Time in the sun for non-solar

IF solar is cheaper and faster to build, why is Malaysia putting billions of ringgit into biomass, biogas and small hydro projects that take longer to develop and cost several times more?

The answer lies in the limitations of solar.

Industry players say the country needs renewable power that can complement solar when the sun is not shining.

Under the latest feed-in tariff (FiT) round, 42 biomass, biogas and small hydro projects with a combined capacity of 331MW have been awarded, involving RM4.3bil in expected investment.

Small hydro projects account for just over half, with biomass making up most of the remainder and biogas the smallest share, industry players say.

The FiT scheme guarantees these projects access to the grid and a tariff for the electricity they generate, with the scheme funded through the Renewable Energy Fund, which is financed by a levy on electricity bills.

Under FiT 2.0, introduced in 2024, the tariff for these non-solar renewable energy (RE) projects is fixed for the first 10 years.

The tariff for the remaining 11 years is determined through competitive e-bidding, within a tariff floor and ceiling set by the Sustainable Energy Development Authority Malaysia (Seda).

The earlier FiT model also supported solar projects. But as solar costs fell, the government shifted the technology towards programmes such as the large-scale solar (LSS) scheme, introduced in 2016, where developers compete through bidding.

This competitive process helped drive solar tariffs lower, from an average of around 45 sen per kWh in LSS1 to about 20 sen in LSS4.

Tariffs were lower in the subsequent LSS5 and LSS5+ rounds, at around 15 sen and 17 sen per kWh, respectively, according to TA Research in a recent report.

The research firm estimates that at least 6.6GW of solar capacity will be integrated into the Peninsular Malaysia grid once LSS5 projects are fully commissioned, including capacity from previously approved Corporate Green Power Programme (CGPP) and Net Energy Metering projects.

For industry veteran and Citaglobal Bhd head of new energy Datuk Chairil Nazri Ahmad, the latest allocation reflects the need for a more balanced RE mix as the country’s solar capacity expands.

He says solar in Malaysia has a capacity factor of around 15% to 18%, compared with 50% to 70% for run-of-river small hydro and 70% to 85% for biomass and biogas with reliable supply of feedstock.

While gas-fired power plants can also provide flexible generation when solar output falls, they remain fossil-fuel based.

The higher reliability, however, comes at a higher cost.

“Some non-solar projects can cost about RM13mil per MW, compared with roughly RM2.5mil per MW for utility-scale solar.

“So, you are paying more per kWh for energy that is worth more per kWh to the system,” Chairil tells StarBiz 7.

According to him, solar farms are relatively modular, can be built in 12 to 18 months and have no fuel costs, with relatively light operations and maintenance requirements.

“The RM4.3bil gives a clearer sense of that cost difference. That’s roughly RM11mil for every MW – several times what a solar farm costs to build. And the plants aren’t due to start operating until 2029 or 2030.

“So, the government has knowingly paid more, and waited longer, to get power that runs at night, in the rain and whenever the grid needs it.

“Solar can’t do that. That trade-off is the whole point of this round,” Chairil explains.

The latest FiT round comes after several years of relatively small quota releases, as solar-focused schemes such as the LSS and CGPP took centrestage.

Industry players note that the 331MW allocation is higher than the 181MW allocated in 2025 and 36MW in the previous round.

“But the 331MW headline figure needs some context, as it includes both new projects and expansion of existing plants.

“New projects account for closer to 113MW,” Chairil adds.

According to him, the need for firm renewables in the mix is becoming more apparent if Malaysia is to meet its National Energy Transition Roadmap target without relying heavily on storage.

Among the companies featured in the latest round is Zeqna Corp Sdn Bhd, which operates the 6MW Slim hydroelectric plant in Perak and was approved to increase its capacity by 0.6MW to 6.6MW.

The plant has been operating since 2019 and has a FiT rate of RM0.3400 per kWh.

Chairil says Citaglobal Renewable Energy Sdn Bhd is acquiring a 70% stake in Zeqna, following Seda’s approval of the change in shareholding.

Separately, Koridor Mentari Sdn Bhd, which is developing the Kampar hydroelectric plant and is also being acquired by Citaglobal, saw its approved capacity increase from 5.25MW to 6MW under last year’s FiT round.

Chairil says the inclusion of expansions also has its advantages, as existing plants can be expanded faster and with less risk because the sites, infrastructure and grid connections are already in place.

Hurdles in small hydro

Chairil says small hydro is a civil engineering project involving structures such as weirs, intakes, penstocks and powerhouses, as well as access roads and grid connections.

Projects can take three to four years to build, while developers also face hydrology risk over the 21-year FiT period.

“A dry season is a revenue event, and nobody is insuring you against it,” he points out.

“A project also requires a suitable site, sufficient water, environmental approvals and a grid connection. Many potential sites are in remote areas, making grid connection costly.

“These challenges, rather than the tariff alone, remain key constraints on the development of small hydro,” he adds.

The approval process can also add significant time to project development, with various land, water, environmental, grid and licensing approvals often running sequentially rather than in parallel.

“You can lose 18 months without a single technical problem. Your COD (commercial operation date) deadline in the power purchase agreement doesn’t move, so that time comes out of construction,” he says.

Transmission is another challenge, particularly for projects located far from suitable grid connection points.

“A site 20km or 30km from a suitable connection point can face an interconnection line that swallows a large share of project capital expenditure, borne by the developer,” Chairil shares.

Biomass (which uses organic materials such as palm-oil residues as fuel) and biogas (produced from the breakdown of organic waste) projects face a different challenge: securing enough feedstock over the long term.

“Palm oil mill effluent or POME, empty fruit bunches and plantation residue – you need contracted volumes, logistics and a mill relationship that lasts 20 years.”

Waste as a revenue stream 

Waste-to-energy (WTE) projects have another source of revenue beyond electricity sales – fees for treating waste.

Unlike conventional power-generation projects, WTE plants are fundamentally waste-treatment facilities that also export electricity.

Cypark Resources Bhd’s Smart WTE plant at Ladang Tanah Merah, Port Dickson, Negri Sembilan, is one example, with Phase 1 already in operation and Phase 2 now being developed following approval under the latest FiT round.

Phase 2 secured 29.99MW of net export capacity and involves an estimated total investment of about RM700mil.

Cypark chief investment officer Mohamed Belqaizi Mohamed Taufik says the project’s economics should not be viewed based on electricity sales alone, as it will also generate recurring revenue from tipping fees under its waste concession.

“The project has two structurally distinct revenue streams.

“The first is the energy payment secured by the FiT framework. The second is recurring, concession-backed tipping-fee revenue, earned through the facility’s contracted availability to process municipal solid waste,” Belqaizi tells StarBiz 7.

For Cypark, the expansion also allows it to spread its existing infrastructure and operating capabilities over a larger facility, improving capital efficiency and operating leverage.

Phase 2 is expected to process an additional 1,000 tonnes of municipal solid waste a day while generating up to 29.99MW of RE for the grid.

Belqaizi says the 10-year fixed tariff provides greater certainty during the period when capital recovery and financing obligations are highest, while the subsequent e-bidding provides price competition without relying solely on the lowest tariff.

“Developers and lenders therefore have visibility over both tariff periods from the outset,” he adds.

Coming back to Phase 2, he says site works are expected to begin in the first quarter of 2027, subject to financial close and the remaining statutory approvals. 

Commercial operations are targeted about 24 months after construction begins.

Biomass gains from cogeneration

Meanwhile, BM GreenTech Bhd, through its wholly-owned subsidiary Boilermech Sdn Bhd, is participating in BM BioEnergy Innovations, the special-purpose vehicle (SPV) that has secured FiT approval for a 9.9MW biomass power plant in Hutan Melintang, Perak.

The plant has 8MW of net export capacity and an estimated project value of RM110mil.

The project carries a FiT rate of RM0.3790 per kWh and qualifies for an additional RM0.06 per kWh bonus for using Boilermech’s locally manufactured high-efficiency boiler system.

Gan Chih Soon, the managing director of Boilermech Sdn Bhd and executive director of BM GreenTech says the project’s cogeneration configuration strengthens its economics by producing both electricity for grid export and useful process steam for the offtaker from the same biomass fuel.

The project is being developed through a joint venture involving companies within the broader QL Resources group together with Synbio Power.

Within the project SPV, Boilermech acts as the engineering, procurement, and construction contractor and project developer, QL InnoFood provides the land and serves as the steam offtaker, while Synbio provides the biomass feedstock.

Gan says securing the feedstock and steam offtake upfront, alongside the land and EPC capabilities, helps reduce key project risks, while cogeneration strengthens economics by producing both electricity and useful process steam from the same biomass fuel.

“Seda has estimated Malaysia’s biomass resource potential at approximately 2.3GW, with palm-oil residues forming a major part of that potential.

“The opportunity is significant, but the commercially developable portion depends on how effectively each project addresses the underlying biomass economics,” Gan adds.