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Solar adoption in Malaysia made affordable with govt incentives

Solar adoption in Malaysia made affordable with govt incentives

23 Aug 2023

For businesses, solar installations are a larger investment, with costs ranging from a hundred thousand to millions of ringgit, says Verdant CEO 

In the pursuit of a cleaner and more sustainable future, solar power has emerged as a beacon of hope for nations worldwide. 

Malaysia, blessed with ample sunlight and a growing environmental consciousness, is no exception to this global trend. 

As the nation strives to reduce its carbon footprint and diversify its energy sources, solar energy has gained prominence as a potential solution. 

However, amid the promising potential of solar power to revolutionise Malaysia’s energy landscape, a significant hurdle looms — the affordability factor. 

Verdant Solar Sdn Bhd CEO Zeth Lim said for homeowners in Malaysia, the average cost for solar installations is around RM30,000, with a range from RM18,000 to RM50,000, depending on the system size. 

“Investing in solar energy is not only a step towards sustainability, but it also makes financial sense. 

“The payback period for such installations is generally between four and six years, after which homeowners can enjoy reduced energy bills and the satisfaction of significantly lowering their carbon footprint through reduced greenhouse gas emissions,” he told The Malaysian Reserve (TMR). 

He said for businesses, solar installations are a larger investment, with costs ranging from a couple of hundred thousand to millions of ringgit, however, despite the higher upfront cost, businesses stand to gain considerably from these installations. 

On top of that, with lower energy costs and a positive contribution to environmental protection through reduced greenhouse gas emissions, they can also benefit from substantial tax reductions. 

Additionally, under the Green Investment Tax Allowance (GITA), business owners could enjoy a tax reduction of up to 48% of the investment cost, making the shift to solar power an economically attractive decision in addition to being an environmentally responsible one. 

On installing solar power at home or office, he stated that there are several financing options that can significantly reduce upfront costs for Malaysian homeowners. 

One option is to opt for an extended payment scheme with their credit card bank, which can last up to 60 months and come with zero interest. 

Alternatively, homeowners can explore the possibility of securing a bank loan with terms of up to 10 years. 

Meanwhile, for business owners, Lim advised that multiple avenues are available to support the transition to solar energy. 

They also can consider securing a bank loan or finding an investor to finance their solar system under the Supply Agreement for Renewable Energy (SARE) mechanism. 

Additionally, businesses can significantly offset the cost of solar installation through substantial tax incentives. 

Talking about specific solar incentives that his company keeps track of, Lim told TMR that they closely monitor the GITA offered by the Malaysian Investment Development Authority (Mida). 

“GITA is specifically designed to encourage business owners to instal solar systems at their premises. 

“This incentive is a significant benefit for businesses, as it allows them to significantly offset the initial costs of installing a solar system,” he said. 

Also, thanks to GITA, he added, business owners can potentially save up to 48% of the cost of their solar system through tax allowances. 

This substantial tax incentive not only makes the adoption of solar energy systems more financially attractive for businesses but also aligns with Malaysia’s broader goals of increasing the use of renewable energy (RE) and promoting sustainable practices within the business community. 

Lim agreed that the most effective national incentive for motivating solar adoption is GITA. 

He shared the cost of materials, notably solar panels, is a major component of the overall expense, in determining solar installation costs. 

“Given that the majority of these materials are transacted in US dollar, fluctuations in the exchange rate between US dollar and ringgit can have a direct impact on costs. 

“A weaker ringgit against the US dollar can potentially increase the costs of solar installations due to the higher price of imported materials,” he said. 

Admitting that government policies also play a critical role in determining installation costs, Lim noted that supportive and favourable policies can stimulate market demand for solar installations, enabling economies of scale that can lead to reduced per-unit costs. 

Furthermore, the competitiveness of the solar market is a vital factor, encouraging solar providers to innovate and offer more cost-effective solutions to consumers, which can help to drive down overall installation prices. 

Lim said implementing personal tax incentives for homeowners could be highly effective in encouraging more solar power users. 

These incentives would make solar installations more financially attractive to homeowners by reducing the overall cost burden, thereby encouraging more widespread adoption of clean energy solutions at the household level. 

Also, establishing more comprehensive and long-term policies could significantly bolster the demand for solar adoption. 

For instance, expanding the Net Energy Metering (NEM) programme, creating policies that encourage property developers to incorporate solar installations in new buildings, and formulating policies that promote the adoption of Battery Energy Storage Systems (BESS) would be transformative. 

On the importance of financing options versus upfront incentives, Lim affirmed that financing options such as solar loans and innovative business models are crucial in driving solar photovoltaic 

(PV) installation rates in Malaysia, enabling a broader segment of the population to afford and own solar systems. 

He explained that by offering financing options, the initial cost burden, which is often a significant barrier to solar adoption, is alleviated, allowing homeowners and businesses to invest in solar systems without the need for substantial upfront capital. 

Similarly, Solarvest Holdings Bhd ED and group CEO Davis Chong Chun Shiong said by registering for NEM Rakyat with the Energy Commission, residential customers can export surplus electricity to Tenaga Nasional Bhd (TNB), effectively offsetting their electricity bills in subsequent months. 

He said the government has provided RM2 billion financing from Bank Negara Malaysia (BNM) to support green tech start-ups and SMEs to implement low-carbon practices. 

There is also the implementation of Green Technology Financing Scheme (GTFS) with an increased allocation of RM3 billion until 2025. 

Besides, he added that there is an increased allowable capacity for solar PV systems under the NEM and Self Consumption for Solar PV Installation (SelCo) programmes from 75% to 85% of maximum demand. 

In comparison to Lim’s comment on how to encourage more solar users, Chong commended the extension of the GITA and GITE incentive period, as the longer incentive duration provides businesses with sustained tax benefits, making solar investments more appealing and aligned with the extended nature of solar projects. 

“Given the high imbalance cost pass-through (ICPT) surcharge, the recent increase in allowable capacity for solar PV systems to 85% of maximum demand is timely, as it incentivises businesses to adopt solar PV systems as a sustainable solution to reduce utility expenses,” he told TMR

He said one of the biggest challenges faced by homeowners and businesses in adopting solar is the sizeable initial investment required for solar panel installations. 

There are also rooftop suitability, intermittent nature of solar energy generation due to factors like varying weather conditions, and maintenance challenges that hold potential users back. 

Nonetheless, Chong assured Solarvest mitigates these concerns by providing operation and maintenance services for solar PV assets. 

He also believed that the increasing awareness of the necessity for RE to safeguard against potential tariff hikes has led to a surge in solar adoption among individuals and corporations. 

“The growing emphasis on sustainability initiatives, along with environmental, social and governance (ESG) commitments, has motivated many to adopt solar energy to contribute to a greener and more environmentally responsible future,” he said. 

For C&I players, he said the government can encourage investment in BESS to improve RE efficiency and address intermittency issues. 

For corporations, he said their solar financing programme, Powervest, promotes the adoption of RE among C&I players. 

With these financing options, they have installed more than 450MWp of solar capacity that spans over 1,500 residential and C&I projects. 

Meanwhile, Malaysian Photovoltaic Industry Association secretary Lionel Yap shared that they have already had engagements with the government regarding changes needed to increase solar adoption in Malaysia. 

They have sent a wish list to the Finance Ministry (MoF) and a final full five-page document will be sent across to the government. 

Yap noted that they are looking at where energy storage systems come in, where incentives should be considered for companies willing to take on battery storage. 

Saying that it is difficult to ask for PV incentives since panel prices are already very low at US$5.24, he said: “You can’t justify that. 

“It is more about economy of scale for components like inverters, cables, and mounting structures. That is why costs have dropped so much, from RM13,000 to 14,000 to RM4,000, without them doing anything spectacular,” he said. 

Yap noted that theoretically, prices have come down so much that homeowners are now willing to instal solar. 

However, he said solar is not for everyone. 

“As of Aug 16, 2023, if your electricity bill is more than RM400, you can consider installing a solar system. Otherwise, there’s no need,” Yap told TMR

He summarised that in general, as solar technology improves, costs decrease, and electricity rates potentially rise, solar installations will become more financially viable over time for homes and businesses. 

Source: The Malaysian Reserve