By Professor Dato Dr Ahmad Ibrahim
Policy makers love simple tools. Feed-in Tariffs (FITs) seem simple: set a premium price, guarantee grid access, and let the market build renewables. Germany did it with solar. Yet in Malaysia, the same mechanism has sputtered for biomass. Quotas went unfilled. Projects never broke ground. Why? Is it about the policy? Or is it about the execution of the policy?
First, understand what biomass is in Malaysia: palm oil mill waste (empty fruit bunches, shells, fibers). In theory, abundant. In practice, a policy mismatch. The FIT promised a fixed tariff (roughly RM 0.42–0.45/kWh for small biomass). But banks looked at biomass and saw risks: fuel supply contracts that can be broken, mills that can shut overnight, and a technology that requires constant, skilled operation. A guaranteed tariff means nothing if you cannot get project financing. Many allocated quota holders simply could not secure loans.
The logistics nightmare is next. Biomass is not solar. Solar panels sit silently. Biomass requires collecting, drying, storing, and feeding wet, bulky waste. Palm oil mills are often in rural, swampy areas. Adding a 5–10 MW power plant on-site sounds logical, but the upfront capital cost (boilers, condensers, grid connection) is huge. The FIT return period (10–16 years) looked too long for mill owners who are commodity players, not utility operators.
There is the “Execution Gap” between quota and capability. The Sustainable Energy Development Authority (SEDA) Malaysia gave quotas to applicants who submitted paperwork, not necessarily those with proven technical or financial muscle. Result: “quota tourists” flipped applications, but no real construction. Meanwhile, genuinely capable players (large industrial groups) found the FIT ceiling too low compared to selling palm oil derivatives or simply avoided the regulatory hassle.
Not to mention competing with cheaper coal. Malaysia’s generation mix is coal-heavy and subsidised. The avoided cost (what TNB would pay) was low. Even with FIT premium, biomass barely competed. Moreover, biomass plants cannot run 24/7 if fuel is seasonal. So, the effective capacity factor is lower than the optimistic numbers used in the FIT rate calculation.
So, what is the alternative menu? What actually works for bioenergy? For policy makers, do not throw out FIT entirely. But for biomass and other “feedstock-dependent” renewables, shift to these three smarter tools:
Option A: Competitive Auction with “Must-Run” Status*
Instead of administratively setting a FIT, run technology-specific reverse auctions. But here is the twist: award not just a tariff, but a guaranteed dispatch priority (must-run status) for a shorter period (10 years). This forces bidders to show real fuel supply contracts and bank guarantees. Malaysia’s own Large Scale Solar (LSS) auctions worked—apply that logic to biomass.
Option B: Capital Subsidy + Tax Fast Lane
Biomass’s main barrier is upfront cost, not operating revenue. Offer a 30% capital expenditure (CAPEX) rebate on certified boilers and generators, plus a 100% tax deduction for the first 3 years of operation. This de-risks the mill owner’s balance sheet. Faster to implement than complex tariff calculations.
Option C: On-Site “Waste-to-Energy” Obligation
Require all palm oil mills above a certain capacity to co-fire at least 15% of their own waste on-site for internal power. No need to sell to the grid. They save on diesel and reduce methane emissions. This is a mandate, not an incentive—but it works. Thailand did exactly this for rice husks and cassava.
Option D: Green Investment Bank – Bridging the Financing Gap
Establish a dedicated revolving fund (capitalised by a levy on fossil fuel sales) that provides first-loss guarantees or low-interest loans specifically for biomass. No bank will touch a small 2 MW biomass plant without a government-backed credit enhancement. The FIT quota is useless if the money never flows.
The bottom line is, Malaysia’s FIT for biomass failed not because feed-in tariffs are bad, but because policy design ignored the dirty reality of biological fuel. Solar is predictable; biomass is messy, seasonal, and owner-operator dependent. Policy makers must stop copying solar FITs onto other technologies.
We need three immediate actions: first, cancel unfilled biomass FIT quotas and reallocate them via a competitive auction with proof of fuel supply and financial close within 12 months. Next, launch a RM 200 million “Biomass Bridging Fund”** offering 40% first-loss guarantees for commercial loans. Third, mandate co-firing for palm oil mills above 30 tonnes/hour of fresh fruit bunch processing – start small, enforce smartly.
Renewables growth requires policy surgery, not a single tariff scalpel. Let’s stop applauding the idea of FIT and start fixing the execution. A key message for policy makers is, understand the fuel before designing the price. For biomass, fix capital risk and feedstock security first – then the tariff will take care of itself. Unless such actions are taken, the biomass to energy dream may become a nightmare.
The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya.
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