 0.40 for soybean cropsand 0.68 for rapeseed plants [19].Domestically, the oil palm industry is one of the key agri-cultural activities, which rank it as the fourth largestcontributor to the Malaysian economy with an 8% contribu-tion to the total national Gross Net Income (GNI) per capita or7% of the country’s GDP [12]. About 51% of the plantations areconcentrated in Peninsular Malaysia (West Malaysia) and anestimated of 49% are located in East Malaysia [25]. The latestavailable data indicates that Malaysia has 4.7 million hectaresin oil palm plantations, with 417 mills, 43 crushers, 51 re-fineries, 18 oleo chemicals plants and 25 biodiesel plants. Theindustry utilises 71% of the total agricultural land bank, andthus it is the main driver of the country’s agriculture sector[12].Over the decades, Malaysia has experienced a steady androbust growth of its oil palm industry. Since 1980, the total oilpalm production has sharply increased from 2.6 milliontonnes in 1980 to 17.8 million tonnes in 2009, while exportshave climbed from 2.3 million tonnes in 1980 to 13.7 milliontonnes in 2007 [12]. Table 4 shows the crude oil palm pro- duction and export trends in Malaysia between the years1980 e 2009. The steady growth is likely to continue, reaching 20.6 million tonnes in 2013 and 21.5 million tonnes in 2015, inresponse to the increasing global demand for vegetable oil[19].The massive expansion of this domestic agricultural in-dustry holds great promise for the future large commercialscalebiomass-basedenergygeneration.It isimportanttonotethat the capacity projection under the FiT has consideredmarket trends in the world oil palm demand and thereforedoes not affect future global oil palm supply. With regard tothe oil palm waste generation, it has been noted that the in-dustry produces an average of 53 million tonnes of residuesper annum in recent years [25]. Nevertheless, a study by theAgensi Inovasi Malaysia (AIM) reports that the oil palm sectorproduced about 80 million dry tonnes of biomass in 2010 andthe amount is projected to reach 100 million dry tonnes by2020. Depending on the efficiency of the technology installed,about 3.5 e 9 million dry tonnes of biomass could be mobilisedto achieve thegeneration capacitytargetsfor2015and 2020 asset for the FiT scheme [27]. Overall, biomass from the oil palmplantations accounts for 85.5% of the total biomass that isavailable in the country [3]. Theoretically, these data wouldsuggest abundance and sufficient fuel supply in the market,and thus it would become more appealing to catalyse devel-opment of the oil palm biomass renewable energy industry.Fig. 3 shows a pie chart of the percentages of biomass sharefrom various industries in Malaysia. Fig. 2  e  The world’s major producers of oil palm in 2008[17].Table 4 e  Crude oil palm production and exports from1980 to 2009 for Malaysia [19,26]. Year Production (million tonnes) Export (million tonnes) 1980 2.6 2.31990 6.1 5.72000 10.8 9.12005 14.9 13.52006 16.5 14.42007 14.0 13.72008 17.7 NA2009 17.8 NA biomass and bioenergy 62 (2014) 37 e 46 40  Eventually, piles of oil palm biomass resources for gener-atingcleanenergycanonlybefullycapitalisedwithsupportof a strong and sustained policy environment. Without a reliablepolicyframework,theindustrywouldnothavetheconfidenceto expand and sustain production at the desired level. 3. Malaysia’s renewable energy policy As a background, Malaysia embraced the renewable energybusinessin2001whentheFifthFuelDiversificationPolicywasintroduced as one of the major policy components in the 5year development program, the Eighth Malaysia Plan(2001 e 2005). Besides aiming for reliability and optimising en-ergy security, this policy document contained measures toprotectthecountryfromtheadverseimpactofthevolatilityof energy prices and overdependence on traditional fuel sourcesincluding oil, gas and coal [1,28]. The main focus of this policyframeworkatthattimewastoincreasetheshareofrenewableenergy in the power supply by encouraging small-scalerenewable power producers to generate electricity from sus-tainable sources and feed their excess power to the main grid.Due to poor performance [10], the policy direction for the in-dustry has undergone a major overhaul in order to addressinadequacies of the previous system.Fig. 4 shows the policy timeline and the revised capacitytarget since its inception in 2001.Two major policy initiatives to foster the development of the industry are discussed below. 3.1. The Small Renewable Energy Programme (SREP) The Small Renewable Energy Programme (SREP) portfolio wasembedded in the 5th Fuel policy and had been conceived asthe main vehicle to navigate the industry forward [29].Without the backing of any detailed policy analysis, the sys-tem envisaged a 500 MW or 5% capacity share in the energymix by 2005, while six (6) renewable resources consisting of biomass,biogas,municipal waste,solar,windand mini-hydrowere identified to spearhead the industry [3,9]. To coordinatetheprogram,anad-hocSpecialCommitteeonRE(SCORE),wascreated to oversee the development of the industry.After years of operation, the scheme achieved only a lowresponse from the market players. Responding to thisdiscouraging situation, the capacity size of the renewableshare in the energy mix was trimmed down to 1.8% for theNinth Malaysia Plan (2006 e 2010). Even after this revision, thefinal capacity share remained low with only 0.4% of thecountry’s total electricity generation coming from renewablesin 2010 [30]. Overall, the final grid-connected capacity underthe SREP regime ended up at 65 MW, which is certainly farbehind the srcinal capacity target of 350 MW envisaged earlyin the 9th Plan (2006). Biomass residues, particularly from oilpalm plantations, contribute the most with 40 MW of grid-connected capacity [31,32], outweighing other renewable re-sources as shown below:   4.95 MW of biogas;   12.5 MW of small hydro;   5 MW of solid waste sources; and   2.5 MW of solar sources.Sovacool and Drupady [7] in their assessment attribute thelow success rate of the SREP scheme to unattractive connec-tion price to the grid, irregular biomass supply, the low effi-ciency of combustion technology, the poor supporting systems (including interconnection infrastructure), institu-tional fragmentation, obstacles to securing funding fromfinancial institutions and other utilities’ non-compliant pro-cedures. The government reports [10,30,33] confirm thesebarriers which prevent extensive deployment of renewabletechnologies and subsequently contribute to the shortfallfrom the national capacity target during these plan periods.A decade period for promoting this high cost business is ashort learning curve for a carbon fuel dependent country likeMalaysia. Less experience and being a new entrant in the Fig. 3 e Biomass share from various industries in Malaysia[3].Fig. 4 e Renewable energy policy development in Malaysia. biomass and bioenergy 62 (2014) 37 e 46  41
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