By Professor Dato Dr Ahmad Ibrahim
Feed-in-Tariff schemes are used worldwide to incentivise electricity generation using renewables. The aim is to decarbonise electricity generation. It is through such Feed-in Tariff (FiT) schemes that the development of renewables, especially solar and wind, have been impressive. Thanks to such FIT programs, coupled with the relevant R&D, the costs of solar photovoltaic and wind have come down significantly. Implementing FIT schemes however presents a multifaceted array of challenges. Overly generous tariffs can strain public finances or utilities, leading to higher electricity prices for consumers, sparking political and social resistance. Setting rates too low, on the other hand, fails to attract investment, while excessively high rates risk overcompensation and unsustainable project booms. Adjusting tariffs as technology costs decline is critical to avoid inefficiencies.
Grid integration is a major challenge. The intermittent renewable sources (solar, wind) require grid upgrades to handle variability, posing technical and financial hurdles. Rapid deployment of renewables without adequate infrastructure can destabilize the grid, necessitating costly modernization. There are also administrative and institutional barriers. Complex application processes, slow approvals, and weak institutional capacity hinder effective implementation, especially in developing countries. Then there is the issue of monitoring and compliance. Ensuring adherence to FIT terms demands robust administrative systems, which may be lacking. There is concern about market and policy distortions. FITs can stifle market-driven mechanisms and provoke opposition from fossil fuel incumbents. Furthermore, favouring specific technologies may skew the energy mix, requiring ongoing adjustments to reflect evolving costs and innovations.
Malaysia has actively promoted renewable energy (RE) through its Feed-in Tariff (FIT) mechanism under the Renewable Energy Act 2011, managed by SEDA Malaysia. While solar photovoltaic (PV) has achieved considerable success under this scheme, the performance of biomass-based power generation has been mixed, despite the country’s significant biomass resource potential from palm oil, forestry, and agricultural residues. The achievements of the biomass sector under the FIT policy have lagged expectations due to operational, economic, and regulatory challenges unique to biomass energy production. Without addressing these structural issues, Malaysia risks underutilizing a key domestic renewable resource that could contribute to its energy transition and carbon reduction goals.
There are key challenges facing biomass under the FIT framework. Biomass energy relies on a steady, large-volume feedstock supply. In Malaysia, feedstock (palm oil residues, wood waste, rice husks) supply chains are fragmented, seasonal, and logistically costly, leading to inconsistent fuel availability. Biomass feedstock prices are volatile due to competition from other industries such as composting, fertilizer production, and biomass pellet exports. A fixed FIT rate does not account for these fluctuating operational costs, reducing investment attractiveness. It is no wonder under FIT 1.0, a low percentage of the quota given was eventually translated into solid projects. Many failed to deliver the quota given. Biomass power plants require substantial upfront investment and sophisticated technology for combustion, emissions control, and waste handling, making them costlier per MW installed compared to solar and wind.
The use of energy crops or unsustainable harvesting practices raises concerns about deforestation, biodiversity loss, and food security. Public opposition towards waste-to-energy plants, due to emissions and odour, can delay project approvals. Inconsistent enforcement of biomass sustainability standards and the absence of clear policies on waste ownership and feedstock rights hinder biomass energy development. Lack of clear guidelines for integrating small-scale rural biomass projects into the grid. Some of the policy recommendations include strengthening the biomass supply chain ecosystem. Support the establishment of biomass aggregation and logistics hubs near resource-rich areas as suggested under the National Biomass Action Plan.. Provide tax incentives for companies developing efficient feedstock collection, processing, and storage systems.
There is a suggestion to introduce a flexible FIT model or a two-part tariff system for biomass, where the fuel cost component is periodically reviewed and adjusted based on market conditions. To enhance sustainability assurance, the suggestion is to make feedstock sustainability certification mandatory for biomass FIT eligibility. And promote the use of agricultural and forestry residues over energy crops to mitigate land-use conflicts. Other policy suggestions include decentralized, off-grid biomass solutions, promote small and medium-scale biomass projects in rural and remote communities for energy access, and simplify grid connection regulations. There is the call to integrate biomass into the circular economy policies, positioning biomass energy within the CE Roadmap by linking biomass-to-energy with waste reduction and valorisation, and rural income generation. Malaysia possesses ample biomass resources, but current FIT structures inadequately address the operational realities of biomass power generation. Strategic policy reforms, particularly in supply chain management, tariff flexibility, and sustainability assurance, are crucial to revitalizing the sector. A targeted, locally-adapted biomass policy can help Malaysia meet its renewable energy targets while supporting rural livelihoods and sustainable waste management.
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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