Further Incentive For Companies To Go For Green Power
To support Malaysia’s green economy development policy, several incentives have been implemented to encourage companies to invest in green power energy. This includes the Net Energy Metering (NEM) and Self Consumption (SelCo) programmes, which are programmes that allow companies to generate solar energy from photovoltaic systems to offset or reduce electricity bills.
The Green Electricity Tariff and Renewable Energy Certificates are also available for companies to purchase to fulfill their Environment, Social and Government (ESG) commitments.
In addition to the above, the Ministry of Energy and Natural Resources has recently introduced a new incentive called the Corporate Green Power Programme (CGPP), which offers a quota of 600MW. A distinguishing feature of this programme is that it utilises Virtual Power Purchase Agreements (VPPA), which will allow solar power producers to broaden their business opportunities while also helping to further boost the supply of renewable energy in Malaysia. Applications to participate in this programme may be made from 7.11.2022 until 31.12.2023 or when the quota is fully utilised.
Corporate Green Power Programme (CGPP) Overview
To be eligible for the CGPP, power assets of all players under the CGPP must be operational by 2025. Under CGPP, the sale and purchase of renewable energy is carried out through the Virtual Power Purchase Agreement (VPPA) mechanism. The VPPA is a contract for difference that allows customers to enter into a long-term agreement with solar power producers and agree on a fixed rate of electricity (referred herein as “strike price”). It is considered a “virtual” contract because solar power producers will not be distributing the physical energy directly to customers. Instead, solar power producers will sell its power to the grid, where Tenaga Nasional Berhad will distribute it accordingly using existing infrastructure and supply systems. Customers will also be given Renewable Energy Certificates (REC) to certify their usage of green energy.
Virtual Power Purchase Agreement (VPPA)
The VPPA offers many advantages to both customers and solar power producers. Aside from contributing to a more sustainable, green environment, it also provides benefits to both parties by acting as a financial hedge due to the fluctuating energy market. The financial aspect of VPPA, which involves comparing the differences in the strike price and the market price of electricity, allows for a regular net settlement. When the market price is higher than the strike price, solar power producers will have to pay customers the net difference of these prices. This profit assists customers to offset extra costs because if the market prices rise, energy supply costs will also rise, leading to higher expenses being incurred. Alternatively, when the market price is lower than the strike price, customers will pay solar power producers the net difference of the prices. Both parties can benefit depending on how the market prices change, opening further business opportunities for solar power producers to thrive in the Malaysian market.
Applications to participate in the CGPP will be reviewed by an evaluation committee to ensure transparency. The committee will comprise representatives from the Ministry of Energy and Natural Resources, Energy Commission and Single Buyer. After a solar power producer successfully obtains the quota, they will be able to apply for the New Enhanced Dispatch Arrangement Programme (NEDA), where solar power producers can sell energy to the grid. Tenaga Nasional Berhad will pay for the electricity generated either at a system marginal price or a bid price. The VPPA made by the customer and solar power producer will then be referred to in order to work out the difference between the strike price in their agreement and the system marginal price to pay for the net settlement.
Businesses and solar power producers should take this opportunity to make the best out of the programme which is aimed at encouraging the production and meeting the growing demand for green energy. In addition to achieving emission reduction goals, both customers and solar power producers will also benefit and bear a reduced risk from fluctuating electricity markets. This will encourage more overall green power energy fuelled companies in Malaysia that satisfy ESG related goals.
13 March 2023