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KUALA LUMPUR: Government-owned 1Malaysia Development Bhd (1MDB) is tipped to spearhead the nation’s largest solar plant project as part of the renewable energy agenda.

According to industry sources, the Energy Commission (EC) and the Sustainable Energy Development Authority (Seda) are considering a proposal to build a 50MW solar power plant in Kedah.

When contacted, the EC declined to comment.

Industry sources told The Edge Financial Daily that 1MDB has been named as a top contender to undertake the proposed project.

Compared with 1MDB’s existing 3,951MW of generation capacity, the proposed solar power plant project is small. However, it will help diversify 1MDB’s RM10.85 billion generation portfolio which it plans to list in the near future.

But in comparison with the country’s current solar capacity, the proposed project is considered huge.

That’s because, if approved, the proposed plant will add nearly 56% to the country’s existing operating solar capacity of 88.1MW, which stems from the renewable energy Feed-in-Tariff (FiT) project that was implemented in 2011. Currently, the largest FiT block in the country generates only 5MW.

However, it is understood that the proposed project will not use FiT rates, which are as high as RM1 per kilowatt-hour (kWh).

Instead, industry sources said the proposed solar plant will
compete for grid priority to generate power. This means that its rates will have to be more competitive in order for Tenaga Nasional Bhd to justify paying for the electricity from the solar plant when it may have cheaper alternatives.

Industry sources estimated that the tariff for the proposed solar project is around 60 sen per kWh. In comparison, the tariff for the recent combined cycle gas plant in Prai is only 34.7 sen per kWh. However, this does not include cost of fuel.

“At the subsidised gas price of RM13.40 per million metric British thermal units (mmbtu), that works out to a fuel cost of 8.7 sen per kWh. However, if gas prices are marked to market which is around RM45 per mmbtu, the fuel cost is around 29 sen per kWh. That means unsubsidised, generation costs for gas plants should be closer to 60 sen,” said an industry player.

“At today’s rates, a solar plant of that size might be a hard sell. But assuming market prices for fuel, it is more feasible,” he added.

Industry players expect the proposed solar plant will tap into the renewable energy fund that is managed by Seda that is funded by a 1% levy on peninsular Malaysia electricity bills. This could be used to reduce to cost of building the plant.

Nevertheless, industry players pointed out that while solar power may reduce the country’s fuel bill, it will not reduce the required capacity. The reason is that the national grid requires at least 1MW of gas-fired peaking capacity on standby for every megawatt of solar power. Should the supply of power from the solar plants fall, the peaking plants must immediately fire up to protect the integrity of the grid.


This article first appeared in The Edge Financial Daily, on February 24, 2014.


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