Why Malaysia's energy subsidies are "not sustainable"

Government's expenditure capacity is on the line, expert says.

With a growing population and an increasing level of energy consumption, Southeast Asia has become a hotspot for energy research and development. Key economies in the region such as Malaysia and Thailand are revolutionising energy efficiency programmes and financing, as their governments aim to reach energy targets and maintain growth momentum.

Syed Ahmad Syed Mustafa, chief executive officer, Greentech Catalyst, says that in order for Malaysia to remain an economic leader in the region, the country’s energy consumption must be well-managed in order to ensure more efficient production. Mustafa says that while subsidies have been helpful in energy development, they are not sustainable as they stretch the government’s expenditure capacity.

Greentech Catalyst has been working with the Malaysian government to implement the Green Technology Financing Scheme (GTFS), which targets producers and users of green technology and provides them with 60% in government guarantee on bank loans and a rebate of 2% on interest charged. Since it was established in 2010, GTFS has financed 272 green projects amounting to RM2.96 billion and is expected to have generated RM5.81 billion in green investments. Due to the success of GTFS, it will be continued from 2018 to 2022 with additional target of loans approval of RM5 billion.

Meanwhile, Thailand’s Bureau of Energy Regulation and Conservation (BERC) continues to innovate its Energy Conservation Promotion (ENCON) Fund. Wisaruth Maethasith, engineer, BERC, shares the Energy Efficiency Revolving Fund, or revolving fund, the ESCO revolving fund, and a direct subsidy programme as Thailand’s major schemes for EE or RE projects. Maethasith shares once accepted for the revolving fund, a project will be eligible for low-interest loan maximum of THB50 million at 3.5% flat interest rate, with a 5-year repayment period.

“Six questions must be asked when designing any energy efficiency programme: What is the target market? Are there drivers for action? Is there a supply chain? What are the barriers? What solutions can address the barriers? How can change be sustained?,” says Joshua Brunert, analyst, Carbon Trust.