The country is waiting eagerly the announcement of Budget 2021 on the Government’s plan to bring us through Covid-19 crisis, to protect the social and economic wellbeing of the people.
Undeniably, the outlook is challenging. Social Security Organisation (SOCSO) has just reported nearly 90,000 job losses so far this year and if the trend continues, the number will hit 100,000 by the end of the year. In addition to that, we already have 127,000 graduates still without jobs for more than 6 months and the number will keep rising as there are 300,000 new graduates every year. The country is in the search of new jobs and the government can play a big part to make it happen.
Income, jobs and growth used to be at the opposite ends of the scale with environmental protection. But it is no longer so as more countries around the world recognise the potential of green industry in the post-Covid world. According to Organisation for Economic Co-operation and Development (OECD) Secretariat, at least 30 OECD and Key Partner countries have included green measures in their post-Covid economic recovery strategy, and rightly so. This article focuses on green measures that can be considered in Malaysia.
In order to create green jobs, the government needs to facilitate more green projects on the ground, reducing bureaucracy and catalyse them by attractive financial incentives in terms of tax incentive, low-interest loans as well as grants.
Renewable Energy
I believe the lowest hanging fruit among all in terms of increasing the number of green projects and new jobs on the ground is renewable energy projects. The government should maintain or increase Pakatan Harapan’s renewable energy (RE) target of 20% in electricity mix by 2025 excluding large hydroelectric sources above 100 MW (33% if include large hydro.) Pursuing this target has the potential of generating RM 33 billion private investment and additional 50,000 RE jobs.
The energy ministry already have all the analysis and plans in place to reach the RE target during PH administration. What is important now is to bring forward some of the planned RE projects to 2021 so as to increase the economic activities on the ground. For example, the 1GW of LSS tender worth RM 4 billion announced in the first Covid-19 Stimulus Package by the PH government and followed through by the PN government is adjusted from the original plan to award 500 MW every year in the next 4 years. In 2021, the government should consider doing another round of open tender for LSS, which is very straightforward. The same consideration should also go to RE projects in the pipeline that is under Feed-in-Tariff (FiT) mechanism, administered by Sustainable Energy Development Authority (SEDA). In addition, the government can also consider opening tender for other form of RE by socializing the cost of the projects in Incentive-Based-Regulation (IBR) calculation.
Decarbonizing electricity by adopting RE does not necessarily mean higher tariff in the long run. In fact, diversifying electricity sources can potentially reduce the total system cost in the long run (from the reduction of peaking plants needed). Additionally, the downward trend of levelized cost of electricity (LCOE) of renewable energy is making RE more and more cost viable. A clear example of such downward trend is the comparison of the lowest bid of large scale solar (LSS) tender, which dropped from more than 30 cent/kWh in LSS2, to around 17 cent/kWh (lower than average cost of gas-generated electricity at 23 cent/kWh) in LSS3, to the recently bid price received for LSS@MEnTARI in the range of 15 cent/kWh (same as the average cost of coal-generated electricity at 15 cent/kWh).
Besides making economic sense, more importantly in our current situation is that RE is a good job generator. As a comparison, the total employment (aggregated direct and indirect jobs) that can be generated for every MW of power generation for RE are much higher with LSS (12.33), rooftop solar (32.86), biomass (25.01), biogas (27.38), waste-to-energy (25), and small hydro (21.45), versus coal and gas at only 11.34 and 1.44 total employment generated respectively.
In this context, government should also pay great attention to rooftop solar in the pursuit of 20% RE target, as it can generate almost 3 times more jobs than LSS per MW. There is huge rooftop solar potential in Malaysia landed properties with 3.2 million residential properties, 450,000 commercial lots, 90,000 terraced factories, 21,000 standalone factories, and 1,000 shopping complexes; Net Energy Metering (NEM) policy can unlock such potential.
Under NEM, those who install rooftop solar can sell their additional solar power back to TNB. NEM began in 2016 but until 2018, the take up rate is low because the selling price is at low displacement cost. However in October 2018, we launched NEM 2.0, of which the selling rate changed to 1-on-1 offset basis, allowing the prosumers (producing consumers) to get significant savings in their monthly electricity bill which saw an uptake of rooftop solar more than tripled over a short period of one year. When NEM is coupled with Green Investment Tax Allowance (GITA), the payback period of rooftop solar investment (from the savings of electricity bills) reduced to only 2-5 years for commercial and industry premises. After the payback period, the companies that invest in NEM can enjoy savings of electricity bills until the end of life of their rooftop solar systems. NEM project is now not only good for the environment in term of reduction of carbon emission but also good for the pocket.
But in a cash-strapped Covid environment, how companies can take advantage of NEM policy? The answer lies in solar leasing. During PH administration, we have changed the Supply Agreement of Renewable Energy (SARE) policy that enable solar leasing, of which solar leasing companies can offer consumers (roof owners) zero-upfront cost for rooftop solar installation and share the electricity bill savings with the roof owners through the contract period. In addition, Green Income Tax Exemption (GITE) has also been extended to solar leasing companies with 10 years 70% income tax exemption in Budget 2020, making solar leasing business worth investing.
To stimulate rooftop solar, the government should extend the NEM 2.0 programme beyond 2020 and target a total of 300MW NEM take up rate, with project value potential of RM 1.5 billion, by the end of 2021. To achieve this, government needs to look into further cutting red tape to get NEM approval as well as increasing the size of Green Technology Financing Scheme (GTFS), which shall be discussed later. Most importantly, as the biggest building owner in the country, the government should be the biggest customer for solar leasing.
Other Types of Green Projects
Similar to solar leasing, the government can increase the number of energy efficiency (EE) projects in the market significantly by entering into Energy Performance Contract (EPC) with energy service companies (ESCO). In this context, ESCO will finance and do retrofit work in government buildings (EE alone or together with RE) and then recover the investment with profit through sharing of the bill savings with the government throughout the contract period.
With the right terms in the contract with the government, both NEM (solar leasing) and EPC projects can be bankable, allowing the project developers to raise private financing. If the government can earmark 500 suitable government buildings and premises to undergo these projects for 2021, there is a potential investment value of around RM 2 billion. With that, the government gets to enjoy monthly electricity bills savings, reduce government carbon footprint as well as stimulate economic activities and increase green jobs, at effectively zero upfront cost.
All in all, if done right, RE and EE can be stimulated through market economy and public-private-partnership (PPP), without the need of cash from government (which can be directed to other use).
However, having these programmes itself will not generate economic activities and jobs. What is crucial is how fast we can evaluate and award the projects and how to shorten the time in between any tender award and start of actual economic activities on the ground where all necessary approvals, funding and agreement need to be in place before the projects can begin. Unnecessary bureaucracy should be minimized to ensure projects can kickstart and jobs are created within the shortest time possible.
As the government increase public expenses to spur demand in 2021, one of the green projects that should be in the priority list in allocating increased expenses is the modernization of waste management, especially the waste disposal facilities. Unlike RE/EE projects, which can become bankable PPP projects, with the current tipping fees across the states, waste management projects will need subsidies from the government to become viable. According to Jabatan Pengurusan Sisa Pepejal Negara (JPSPN) under Housing and Local Government Ministry (KPKT), there are a total of 165 municipal waste landfills in Malaysia but only 8 of them are sanitary landfill. In another word, about 95% of landfills in Malaysia are just dumpsites. Dumpsite is a big source of methane gas, which is a much more potent green house gases than carbon dioxide. In addition, leachate from the dumpsites tend to flow to and pollute the nearby rivers. Special funding should be allocated to help the states to modernize their waste disposal facilities either to sanitary landfills or waste-to-energy facilities.
Other projects worth considering include i. strengthening pollution monitoring machinery by using technology. For example, building more real-time alert system with sensors and internet-of-things technology to more industry and pollution-sensitive areas; ii. developing circular economy ecosystem and infrastructure, plastic and e-waste as a start for 2021; iii. stepping up efforts in biodiversity restoration such as central-forest-spine recovery, coral reef restoration and conservation etc; and iv. reducing peat fire by building more infrastructure such as tube wells and check dams.
Green Financing
I have listed many potential green projects with multi-billion project values that can be led by the government to increase economic activities and create green jobs. However, even with contracts from the government, if the project financing is hard to come-by, these green projects cannot take place on the ground. In addition, the government should also stimulate private-led green projects. With that, Green Technology Financing Scheme (GTFS) is the most important financing instrument to stimulate both government-led and private-led green projects. GTFS is a scheme that offers 2% loan interest subsides for the first 7 years of loan tenure with 60% loan guarantee to approved green projects in 6 sectors – energy, water, building & township, transport, waste and manufacturing. It helps to improve green projects bankability, viability and attractiveness to investors.
Since the necessary government machinery is already in place to implement the scheme and the banking industry is familiar with the system, GTFS can be scaled up easily to allow quick actions to ensure real economic activities on the ground (compared to new scheme that need time to establish). With that, I would like to recommend the government to increase the size of GTFS in Budget 2021 total a total loan amount of RM 10 billion for the next 2 years (2021-2022), i.e RM 200 million green interest subsidies borne by the government annually. The combination of existing GITA and GITE incentives with increased size of GTFS can help to spur green growth and create more green and good jobs.
Ending
Post-Covid recovery offers us an opportunity to reimagine, re-strategize, re-organize resources and ultimately to rebuild the country better and greener, by combining restoring economic growth and creating new jobs with the achievement of environmental goals and ambitions. With strong determination, strategic planning and meticulous implementation , we can turn Covid-19 related economic woes and environmental challenges we are facing into an opportunity for a triple win of green growth, jobs generation and environmental sustainability.
