MURDOCH RESEARCH REPOSITORY · 2014. 3. 19. · Palm oil biomass Sustainability Feed-in Tariff...

MURDOCH RESEARCH REPOSITORY

This is the author’s final version of the work, as accepted for publication following peer review but without the publisher’s layout or pagination.

The definitive version is available at http://dx.doi.org/10.1016/j.renene.2013.04.010

Umar, M.S., Jennings, P. and Urmee, T. (2013) Strengthening the palm oil biomass Renewable Energy industry in Malaysia.

Renewable Energy, 60 . pp. 107-115.

http://researchrepository.murdoch.edu.au/15720/

Copyright: © 2013 Elsevier Ltd.

It is posted here for your personal use. No further distribution is permitted.

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Highlights

� We recommend a fuel collection hub and explore the potential use of less sought after large fibre and palm frond.� We suggest centralising a technology hub facility to encourage conversion to a low carbon technology at the existing mills.� Smart-partnership collaboration for building a large-scale biomass plant is worth consideration as it lowers the business risks andenhances economies of scale.

� Off-grid solutions involving decentralized generation would help to avoid further grid infrastructure investment.

Contents lists available at SciVerse ScienceDirect

Renewable Energy

journal homepage: www.elsevier .com/locate/renene

0960-1481/$ e see front matter � 2013 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.renene.2013.04.010

Renewable Energy xxx (2013) 1

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Please cite this article in press as: Umar MS, et al., Strengthening the palm oil biomass Renewable Energy industry in Malaysia, RenewableEnergy (2013), http://dx.doi.org/10.1016/j.renene.2013.04.010

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Strengthening the palm oil biomass Renewable Energy industry in Malaysia

Q2 Mohd Shaharin Umar*, Philip Jennings, Tania UrmeeSchool of Engineering and Information Technology, Murdoch University, South Street, Murdoch, Western Australia 6150, Australia

a r t i c l e i n f o

Article history:Received 10 September 2012Accepted 23 April 2013Available online xxx

Keywords:Renewable energyPalm oil biomassSustainabilityFeed-in TariffSmall renewable energy power programmeDistributed generation

a b s t r a c t

The palm oil industry contributes 85.5% of the total biomass production in Malaysia, hence offering greatpotential for large-scale power generation. Despite being a tool that was designed to steer renewableenergy development, the Small Renewable Energy Power (SREP) scheme has failed to stimulate thegrowth of the industry. To assist the industry, a new Feed-in Tariff (FiT) regime was introduced in 2011with an ambitious 2080 MW national renewable energy target by the year 2020. Palm oil biomass isprojected to contribute 800 MW of grid-connected capacity towards this target, a huge step up from the41.5 MW capacity reached during the SREP period. This study investigates whether the current down-stream value chain mechanism under the new policy system is capable of supporting such a high ca-pacity goal. The main objective of this study therefore is to evaluate the sustainability of components thatconstitute the value chain, including the availability of palm oil biomass supply, bio-energy conversiontechnology and the costs and alternatives to grid extension. In order to understand the industry prob-lems, this study uses a mixed methodology approach involving a combination of market survey andregulators’ interviews. The aggregated results from these techniques were later discussed by focus groupexperts representing both industry and government stakeholders before arriving at a final consensus.Potential future strategies deriving from this research include options to explore the potential use of lesssought after large fibre and palm frond. Centralising a technology hub facility offers an alternativeapproach to encourage conversion to a low carbon technology at the existing mills. Smart-partnershipcollaboration for building a large-scale biomass plant is worth consideration as it lowers the businessrisks and enhances economies of scale. Finally, off-grid solutions involving decentralized generationwould help to avoid further grid infrastructure investment.

� 2013 Elsevier Ltd. All rights reserved.

1. Introduction

The palm oil industry is one of Malaysia’s major agriculturalenterprises. There is considerable controversy about its environ-mental impacts and a major effort is underway to make it moresustainable. One approach to this objective is tominimize thewastefrom this industry by converting it into useful products, such asrenewable energy.

In Malaysia, biomass disposal from this industry is a majorsustainable energy resource. According to the Malaysia Palm OilBoard, the annual production of palm oil biomass residue inMalaysia stands at an average of 53million tonnes with a 5% annualgrowth projection [1]. In 2010, the palm oil biomass solid wastesaccounted for 80million tonnes of dry biomass and it is projected torise to a significant 100 million dry tonnes by the year 2020 [2]. The

present palm oil biomass volume growth makes the crop attractiveand an ideal candidate for large-scale power production [3].Nonetheless, the country requires a bold, affirmative and consistentpolicy direction to capitalise the competitive advantage of the palmoil industry towards strengthening its commitment in reducing thefuture carbon footprint [4].

The sustainable energy industry in Malaysia began in 2001,notably to integrate economic growth and environmental benefits.The Fifth-Fuel Diversification Policy 2001 is embedded in theEighth Malaysia Plan (2001e2005) policy document aiming atpromoting the sustainable energy market development. Inresponse to this initiative, the Small Renewable Energy Powerprogramme (SREP) has been created to catalyse the growth of therenewable energy industry. Nevertheless, after a decade on streamthe scheme failed either to expand the industry or to achieve itsoriginal five-year national 500 MW capacity target or 5% share ofthe total energy mix. It has been scaled down to 350 MW in theNinth Malaysia Plan (2006e2010), due to the low participationfrom the market communities. The SREP debacle is discussed in theSovacool and Drupady [5] work, which extensively discusses the

* Corresponding author. Fax: þ61 893606346.Q1E-mail addresses: [email protected], [email protected]

(M.S. Umar).

Contents lists available at SciVerse ScienceDirect

Renewable Energy

journal homepage: www.elsevier .com/locate/renene

0960-1481/$ e see front matter � 2013 Elsevier Ltd. All rights reserved.http://dx.doi.org/10.1016/j.renene.2013.04.010

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Delta:1_given nameDelta:1_surnameDelta:1_given nameDelta:1_surnameDelta:1_given nameDelta:1_surnamemailto:[email protected]:[email protected]/science/journal/09601481http://www.elsevier.com/locate/renenehttp://dx.doi.org/10.1016/j.renene.2013.04.010http://dx.doi.org/10.1016/j.renene.2013.04.010http://dx.doi.org/10.1016/j.renene.2013.04.010Original text:Inserted Textgiven name

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msuifaInserted TextPalm

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reasons for its poor performance. The common factors contributingto the shortcomings are non-feasible energy business due toirregular supply of fuel, low grid-connected pay rate, and distancefrom the national grid. Other popular comments by the marketcommunities include the lopsided and biased power purchaseagreement, low efficiency of the boiler and Combined and HeatPower (CHP) technology that is designed mainly for oil palm pro-duction rather than for power generation and the infamous ‘willingbuyer willing seller’ model that is favoured to the utility.

The previous predicament reminds the government not toreplicate the same mistake if it intends to increase the renewableshare of the country’s energy mix, particularly in exploiting theabundance of palm oil solid wastes. The Feed-in Tariff (FiT) systemsets an ambitious national renewable energy target of 2080 MW bythe year 2020 and 21,370MW by 2050. This in turnwould translateto an estimated cumulative total of 45.7 and 629.2 million tonnes ofCO2 eq emissions avoided by 2020 and 2050 respectively. The palmoil solid wastes are projected to contribute a significant 800 MWofgrid-connected capacity share by the same year and 1,340 MW in2030 [6]. These capacities correspond to a cumulative total of 17.6million tonnes CO2 eq and 29.5 million tonnes CO2 eq emissionsremoval by considering that bio-energy generation displaces theelectricity generation from conventional fuels. On the other hand,methane gas (biogas) produced from the palm oil liquid waste isprojected to generate 240 MW in year 2020 and 410 MW in 2028,which would translate to 1.2 tonnes CO2 eq and 258.3 tonnes CO2eq annual avoidance in the respective year.

It is a relatively large step up from the 41.5 MW of grid-connected capacity during the SREP period. Thus, this study in-vestigates whether the current downstream processing system iscapable of supporting such a high capacity goal. The outcome of thisstudy would reflect the market readiness for sustainable growth ofthe industry.

In that context, this study endeavours to examine whetheradequate pre-emptive measures have been considered in the pre-sent FiT instrument in order to avoid the recurrence of past defectsthat could hinder the further development of the Renewable En-ergy (RE) biomass industry. More importantly, the authors haveundertaken this study, realizing that this is a relatively new policyarea with very little literature or published academic research thatinvestigates the strengths and weaknesses of the new FiT law.Three main variables have been selected for this evaluation, includeresource availability, technological innovation, and networkextension to the main grid. All of these determinants are primarilyassociated with the palm oil facilities’ compound.

2. Methodology

The evaluation of the present system was achieved bycombining quantitative and qualitative case study techniques. As ameans of attaining insights and knowledge about the investigatedparameters within the market communities, the author dissemi-nated questionnaire surveys to 417 palm oil millers all over thecountry. The survey document which contained 72 questions under6 different headings had been pilot tested and modified accordingto comments from a small group of biomass producers before finaldelivery to members of the industry. The survey questions coveredkey issues on sustainability of resource supply, biomass technology,grid-extension scheme, market barriers, awareness campaign andfuture prospects. Overall, this survey received 85 returned ques-tionnaires or a 20.4% response rate, consisting of 51 electronicallyreturned surveys and 34 postal mode surveys. In-depth interviewswere conducted with the stakeholders to understand the marketbehaviour involving 4 major Ministries that have direct or indirectcontrol of the industry. To ensure consistency, producer survey’s

outputs were used as a basis to design the interview questions. Thesamplewas purposively selected comprise of articulate participantsto ensure effective result [7]. To conclude, a focus group meetingconsisting of the government and market experts was set up todeliberate on the early findings before arriving at a final consensus.An extensive reference to secondary data materials such as periodicacademic publications and other public documents and reports wasmade throughout the study to understand the latest informationabout the industry.

The integration of multiple methods helps to eliminate any databias from early techniques [8,9]. The deployment of various ap-proaches, on the other hand, would triangulate the investigateddata and enhance results of one method by using the strengths ofothers [10,11]. The numerical and narrative data of the study havebeen analysed by using two main tools, a computer-based Statis-tical Package for the Social Sciences (SPSS) version 17 software anda computer-aided NVivo Version 8. Fig. 1 illustrates the flowchart ofthe data gathering process undertaken for the study.

3. The industry landscape

It is essential to describe the overall market structure andrenewable energy policy system that governs the industry, so thatone can understand the potential and foreseeable obstacles facing theindustry. Subsequently, a comprehensive examination of the sus-tainability of downstream components would help to identify factorsthat could impede the rapid growth of this non-hydrocarbon basedenergy industry.

After several decades of being the world’s major palm oil pro-ducer and exporter, Malaysia maintains its global leading positionin palm oil plantation with a total of 6 million hectares in 2008.Even though, Malaysia is now the second largest palm oil producer,it remains competitive by capitalising large quantities of processingresidues which can be used for a commercial scale bio-energy in-dustry. In terms of volume, biomass from the palm oil sector ac-counts for 85.5% of the total biomass share in the country, vastlyoutpacing other available biomass sources such as wood (3.7%), ricehusks (0.7%) and sugarcane (0.5%) [12].

Despite the current abundance of resources, it is vital to includethe palm oil contribution towards sustaining environmental pro-tection and food security. Without a long-term plantation expan-sion plan, the industry will have to depend on replanting of lowvalue crops such as rubber with other export crops as part of its

Fig. 1. Data gathering process for the study.

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Survey findings

Fig. 1. Data gathering process for the study.

Literature Search

Data Collection

Qualitative Interview

(Policymakers)

Quantitative Survey +

Pilot Test (Industry)

Field Survey

(Web-based and Postal Mode)

Field Interview

(Face-to-face)

Preliminary Findings

Focus Group Meeting

(Industry + Policymakers)

Future Strategies

msuifaFile AttachmentFigure 1.doc

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msuifaInserted TextIndustry Landscape

strategy to mitigate environmental degradation. In addition,Malaysia is practicing sustainable forest management due to itsinternational commitment during the Conference of the Parties(COP 15) in Copenhagen 2009 to keep 50% of its land as forestedareas. At present, natural forest covers 20.1 million hectares (or61%) while agricultural land accounts for 4.9 million hectares (or14.9%) of the total land area in Malaysia [13].

In relation to the food versus fuel debate, it is clear that highproductivity and effective land use are keys to ensuring food se-curity from this crop. A study indicates palm oil cultivation de-mands less than 5% of the world’s agricultural land, but provides33.6% of the total global market share of vegetable oils [14]. Theannual production cost of palm oil in Malaysia in 2001 was abouthalf the production cost of other major vegetable oils with a cost ofUSD239/tonne compared with USD400/tonne for rapeseed oil inEurope and USD459.90/tonne for soybean oil in the United States ofAmerica (USA) [15]. Palm oil cultivation also appears to be the mostefficient land use as it occupies only 4.74% of the total cultivatedland, which is far below that of soybean and rapeseed with 42.50%and 12.25% of total planted area respectively [16,17].

Themultiple use of its solid wastes, ranging from the empty fruitbunch (EFB), fibre, palm kernel shell, palm frond and trunkcertainly explains why palm oil by-products emerge as strongcontenders for lessening the country’s vulnerability to fluctuatingconventional energy prices [18,19]. Besides the approximately 75%of palm trunk and frond that are retained on field sites for soilconditioner and mulching, the remaining 25% of solid residues isavailable at plants for boiler fuel [15]. Under normal circumstances,EFB, fibre and palm kernel shells are the common wastes that areused as fuel for power generation. Despite allowing palm trunks tonaturally decompose as fertiliser at the plantation sites, the in-dustry is projected to produce about 240 million tonnes of palmtrunks over the next 10 years during the replanting period [2]. Thus,trunks which become available at the end of a plantation’s 25e30years life cycle offer great potential to add value to the biomassenergy business.

In view of market structure shown in Table 1, it has been esti-mated that 61% of the plantation portfolio as at June 2012 isdominated by private entities (publicly listed companies) and theremaining 39% share is controlled by FELDA, small independentdevelopers and other government/states plantation schemes. Thisis consistent with a study by Carlos and Khang [22] that most of thebio-energy projects in South East Asia region are developed bymajor agricultural-based producers.

Besides dominating the acreage of plantation estates, the in-dustry landscape is largely shaped by the domination of privateentities and Government-Linked Companies (GLCs) that have ma-jority control of the palm oil facilities all over the country. Theycontribute the largest portion of the total market share and emergeas major determinants of the successful implementation of thecountry’s sustainable energy agenda. Based on the available data inOctober 2011, a total of 417 palm oil mills are actively operating allover Malaysia. Table 2 presents some of the largest plantation

developers with numbers of their privately owned plants and totalland bank.

By geographical distribution, the majority of the palm oil plan-tations are concentrated in PeninsularMalaysia, covering 51% of thetotal planted area and the remaining 49% are located in the twoother states on the Borneo Island [1]. Nonetheless, there is a sig-nificant variation in demographic distribution areas whereapproximately 29% of cultivation sites are dispersed all over Sabahoutweighing other leading States such as Sarawak with 20% share,Johor (17%) and Pahang (16%) [3,21]. Almost half of the crops arecultivated by the states in Eastern Malaysia (Sabah and Sarawak).The demographic distribution of planted area in Malaysia is por-trayed in Fig. 2 below.

Except for Perlis State which appears to have no palm oil culti-vation activities, the palm oil facilities exist in all 13 states ofMalaysia. As listed in Table 3, the top of the list is Sabah State whichhas a total of one-quarter or 117 plants, while Johor and PahangStates operate 71 and 67 mills, respectively.

4. The Malaysian renewable energy policy system

4.1. Feed-in Tariff (FiT)

The Feed-in Tariff (FiT) is a massive structural reform that isintended to support a long term, vibrant renewable energy in-dustry. The scheme, which commenced on 1st December 2011, wasconceived as the main policy driver to steer the renewable energyindustry in Malaysia. Mandated by the Renewable Energy Act 2011,the major characteristic underlying this system is its commitmentto long-term investment security through a guaranteed purchaseagreement. The new policy offers an effective mechanism foraccelerating the deployment of clean energy technology whilecreating market growth [23]. Hence, it provides a strong advantageto small-scale renewable power producers as this renewable en-ergy law will protect them from business risk.

Overall, the scheme is a major overhaul to the former poorlydesigned regime with numerous enhancements to improve theindustry landscape. Amongst key components in the new system isan attractive and fixed payment for every identified resourceincluding biomass technology. On top of a huge rise in the paymentrate from RM0.21 (SREP) to RM0.31 (FiT), the biomass-based en-terprises can expect extra benefit up to a maximum of RM0.02 forevery installation of efficient technology in a plant site by riding ona guaranteed 16 years purchase obligation and payment durationcontract [24]. By considering the economies of scale for differenttechnologies, the payment structure is derived according to thetype of renewable sources, technology application, plant size andits commencing date. On the other hand, the creation of the

Table 1Percentage share of palm oil plantation ownership in Malaysia[20,21].

Plantation ownership % Share

Private estates 61Independent smallholders 14FELDA 14FELCRA 3RISDA 2State agencies 6

Table 2Selected private listed companies, palm oil mills and total land bank.

Private listed companies Number of mills Total land bank (Ha)

KL-Kepong Berhad 14 178,939IOI Corporations 12 169,000Sawit Kinabalu Berhad 8 72,070Genting Group 6 NAUnited Plantations Berhad 6 40,855Southern Realty (M) Sdn. Bhd. 6 50,000Boustead (M) Berhad 6 37,450Sarawak Oil Palms Berhad 4 65,000Salcra Sarawak 4 48,721IJM Plantation 4 30,000Kulim (M) Berhad 3 36,623WTK Group of Companies 3 60,000Rimbunan Hijau 3 14,000Sarawak Plantations Berhad 2 51,998

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Table 1

Percentage share of palm oil plantation ownership in Malaysia [15, 16]

Plantation ownership

% Share

Private estates

61

Independent smallholders

14

FELDA

14

FELCRA

3

RISDA

2

State agencies

6

msuifaFile AttachmentTable 1.doc

msuifaCross-Out

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msuifaInserted Textstate

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msuifaInserted Textstates

Fig. 2. Demographic distribution of palm oil planted area in Malaysia [15, 16].

Note: Plantation areas are shown in red (colour version) or dark grey (black and white version).


Table 3

Distribution of Palm Oil Mills in Malaysia

No.

State

Total Palm Oil Mills

by State

1.

Johor

71

2.

Selangor

21

3.

Pahang

67

4.

Perak

47

5.

Negeri Sembilan

15

6.

Terengganu

14

7.

Kelantan

10

8.

Pulau Pinang

2

9.

Melaka

3

10.

Kedah

7

11.

Sabah

117

12.

Sarawak

42

13.

Federal Territory

Kuala Lumpur

1

Total

417


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Table 2

Selected Private Listed Companies, Palm Oil Mills and Total Land Bank

Private Listed Companies

Number of Mills

Total Land bank

(Hectares)

KL-Kepong Berhad

14

178,939

IOI Corporations

12

169,000

Sawit Kinabalu Berhad

8

72,070

Genting Group

6

NA

United Plantations Berhad

6

40,855

Southern Realty (M) Sdn. Bhd.

6

50,000

Boustead (M) Berhad

6

37,450

Sarawak Oil Palms Berhad

4

65,000

Salcra Sarawak

4

48,721

IJM Plantation

4

30,000

Kulim (M) Berhad

3

36,623

WTK Group of Companies

3

60,000

Rimbunan Hijau

3

14,000

Sarawak Plantations Berhad

2

51,998


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msuifaInserted TextRenewable Energy Policy System

renewable energy fund will facilitate the removal of financial bar-riers that constrain the expansion of the market, while offeringmore attractive financial conditions and a stable investment streamto potential developers. This is funded from a 1% levy on the finalelectricity consumers, constituting 41% of industry and commercialusers, while the balance (18%) comes from domestic users (usingmore than 300 kWh of electricity per month) [6].

The adjustment to the exporting bandwidth capacity to themain grid from 10 MW during the SREP to 30 MW in the FiT isanother important element that is expected to stimulate a widerange entry of enterprises ranging from small businesses with smallbudgets and limited capability to major entrepreneurs [6].

Inspired by the success of FiT implementation in other coun-tries, the policy system in Malaysia sets a very ambitious long-termcapacity target of 2080 MWor 11% of total energy mix in year 2020and it is forecasted to exponentially rises to 4000 MW or 17% oftotal installed capacity by 2030 [6,25]. It is a critical challenge as the

interim short-term target poses a big leap from less than 1% todayto about 985MWor 5.5% renewable share in 2015 [6]. Interestingly,out of four renewable resources selected for the early entry, whichinclude biogas, biomass, small hydropower and solar photovoltaicpower, the solid organic source is likely to dominate the renewablecapacity share with a significant 330 MW and 800 MW of totalinstalled capacity by the years 2015 and 2020, respectively [20,22].Fig. 3 depicts the short-term target for the identified renewableenergy resources.

4.2. The national biomass strategy 2011

A report by the Agency of Innovation Malaysia (AIM) providesstrategies to capitalise palm oil biomass in the country with the aimof creating higher value added downstream economic opportu-nities worth RM30 billion of Gross Net Income (GNI) by 2020. Of alloptions, biomass energy production is ranked lowest in terms ofvalue added uses and rapid return on a commercial scale, waybehind the conversion of biomass into pellets, bio-fuels productionand bio-based chemicals activities [2].

The AIM study recommends bio-based chemicals be given thehighest priority due to its potential as the largest contributor to theGNI and considering that Malaysia is capable to supply about 0.6%of the total global market demand. However, to realize this po-tential requires longer-term investment compared with the readyEuropean and Japan market demand for biomass pellets. It is esti-mated that the current European pellet demand stands at 10million tonnes per annum and could grow to approximately 90million tonnes of pellet by 2020. With a possible quick paybackperiod of 3e5 years, as well as to capture the immediate marketopportunity, the AIM study suggests the construction of a 100,000tonne production pellet plant by undertaking minor customisationof the existing technologies. Third down the line is the conversionof biomass to bio-fuels. In realising these opportunities, a total of

Fig. 2. Demographic distribution of palm oil planted area in Malaysia [20,21]. Note: plantation areas are shown in red (colour version) or dark grey (black and white version). (Forinterpretation of the references to colour in this figure legend, the reader is referred to the web version of this article.)

Table 3Distribution of palm oil mills in Malaysia.

No. State Total palm oil mills by State

1. Johor 712. Selangor 213. Pahang 674. Perak 475. Negeri Sembilan 156. Terengganu 147. Kelantan 108. Pulau Pinang 29. Melaka 310. Kedah 711. Sabah 11712. Sarawak 4213. Federal Territory Kuala Lumpur 1

Total 417


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msuifaInserted TextNational Biomass Strategy

msuifaSticky NoteAccepted set by msuifa

Fig. 3. Short-term Renewable Energy Capacity Target under FiT [6].


5.5 million tonnes, 10 million tonnes and 4 million tonnes ofbiomass mobilisation are expected by 2020 for the use of bio-basedchemicals production, pelletisation and bio-fuels activities,respectively.

To be globally cost competitive, this empirical work indicatesthat transportation and other logistics matters, including harvest-ing, collection, pre-processing, substitution and transporting toprocessing facilities, appear to be the most critical challenges,especially to small developers. Thus, the report suggests a smart-partnership method as the best option to reduce business risk. Asfor biomass energy production segment, an estimated amount of6e9 million tonnes of biomass is required to achieve the 800 MWcapacity target in 2020, depending on the efficiency of the equip-ment that is fitted at the existing facilities [2]. Therefore, instead ofcompeting with other higher value activities in securing biomasssupply, it is recommended that the bio-energy industry shouldcomplement the strategies that underpin this report to ensuresustainable growth of the industry.

5. Analysis of downstream components

As shown in Fig. 4, it is important to evaluate the effectiveinteraction of components in the downstream value chain towardsachieving a constant supply of renewable power from the plants tothe main grid and final users. As anticipated by Boons andMendoza[26], the sustainability of energy production activities is deter-mined from the sustainable components that constitute the prod-uct chain.

5.1. Fuel supply

This study includes two main sources of references to distin-guish availability and sustainability of biomass reserves that are

theoretically available in the country. First, the literature analysis ofpalm oil production and secondly the analysis of numerical dataobtained from the industrial survey.

From the literature study, it appears that Malaysia producedapproximately 17.7 million tonnes or 41% of the total world palm oilproduction in 2008 [25]. As a prime agricultural commodity, theproduction pattern corresponds to a sharp increase from 2.6milliontonnes in 1980 to about 18.9 million tonnes in 2011 [27]. Thecountry’s palm oil sector can expect a strong demand from theworld market with a continuous rise from 20.6 million tonnes in2013 to 21.5 million tonnes in 2015 due to the growing global de-mand for vegetable oil [28]. From the long-term projection, theproduction is forecasted to reach 256 million tonnes CPO/year inthe year 2050 in response to mature crops in plantation [28]. Thepalm oil crops also demonstrate a better level of productivity andeffective land use, which explain the minimal land area require-ment for cultivation activities and the large percentage contribu-tion of vegetable oil to the world market [14,17]/. Technically, theincrease in palm oil production would eventually translate to pilesof biomass available in the market.

The macro scale market investigation reveals sufficientbiomass reserves in the field. In contrast, about 61% of powerdevelopers reiterate that fuel security and price inflation remainamongst the main barriers that hamper their interest in enteringthe business (Fig. 5). The unstable fuel supply in the market isexpected to restrict participation of potential investors in theindustry. Unlike the major producers, who have full control ontheir feedstock, the fuel constraint would greatly affect smalldevelopers who are dependent on third party supply. Based onthe survey results, 67% of respondents are utilising residues fromtheir own plantation. This is consistent with the current marketstructure that is dominated by large plantation operators. Insteadof investing in the energy business, 68% prefer to trade theirwastes in an open market, for a quick return. This implies thatsmall producers, without a palm oil estate, confront difficulties tosecure long-term biomass supply. To make it worse, if they weregiven the option, 90% of market participants are not interested topurchase biomass wastes from a third party for power produc-tion purposes.

Analysis of the FiT provisions shows that most of the economicbarriers have been well addressed. Nevertheless, the long overduebiomass supply impediment, especially for small developers re-mains without a definite solution. Instead, the current policy sys-tem encourages plantation owners, enterprises and feed-in

Fig. 3. Short-term renewable energy capacity target under FiT [6].

Fig. 4. Model of palm oil biomass renewable energy downstream value chain.


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Palm Oil Mills

Power Grid and

End User

(Supply)

Transmission Line

(Demand)

Fig. 4. Model of palm oil biomass renewable energy downstream value chain

Grid Extension

System

Conversion

Technology

Biomass

Supply

Final Consumers

Conventional Energy + Renewable Energy


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Fig. 5. Irregular biomass supply as part of industry barrier.


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approval holders to work independently in securing biomass sup-ply if they find the investment is financially viable [29]. The con-dition reflects the non-intervention approach by the regulators,whether to mediate or to overcome supply issues should they arise.This contradicts the outcome of the survey where 84% of re-spondents suggest the authorities’ intervene to ensure stable sup-ply. While recognising adequate resource availability is aprecondition for the sustainable growth of the industry, Carlos andKhang [30] conclude that inefficient waste management is one ofthe major obstacles that could hinder the expansion of biomasstechnology in a sustainable manner [31].

5.2. Conversion technology

The bio-energy conversion technologies that are widely usedinclude direct-combustion, gasification, anaerobic digestion, py-rolysis and modular systems [36]. Based on the survey analysis,almost 77% of palm oil mills in Malaysia are using combustion orCHP systems or a combination of both, while only 5% of plants arefitted with a gasification system. A study by Trummer [32] assertsthat CHP technology at these facilities is designed for the elec-tricity and heat demand of the plant. Even though some facilitiesare operating a conventional boiler system with above 70% effi-ciency, most installations in the existing plants are still runningwith low-pressure boilers that are less than 40% overall cogene-ration efficiency [19,32]. This matches the survey findings wheremore than 69% of plants are using relatively old technology,which has been in operation for more than 10 years (Fig. 6).

Technology maturity may take a long time, but there is potentialto replace the inefficient technology in these plants with modernsystems [33].

To ensure expenditure for biomass technology is cost-effective,it must be a net energy producer. In a simple calculation, the plantmust produce more energy over its lifetime than the energy usedfor its operation and maintenance. Failing that means the tech-nology is highly unsustainable. By virtue of the fact that the amountof energy produced over a certain period of time correlates to theefficiency of equipment, it is apparent that obsolete machineryequates to low conversion efficiency and unsustainability. There-fore, the crucial challenge in the current circumstances correspondsto persuading the market players to convert to modern technology.The palm oil enterprises have for many years considered the energybusiness as a secondary operation while the edible oil productionremains their core business [4]. The survey data indicate that 58% ofthe respondents have agreed with this perception. One of themarket respondents even stated that energy investment is just anincidental to dispose of the unwanted waste in their facilities’compound. Another focus group expert said that purchasing newenergy conversion equipment for an existing plant is not feasible,but it may be worth consideration for a new project.

The industry is reluctant to replace their current inefficientmachines because the extra capacity from the burning of biomasswastes is meant to cater for their daily operational needs ratherthan for exporting to the grid [32,34]. Moreover, technology in-vestment requires high upfront costs which correspond to a longerpayback period discourages the producers from switching to lowcarbon technology [35]. The survey result reveals that 53% of re-spondents perceive biomass technology to be a high cost invest-ment and 75% rely on financial assistance and technologicalsupport from the authorities before they can embark on this busi-ness. In addition, 53% of biomass energy producers are not ready toinvest in a project which is far from their current capability [36,37].This is why more than half of the respondents have opted tocontinue using their existing equipment at their mills regardless ofits efficiency. All of these externalities explain the barriers toimproving the sustainability of the industry.

The government support to drive biomass power into themarketplace is needed if biomass technology cannot match othertechnologies on cost. Thus, affirmative public policy is central tosteer technological innovation forward [38]. Apart from incenti-vising the industry by offering extra monetary benefits in the FiTpayment structure, the regulators may need to create an innovativeapproach to ensure that expenditure for a frontier technology canbe accepted by the entire spectrum of market communitiesparticularly the small-scale entrepreneurs.

Other sustainable areas that demandmore attention include thedevelopment and promotion of more local technology and conse-quently the reduction of dependence on foreign technologies.There is also a need for capacity building in this area so that theindustry is capable and competent to carry out the job of techno-logical innovation [4].

5.3. Grid-extension system

About 86% of market respondents are utilising excess biomassenergy for their own operations. This means that less energy is fedto themain grid where it contributes to the renewable energy shareof the energymix. One of the obvious reasons for this is the absenceof transmission lines to connect their plant to the nearest distri-bution point. Nevertheless, the research survey shows that 55% ofrespondents are willing to venture into the renewable energybusiness if the infrastructure cost is borne by a third party, eitherthe government or utilities.

Fig. 5. Irregular biomass supply as part of industry barrier.

Fig. 6. Age of technology installed at the existing mills.


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The socio-economic impact is one of the important sustain-ability indicators in the energy production system [39]. This can bemeasured from the electricity coverage. In Malaysia, most of theareas of Peninsular Malaysia are well electrified, but more attentionshould be placed on improving power coverage in Sabah and Sar-awak [40]. Even though power coverage in West Malaysia hasalmost reached the desired maximum level, the States in EasternMalaysia are still experiencing less than 81% electrificationcoverage (Table 4). Thus, exploiting the readily available palm oilbiomass resources, particularly in these States, is the wisest way tomeet their electricity needs.

The survey analysis shows that 63% of the existing biomass fa-cilities are situated more than 10 km from the nearest point on theelectricity grid (Fig. 7), so that high costs for connection to thenearest point may be an obstacle. Like most infrastructure, inter-connection cost and financing availability are amongst criticalsuccess factor to future undertakings of biomass and otherrenewable power projects [41]. Due to the dispersed nature of ruralsettlement in Malaysia, the transmission of conventional powerfrom the main grid to remote villages is often technically andeconomically prohibitive. Nonetheless, the use of waste biomassprovides an interesting opportunity and this should be capitalisedfor the expansion of off-grid electrification. Sabah is among thelowest electrified coverage areas and it houses one-quarter of thetotal palm oil facilities in Malaysia. It is clearly the prime candidatefor promoting rural electrification based on the abundance of itsbiomass resources. One of the viable options to overcome the grid-extension barrier is to create small-scale decentralized localizedsystems or mini-grids [37,42].

It is obvious that the legacy of lack of a network connectionscheme during the SREP regime explains why so little progressoccurred. The Electricity Supply Act 1990, which contains aprovision that prohibits remote facilities with no grid access fromselling their excess power to another party (e.g. rural dwellers)other than a utility; is partly to blame for the lack of interest inenergy investment. Almost 60% of the market respondents sug-gested that the law should be amended. As such, detailed anal-ysis of the law reveals that the FiT system lacks a sustainablesupporting mechanism to connect small producers in isolatedareas to the nearest point of the grid. There is a clause in the lawthat demands that the feed-in approval holder should finance allcosts (including costs for power systems studies) up to the pointof interconnection [29]. Another unattractive feature lies to thecondition that the eligibility for FiT is strictly confined to thecommunity that is serviced by the utility. Those without trans-mission infrastructure are generally denied the opportunity tobenefit from the new scheme. Without sustainable off-gridrenewable solutions many of the potential market players willbe prevented from entering the business.

6. Future strategies

As a result of the narrative analysis of the interview findings andthe final consensus amongst experts during the focus groupmeeting, some pertinent future strategies can be drawn from thisstudy.

(1) Consistent with the current market structure, it has beennoticed that most plants are affiliated to major developers.This means that majority of domestic investors are bound bybusiness decisions of their parent companies, in which in-vestment for any energy-related project is subject to man-agement clearance. The market players would not be able toenter the energy business unless they have been grantedpermission by the head office. Although majority of the focusgroup participants supported market liberalisation, the authoris of the view that buy-in from these large operators isnecessary to convince them of the viability and profitability ofthe biomass energy business and ultimately to encourage newentries.

(2) Setting up a one-stop fuel collection centre aiming atsecuring a steady and constant supply of fuel is widelyaccepted by the market communities, but a careful study isrequired to locate a suitable site that is economically viable.This would benefit small developers with no stable supplyof biomass. The crucial challenge arises from the scatteredlocation of the plants with most of them located in remoteareas. Responses from the survey participants indicated thattransportation cost is one of the main contributing factorsthat would deter the widespread development of the in-dustry. Thus, proper mechanisms need to be designed toaddress the management and operational issues of thecollection hub.

(3) Despite of its seasonal nature, another alternative to increasethe supply of residues for power generation is by exploring thepotential use of less sought after large fibre, palm frond andchipped trunk to substitute for commonly used by-products.Besides reducing dependency on traditional burning fuelssuch as EFB, palm kernel and fibre, it certainly provides a va-riety of biomass fuel to participating enterprises and wouldcushion the biomass trading price. Moreover, under normalcircumstances three quarters of these solid wastes are left onsite for nutrient recycling and mulching purposes without anyvalue added activities. Constructing an on-site power plantcould be considered to eliminate biomass mobilisation costfrom the field to the plant.

(4) Together with an efficient biomass management system, theinterview participants suggested that a larger research budgetshould be provided to increase the yield and improve thecropping trend. This in turn would affect pattern of biomasssupply to the market.

(5) If the authorities’ strategy to construct a commercial scalepellet plant is to come on stream, then this can be integratedwith the energy business. In fact, clean power could be pro-duced directly from this pellet plant, or otherwise, the pelletproduct could be supplied at a premium price to a FiTparticipating plant for energy production.

(6) Another strategy is to explore centralised technology hubfacilities, in which an identified technology application is

Table 4Percentage of rural electricity coverage in Malaysia in 2009 and 2010 [40].

Region 2009 2010

Peninsular Malaysia 99.5 99.6Sabah 77.0 80.8Sarawak 67.0 72.6

Fig. 7. Distance of mills from the grid line.


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Table 4

Percentage of Rural Electricity Coverage in Malaysia in 2009 and 2010 [34].

Region

2009

2010

Peninsular Malaysia

99.5

99.6

Sabah

77.0

80.8

Sarawak

67.0

72.6


Fig. 7. Distance of mills from the grid line.


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shared amongst neighbouring plants. All the group partici-pants support the idea but with conditions of adequate fuelsources in the surrounding areas and minimal logisticcomplication. It certainly offers an attractive approach tosmall producers, but administrative complexity, such as thelocation and operational matters require further examina-tion. Small producers, which constitute 14% of the totalmarket are assumed to have less interest in procuringmodern technology due to the lower capitalisation of theirbusiness. Hence, this strategy is feasible to catalyse thedevelopment of the biomass energy market in remote areas.

(7) To begin, the regulators could exploit the capacity and capa-bility advantage of major developers to be prime movers. Acluster concept could be introduced, whereby the emergingtechnology could be located at one of the existing plants andthis installation could be shared amongst neighbouring plants.Minimal additional administrative procedures would beneeded if the facilities are associated with an existing plant.Apart from promoting conversion to a low carbon technology,this approach helps to prevent power producers from invest-ing at every associated plant which is economically non-cost-effective.

(8) In addition to technology bonuses in the current FiT pay-ment structure, additional financial support such as softloans can be explored to accelerate conversion to moderntechnology at the existing mills. As commented on by one ofthe interview experts, other proven technology should beincorporated into future plans without restriction to a singleinstallation such as the gasification system. As part of long-term strategic planning, a concerted effort to increase localtechnology providers is essential to lower the technologycost.

(9) Apparently, the renewable energy business demands a hugeinitial capital cost, thus smart-partnership collaborationwith a government-backed mechanism was well received byall the experts involved in this study. The commissioning ofa large-scale biomass energy plant is worthy of consider-ation as it would lower the business risk. More importantly,a cost-sharing strategy accrues economies of scale andmaximises an enterprise’s profit margin. Some possiblemodels could be explored, whether it is a public-privatecollaboration, utility-major developer consortium or evenforeign investor-local developer joint venture strategy.Otherwise, the regulators may compromise with a build,operate and transfer (BOT) model to avoid public capitalspending while promoting private-driven business. Based onthe experts’ feedback, the major plantation operators areready to participate but this is definitely subject to theeconomic viability of the project. On the same note, theseexperts suggest that the government invest in the infra-structure and provide a conducive environment for invest-ment. However, a due diligence study is required to identifya suitable location and to ensure sufficient supply of fuels,avoiding high transportation cost as well as determining areasonable size or capacity for the plant.

(10) The grid-extension system could be improved by introducing acost-sharing option. But, the consensus decision from thefocus group experts was that the sharing concept must belimited to building basic infrastructure from plants to thenearest point of the grid. In this regard, government inter-vention is vital to promote understanding between the utilityand the market players to determine the amount of infra-structure investment and a feasible connecting distance forboth parties. As an extra benefit, the authorities might offerfinancial incentives, such as tax exemption to plants that

successfully finalise their infrastructure agreements andparticipate in the FiT scheme. At the same time, the 10 kmconnection distance condition set under the SREP should berevisited and extended to a more reasonable range. Due to thenature of the millers’ business, that is producing oil palmrather than generating power, it is more appropriate for theutility to be responsible for maintaining the transmissionsystem including cables, transformers, switchgear, protectionequipment and meters.

(11) On the other hand, the high cost of grid-extension infra-structure could be avoided by extensively promoting adecentralized generation system or small-scale independentpower producer concept as it offers an alternative to nationalgrid connection. The renewable producers must be allowed tocharge rates comparable to or equivalent to utilities for powersupplied. Apart from enhancing the enterprise profit margin,off-grid electrification is an effective way to extend electricitycoverage to isolated settlements [41]. The move would com-plement Bazmi et al.’s [43] work that recommends forMalaysia to seriously promote amini-grid system to power theremote communities. In response to the results of the indus-trial survey, inconsistent provisions in the Electricity SupplyAct 1990 need to be revised and modified to allow rural palmoil facilities to sell their excess electricity directly to nearbyhomes.

(12) Moving forward and in line with suggestion by one of theinterviewee, further consultationwith the utility is essential toattract investment for the installation of automation technol-ogy such as smart grid or smart metering technology. Based oncomments by the industry experts, there are certain unat-tractive terms and conditions in the FiT that need to bereviewed. Since the system is relatively new, more frequentregular meetings between the authority and industry need tobe conducted to receive responses about the FiT. The biggestdecision the government could make is to shift the currentenergy subsidy structure away from conventional fuels to-wards renewable resources.

7. Conclusions

Evaluation of the aggregated fieldwork results of this studyleads to the conclusion that the current policy system is notoptimal for steering the palm oil industry towards sustainability.Despite providing a strong fundamental ground for a profitableenergy business and future industrial expansion, the new FiT isclearly only addressing a small fraction of the obstacles to industryinvolvement in sustainable power generation. To sustain thegrowth of the industry, prudent solutions are of necessity. Thiswill require government intervention in consultation with theindustry to provide the necessary infrastructure and incentives.This study presents some possible future strategies that could befactored into improving components of the downstream valuechain. Even though it is too early to evaluate the success andeffectiveness of the FiT tools, this work suggests a slight modifi-cation to the system, may be effective in accommodating a moreholistic market reform strategy towards a sustainable future forthe palm oil biomass renewable energy industry.

Acknowledgement

The author would like to acknowledge the Public ServicesDepartment, Malaysia for the financial support rendered for theconduct of this study.


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Cover page author's versionstrengthening the palm oil biomass renewable energy industryRENE5322_edited.pdfStrengthening the palm oil biomass Renewable Energy industry in Malaysia1. Introduction2. Methodology3. The industry landscape4. The Malaysian renewable energy policy system4.1. Feed-in Tariff (FiT)4.2. The national biomass strategy 2011

5. Analysis of downstream components5.1. Fuel supply5.2. Conversion technology5.3. Grid-extension system

6. Future strategies7. ConclusionsAcknowledgementReferences

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