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Energy Policy 36 (2008) 890899 www.elsevier.com/locate/enpol

An econometric study on long-term energy outlook and the implications of renewable energy utilization in Malaysia
Peck Yean Gana,, ZhiDong Lib
a b

Department of Engineering-Energy and Environment Science, Nagaoka University of Technology, 1603-1 Kamitomioka, Nagaoka, Niigata 940-2188, Japan Department of Management and Information System Science, Nagaoka University of Technology, 1603-1 Kamitomioka, Nagaoka, Niigata 940-2188, Japan Received 30 July 2007; accepted 6 November 2007

Abstract We developed a comprehensive econometric model to study the long-term outlook of Malaysias economy, energy and environment to 2030. Our projections under the reference scenario indicated that Malaysias gross domestic production (GDP) is expected to average 4.6% from 2004 to 2030, and total primary energy consumption will triple by 2030. Coal import will increase following governmental policy of intensifying its use for power generation. Oil import is predicted to take place by 2013 and reach 45 Mtoe in 2030. Hence, in the near future, Malaysias energy import dependency will rise. Carbon emissions will triple by 2030. On the other hand, our projections under an alternative renewable energy (RE) scenario showed that the utilization of RE is a strategic option to improve the long-term energy security and environmental performance of Malaysia. However, substantial governmental involvements and support, as well as the establishment of a regulatory framework are necessary. r 2007 Elsevier Ltd. All rights reserved.
Keywords: Malaysia; Econometric model; Energy outlook

1. Introduction Malaysia is one of the most developed countries among the Association of Southeast Asian Nations (ASEAN) members. The successful implementation of the Industrialization Plan in 1985 (Jomo, 2003) has brought forth rapid economic growth and structural transformation away from agricultural-based economy. Between 1990 and 2005, gross domestic production (GDP) growth averaged above 6%, and was well above 9% before the hit of the Asian Financial Crisis in 1997 (MoF, various issues). Within the same period, total primary energy consumption climbed to 60.4 million tons of oil equivalent (Mtoe) in 2005 from 19.6 Mtoe in 1990 (IEA, various issues; EPU, 2006). Oil was traditionally the main energy source until it was gradually replaced by natural gas following the introduction of the Four-Fuel Diversication Strategy in 1981 (MEWC). In 2005, oil in total primary energy consumption
Corresponding author. Tel.: +81 258 46 6000x3184; fax: +81 258 47 9350. E-mail address: toto@stn.nagaokaut.ac.jp (P.Y. Gan).

was approximately 47%, with natural gas contributing almost as much at 41%. As for coal, the consumption increased from 1.77 to 5.5 Mtoe between 2000 and 2005 (EPU, 2006) with the bulk of it consumed in power generation, mainly driven by the Malaysian governmental policy of shifting to coal in order to reduce high dependence of this sector to natural gas. Three new coalred power plants with a combined capacity of 3200 megawatt (MW) were commissioned between 2000 and 2004, and another 3500 MW is expected to come on stream within 2006 and 2010 (EPU, 2006). Malaysia has been highly dependent on import for its coal consumption. With the shift to coal, both coal imports and pollution emissions are expected to escalate if appropriate air pollution abatement equipment is not used. In the Ninth Malaysia Plan for 20062010, the government is targeting an average annual economic growth of 6%. Total primary energy consumption growth is projected at 4.4% and nal energy demand at 6.3% annually on average. Primary oil consumption is projected to average 3.5% annually, increasing from 28.2 Mtoe in 2005 to 33.5 Mtoe in 2010. Malaysia has been a net oil

0301-4215/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2007.11.003

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exporting country since 1970s. In 2005, crude oil exports amounted to 369,000 barrel per day (bpd), and brought in some 28.5 billion Malaysian ringgit of revenue (EPU, 2006). However, with increasing domestic oil demand at one end and limited reserves condition at the other, it is of great concern pertaining to how long the country is able to sustain its oil exporting status from both economy and energy perspectives. There were a number of studies regarding Malaysias energy including MEC (2000a), Ademe and BCEOM (1996), MEWC (1991, 1993), etc. However, these studies are primarily based on a set of assumed economic growth, socio-demographic conditions and pre-determined energy intensity levels. Therefore it is hard to keep the consistency between energy demand and economic growth. In this study, we develop a comprehensive econometric model that encompasses macroeconomic, energy and environmental performance projections instead of based on assumptions as done in other studies. Our purposes are to analyze future fossil fuel demand and supply positions, and hence energy security issues, as well as pollutants emissions of Malaysia. We also looked into the implications of utilizing renewable energy (RE) using an alternative scenario. This paper is organized as follows: Section 2 describes the integrated econometric model developed for this study. Section 3 provides the scenario description, assumptions and simulation results of the reference scenario. Section 4 gives an overview of RE development in Malaysia and analyzes simulation results of the alternative RE scenario. Finally Section 5 gives the conclusion of this study. 2. Integrated econometric model 2.1. Model structure An integrated econometric model consisting of a macroeconomic sub-model and an energyenvironment sub-model was developed in this study as shown in Fig. 1 (Li, 2003). The macroeconomic sub-model is designed to provide indicators inuencing energy supply and demand and related pollutants emissions consistently. All economic and price-related indicators are treated as endogenous variables in the macroeconomic sub-model while population factors, government factors and foreign factors such as world trade and exchange rate are treated as exogenous variables. The energyenvironment sub-model is designed to determine energy ows in stages and relating pollutants emissions consistently with the consideration of relating economic and price indicators obtained in the macroeconomic sub-model. It starts with nal energy demand by sector and by fuel, followed by power generation to determine the required input for electricity generation, and nally total primary energy consumption computed from the sum of nal energy demand and power generation activities. Carbon dioxide (CO2) emissions by sector and

fuel are computed according to stages of energy consumption using the International Energy Agency (IEA) emission coefcient. 2.2. Data source Macroeconomic indicators are obtained from ofcial publications of the Malaysian government such as Economic Report, Malaysia Yearbook of Statistics, Malaysia Economic StatisticsTime Series, Labor Force Survey Report, Social Statistics Bulletin, and complimented with World Development Indicators reports by World Bank, LABORSTA (database of labor statistics) by the International Labor Organization (ILO), etc. Energyenvironment-related data are obtained from Energy Balances of Non-OECD Countries by IEA. Indicators not available from any consistent sources, for example fuel prices, electricity tariff, thermal efciency and so on were collected through extensive surveys and eld studies. All data were available up to 2004. Concerning physical capital stock, due to unavailability of data, it is estimated using past investment and capital stock data of the manufacturing sector from 1970 to 2003 as a proxy. We assumed a constant depreciation rate of 10% per year as shown in Eq. (1), where K is real capital stock, I is real investment and t is calendar year. The initial capital stockGDP ratio in 1960 is assumed to be 1. Here, our assumptions are similar to that of World Bank but differ from IMFs (World Bank, 2005; IMF, 1997): K t I t 0:9 K t1 . 2.3. Estimating the equations Except denitional equations, generally, periodical data from 1971 to 2004 were utilized to develop equations econometrically using the ordinary least-square method. At present, our model has 179 equations in total, with 46 equations for the macroeconomic sub-model, and 133 equations for the energyenvironment sub-model (Gan, 2008). An example of an estimated equation is as follows: CP 6:23697 0:223904 GDP 0:472003 CP1 13:5734 DUM98 tvalue 3:33 4:38 3:50 3:55, where CP is the private consumption, GDP is gross domestic production and DUM98 is a dummy variable. Sample period was from 1974 to 2003. R2 (coefcient of determination) was 0.995, standard deviation (SD) was 3.00523 and DW (DurbinWatson statistic) was 1.351. In this equation, private consumption depends on GDP and is affected by previous consumption pattern. Longterm marginal propensity to consume is estimated as 0.42. A dummy variable was used in this equation to reect the Asian nancial crisis. (1)

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Population factors population and its make up

Government factors consumption, investment, etc

Foreign factors world trade, exchange rates, etc

Macr oeconomic Sub-Model

Economic indicators Economy activities indicators, industrial structure indicators, production volume indicators such as crude steel production volume, passenger and freight indicators, etc Energy efficiency indicators power generation efficiency (by energy source)

Price indicators Deflators for GDP and its components, general price indexes (e.g.WPI, CPI), energy-related price indexes, etc

Energy production coal, oil, natural gas, nuclear power, hydropower, etc

Pollution parameters carbon emission parameters, etc

Energy-Environment Sub-Model

Energy-related indicators final energy consumption (by sector & by source), fuel mix for electric power generation, primary energy supply/demand balance (by source)

Pollutant-related indicators CO2 emission volume (by sector & by source), other related indicators

Keys

Exogenous variables

Model

Endogenous variables

Fig. 1. Model structure.

Partial test, total test and nal test were conducted in order to examine the overall models conformity. Test results showed that, generally, standard deviation values are rather low, except for fuel price-related variables such as liqueed natural gas (LNG) and coal prices, subsectoral energy consumption variables such as agriculture sub-sector oil consumption, commercial sub-sector natural gas consumption and so on due to lack of long timeseries data and insignicant share of consumption against total. 2.4. Production function and potential GDP GDP production function is based on the CobbDouglas production function as follows: Y elT K a OPR L1a , (2)

total output accruing to capital, relative share of total output accruing to labor and TFP are estimated at 0.28%, 0.72% and 1.8%, respectively. Compared to other studies, World Bank assumes that the relative share of total output accruing to capital is 0.3, while IMF estimates it to be within 0.20.4 (World Bank, 2005; IMF, 1997). Table 1 summarizes the GDP growth accounting estimates of this study and that of the Malaysian government, World Bank and IMF. For between 2004 and 2030, our study estimated that contribution from capital, labor and TFP to GDP growth would be 1.5%, 1.4% and 1.8%, respectively. TFP is expected to be the main driving force for future economy growth, contributing 39% compared with 30% for 19712004. 2.5. Energy elasticity Energy consumption by fuel and sector is estimated as a function of real term energy price and activity factors such as GDP, GDP of industrial sector, etc. Based on the equations obtained, long-term elasticities of some main energy consumptions were calculated as shown in Table 2. Generally, for the trend observed in Malaysia, it was found that the activity elasticity is higher than the price elasticity.

where Y is the real GDP; K is the real capital input; OPR is 1 minus unemployment rate, L is the labor force, hence (OPR L) is the labor input; T is calendar year; a is the relative share of total output accruing to capital; 1a is the relative share of total output accruing to labor; and l is the total factor productivity (TFP). Based on Eq. (2), potential GDP namely the maximum GDP was calculated assuming OPR at 1. In our study, the relative share of

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P.Y. Gan, Z. Li / Energy Policy 36 (2008) 890899 Table 1 Comparison of GDP growth accounting
Unit (%) Malaysian government World Banka IMF This study

893

19711990 19911995 19962000 20012005 19601980 19802000 19781996 19911996 19711990 19911995 19962000 20012004 19712004 Real GDP Capital Labor TFP 6.7 3.2 2.3 1.2 9.5 4.7 2.3 2.5 4.8 2.2 1.5 1.1 4.5 1.7 1.5 1.3 4.0 1.7 0.3 1.9 3.9 1.7 0.3 2.0 4.5 2.1 0.4 2.0 5.4 2.7 0.6 2.0 7.0 2.7 2.3 2.0 9.5 3.9 2.1 3.5 4.7 1.8 2.3 0.6 4.4 0.7 1.7 2.0 6.7 2.5 2.2 2.0

Source: EPU, 1996, 2006; World Bank, 2005; IMF, 1997. a In the original report, TFP growth net out the effects of increases in schooling. But here it is included as often done in Malaysian estimates. Table 2 Long-term activity and price elasticity estimated Sector Activity factor Variable Industrialelectricity Industrialoil Roadoil Commercialelectricity GDP of industrial sector GDP of industrial sector Number of car GDP Elasticity 1.3 0.4 1.1 0.7 Price factor Variable Relative price of electricity and LNG Oil price Gasoline price Electricity price Elasticity 0.03 0.20 0.05 0.25 In In In In 2004 2004 2004 2004 Note

Table 3 Main assumptions for the reference scenario

Variables (annual growth rate, %) Population Government consumption Government investment World trade Variables (level) 20042010 2.2 4.8 7.0 4.5 2010 20102020 1.8 4.0 4.5 4.4 2020 3.2 72.5 35.8 45.3 42.8 20202030 1.5 3.5 3.5 4.4 2030 3.0 97.3 35.8 46.4 44.0

Exchange rate (Malaysia ringgit/ 3.4 USD) Crude oil price (USD/BBL) 57.8 Thermal efciency in power generation (%) Oil-red 35.8 Natural gas-red 44.2 Coal-red 42.2

3. Simulation 3.1. Scenario description and assumptions A reference scenario that assumes a continuation of current trends and policies implemented up to the end of 2004 was developed for the projection of Malaysias economy, energy and environmental outlook to 2030. Main assumptions are summarized in Table 3. The assumption on crude oil prices is adopted from IEA World Energy Outlook 2006. Actual gures are used in simulation when available. 3.2. Outlook of Malaysias economy, energy and environment to 2030 Malaysias GDP growth is expected to average 4.6% from 2004 to 2030 under the Reference scenario. Real GDP

is projected to reach USD341.6 billion in 2030 compared with USD107 billion in 2004. In terms of economy structure, the share of agriculture sector is projected to drop further from 10.2% in 2004 to 7.2% in 2030. On the other hand, the share of industrial and service sectors will increase but only marginally to 51% and 42%, respectively, in 2030 from 50% and 41% in 2004. Per-capita real GDP is expected to reach USD8690 in 2030 from USD4296 in 2004. In PPPs (purchasing power parity terms), it will climb up to USD20,064 in 2030 from USD9920 in 2004. Meanwhile, motor vehicles penetration rate is expected to increase. The number of cars would increase from 6 million in 2004 to 12.8 million in 2030. Consequently, vehicle ownership rate is expected to climb from 23.7% in 2004 to 33% in 2030. Based on the above macroeconomic projections, total primary energy consumption is expected to grow at 4.3% annually on average from 2004 to 2030. In 2030, total primary energy consumption is 160.9 Mtoe, 3 times larger than that of 2004. The increase in energy consumption by 2030 is however lower than the growth of GDP over the same period. Thus, energy intensity (ratio between total primary energy consumption and GDP) improves by 0.3% on average per annum from 2004 to 2030 as shown in Fig. 2. Energy consumption growth accounting showed that improve living standard will be the main driver of future energy demand growth as shown in Fig. 3. Compared with a study by Malaysia Energy Center (MEC), the estimated total primary energy consumption of this study is lower for 2020 (MEC, 2000a). In the study by MEC, the key variables that determine energy consumption such as economic growth, population, energy intensity, etc., are based on assumptions or merely a predetermined level. Thus, the study assumed a much higher

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Fig. 2. Total primary energy consumption by fuel and energy and carbon intensity.

Fig. 3. Analysis of total primary energy consumption growth.

GDP and energy consumption growth despite the 1997 Asian Financial crisis. Our results indicate that energyGDP elasticity for 19982010 is slightly lower. Furthermore, we also predicted that energy intensity for 19982020 is to improve by 0.2% on average as shown in Table 4. Future primary energy consumption will be met by fossil fuels as hydro and renewables are expected to increase only marginally and remain insignicant, contributing 1.4% and 0.6%, respectively, in 2030. Oil will remain the most important energy source supplying approximately 44% of total primary energy consumption in 2030 as shown in Fig. 2. Natural gas consumption is expected to expand further by 34 Mtoe up to 2030 but its share would drop gradually from 38% in 2004 to 34% in 2030. In contrast, the use of coal will increase sharply from 5.7 Mtoe in 2004 to 33.6 Mtoe in 2030, which is the only fossil fuel that increases its share.

The increment in coal consumption is predicted to take place due to a further shift from natural gas to coal in power generation activities. Two new coal-red plants with a combined capacity of 3500 MW are to be operational between 2006 and 2010 as shown in Table 5. With the commissioning of these new power plants, future coal demand for power generation alone is expected to touch 19.5 million tons per annum. The electricity production is expected to increase from 83 terawatt-hour (TWh) in 2004 to 340.4 TWh in 2030. Of this, the share of coal-red electricity will climb from 28% in 2004 to 46% in 2030, functioning as a replacement to natural gas and oil. On the energy supply side, we analyzed the domestic energy production outlook and import dependency of natural gas, coal and oil. Firstly, regarding natural gas. In 2005, Malaysias natural gas reserve was estimated at 85.2 trillion standard cubic feet (tscf) with a reserve-production

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P.Y. Gan, Z. Li / Energy Policy 36 (2008) 890899 Table 4 Comparison of Malaysias energy demand projections Comparison with other study Actual 1998 2004 Forecast 2010 2020 2030 Annual growth rate (%) 19982010 20042010 20102020 20202030 19982020 20042030 895

Reference scenario results of this study Simulation period: 20042030 Total primary energy consumption 41.0 53.9 75.4 (Mtoe) GDP (billion RM, 2000) 297.5 406.4 557.5 Energy intensity (toe/million RM, 2000) 137.8 132.7 135.3 Energy-GDP elasticity Forecast 1998 MEC (2000a) Simulation period: 19982020 Total primary energy consumption (Mtoe) GDP (billion RM, 1978) Energy intensity (toe/million RM, 1978) EnergyGDP elasticity RM: Malaysian ringgit.

113.0

160.9

5.2

5.8 5.4 0.3 1.1

4.1 4.4 0.3 0.9

3.6 4.2 0.6 0.9

4.7 4.9 0.2 1.0

4.3 4.6 0.3 0.9

860.4 1298.0 5.4 131.3 123.9 0.2 1.0

Annual growth rate (%) 2010 2020 19982010 20102020 19982020

35.2 127.7 276.0

87.7 302.1 290.1

172.2 622.7 276.5

7.9 7.4 0.4 1.1

7.0 7.5 0.5 0.9

7.5 7.5 0.0 1.0

Table 5 Coal-red power plants in-place and planned in Malaysia Coal-red power plants Capacity (MW) Year commissioned Coal demand (million ton/year)

Existing TNBPort Klang power plant (Phase 2) TNBPort Klang power plant (Phase 3) Independent power producerSejingkat power plant TNBJanamanjung power plant Future Independent power producerJimah power plant Independent power producerTanjung Bin power plant

600 1000 100 2100 1400 2100

19881989 2001 2000 2004 Commissioning 2009 20062010

1.5 2.5 0.3 6.0 3.5 5.7

Source: Compiled from EPU (2001, 2006), MEC (2000b), Azirun (2002) and JEV.

ratio of 33 years according to EPU (2006). Historical statistics indicated that over 80% of natural gas is utilized in power generation activities, and a large part of this took place in Peninsular Malaysia, the most populous and developed region of Malaysia (MEC, 1998). Natural gas supply in this region comes from the offshore gas elds, as well as external sources such as from MalaysiaThai Joint Development Area (MTJDA) and West Natuna gas eld of Indonesia (EPU, 2006). This however is relatively smaller compared to natural gas production in the Sarawak region that is mainly to cater for the export markets. Hence, in the ultimate term, Malaysia will remain a net natural gas exporter and a drastic increase of import is not foreseeable in the near future. Secondly, coal. Malaysia has been importing over 90% of its coal demand mostly from Australia, Indonesia, South Africa and China (IEA, various issues; Azirun, 2002). In 2004, coal import was 5.7 Mtoe, while local production was only 0.2 Mtoe (IEA,

various issues). The Malaysia Geological Survey Department estimated that the country has approximately 1.5 billion tons of coal reserves (MEWC, 2002). Most of this however is located in interior areas, which lack infrastructure and are uneconomical to be fully exploited. Thus, with increasing coal demand, future coal import is expected to increase further as domestic production will remain insignicant. Finally, regarding oil. Total primary oil consumption forecast of our study is plotted against domestic oil production projections by the Malaysian government and Energy Information Administration (EIA) as shown in Fig. 4 (EPU, 2006; EIA, 2007). Based on our results, a turn from current oil export position to oil import is expected to take place as soon as in 2013. Net import of oil is estimated at 4.8 Mtoe in 2014, to increase to 22 Mtoe in 2020 and 45 Mtoe in 2030. Under increasing coal imports and decreasing domestic oil production prospects, overall import dependency, and hence energy

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Fig. 4. Total primary oil consumption and domestic production.

supply security, is expected to become more prominent in the near future. In addition, as a consequence of a sharp increase in energy demand and a shift towards fuel with higher carbon content, total CO2 emissions will increase from 42 million t-c (ton of carbon) in 2004 to 130 million t-c in 2030. Over the past years between 1971 and 2004, carbon intensity (ratio between CO2 emission and total primary energy consumption) had decreased due to a shift away from oil to natural gas in power generation. Nevertheless, post 2004, it is expected to bounce back due to larger coal consumption as shown in Fig. 2. In summary, the reference scenario shows several challenges ahead for energy policy in particular with regard to energy security and increasing carbon emissions of Malaysia. With decreasing indigenous oil production and rising car penetration rate, larger use of coal in power generation, and hence larger imports and a limited contribution from renewables, Malaysia will start to rely more on imports. 4. The implications of utilizing RE 4.1. Governmental policies, incentives and development projects to promote RE In view of decreasing domestic fossil fuel production on the one hand and increasing energy demand on the other, the Malaysian government actively pursues the development of RE in 1999 with the adoption of the Fifth Fuel Diversication Strategy that recognizes the importance of RE (EPU, 2001). Following this, a number of projects were implemented as summarized in Table 6. Promoting the use of RE for power generation started off with the Small Renewable Energy Power Program (SREP) project in 2001. Under SREP, RE-based power plants are allowed to connect up to 10 MW of power generating capacity to the

national grid and sell its electricity at an agreed price to the state-owned utility company. In addition to SREP which targets biomass, Suria 1000 was launched in 2006 to promote the installation of solar photovoltaic (PV) energy systems by residential and commercial sectors, where the public is invited to bid for grid-connected solar PV systems at a discounted price. For the power generation sector, the government intends to achieve 5% of RE-based electricity by 2005. On the other hand, in the transport sector, a trial run of 5% blend of processed palm oil with diesel is currently under way. The Malaysian government intends to commercialize the blending of 5% biodiesel in all diesel sold in the domestic market by 2007 (Gan, 2007). 4.2. Estimating the implications of utilizing RE In order to estimate the impacts of utilizing RE to the future energy demand and supply position, as well as environmental performance of Malaysia, we developed an alternative scenario namely the RE scenario in line with the above-mentioned governmental policies. For the power generation sector, we assumed a more successful implementation and achievement in the establishment of REbased power plants than that under the reference scenario, while for the transport sector, we assumed the use of 5% palm oil-based biodiesel blend, B5 will take place after 2004 as shown in Table 7. Simulation results of reference and RE scenarios are compared and summarized in Table 8. With the net increment of approximately 4 Mtoe of RE utilization in power generation and transport sector combined in 2030, the use of 5.1 Mtoe of natural gas, 2.8 Mtoe of coal and 0.5 Mtoe of oil could be avoided, overall fossil fuels import would drop by 3.1 Mtoe and CO2 emissions would reduce by 6.7 million t-c. While the use of 5% palm oil-based biodiesel blend, B5 will reduce demand for diesel gradually and only marginally, intensifying the role of RE in power generation will

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P.Y. Gan, Z. Li / Energy Policy 36 (2008) 890899 Table 6 RE development-related governmental policies and projects in Malaysia RE-related governmental policies, incentives and projects I. Power generation sector (a) Policy Fifth Fuel Diversication Policy (b) Fiscal incentives Tax exemption Investment tax allowance (c) Projects Small Renewable Energy Power Program (SREP) BioGen (Biomass-based power generation and cogeneration in the palm oil industry)UNDP/GEF cofunded project Malaysia Building Integrated Photovoltaic Technology project (MBIPV)UNDP/GEF co-funded project Suria 1000 II. Transport sector (a) Policy National Biofuel Policy Biofuel Act (b) Fiscal incentives (c) Projects Trial of palm oil-based biodiesel EnvoDiesel Year Objective 897

1999 2000

Recognizes RE as the fth fuel of Malaysia To promote the use of RE for power generation

2001 2003

To promote the development of grid-connected RE-based power generation To remove barriers to commercial utilization of biomass for cogeneration and grid-connected power generation in Malaysia To reduce the long-term cost of BIPV technology within the Malaysian market, which will subsequently lead to sustainable and widespread of BIPV technology applications To promote the installation of solar photovoltaic energy systems in residential and commercial sectors

2005

2006

2006 2006

To promote the use of biodiesel from palm oil in the domestic market and for exports *Waiting for parliament passage *Currently under review Trial of 5% processed palm oil blends with diesel in selected government institutions and transport company

Source: Compiled from eld studies: EPU (2001), MoF (2000), EC (2002), UNDPa, UNDPb, Ahmad et al. (2007), Shari and Yeow (2006) and MPIC (2006). UNDP: United Nation Development Program. GEF: Global Environment Facility.

Table 7 Main assumptions of RE contributions under RE scenario Variables (level) 2010 2020 2030

Electricity from renewable energy (TWh) Reference scenario 1.61 RE scenario 2.50 Use of palm oil-based biodiesel, B5 (ktoe) Reference scenario 0 RE scenario 294.20

4.18 13.02 0 398.80

10.83 52.69 0 505.30

reference scenario. The renewables will account for 15.5% of total electricity generated in 2030, increased by 12.3 percentage points than that of the reference scenario. As a consequence, carbon intensity (ratio between CO2 emission and total electricity generated) and fossil fuel intensity (ratio between fossil fuels-red electricity to total electricity generated) in 2030 would drop by 12.4% and 14%, respectively, as shown in Fig. 5. 4.3. Issues and challenges Until now, the Malaysian government has targeted RE for power generation and as transport fuel. While the use of palm oil-based biodiesel (B5) is expected to have effect through mandatory ruling, the target pertaining to the use of RE for electricity generation is virtually indicative. This causes a sluggish progress in SREP implementation, where until 2005, only 2 projects with a combined capacity of 12 MW have come on stream and grid connected. A sizable RE potential estimated at approximately 36 Mtoe annually is available in Malaysia according to a study by DANCED (1999); the country however lacks sufcient governmental enforcement and support in the forms of regulatory instruments, incentives, mandatory target and so on, which are vital to successful RE implementation. It is therefore

see a more signicant change in electricity generation mix. When considering the replacement of natural gas and coal by RE, we take into account the commissioning year, lifespan of power plants as well as governmental fuel switching policy. As most coal-red plants are relatively newer than natural gas-red plants, and in addition to governmental shifting to coal policy, we assumed that the replacement of natural gas by renewables would be faster than that of coal. In 2030, the share of natural gas-red electricity will drop to 34% under the RE scenario, 8 percentage points lower than that under the reference scenario. However, the increase in coal-red electricity will be more moderate where it would reduce to 42% under the RE scenario, 4 percentage points lower than that of the

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898 Table 8 Summary of the implications of utilizing RE Implications of utilizing REa Unit Level 2010 Assumption Net increment in the use of RE Overall increment of RE From Power generation sector From Transport sector Results I. Net reduction of fossil fuel consumption Overall reduction From Power generation sector Natural gas Coal From Transport sectoroil II. Net reduction in fossil fuel importsb Overall reduction From Power generation sectorcoal From Transport sectoroil III. Net reduction of CO2 emissions Overall reduction From Power generation sector Natural gas Coal From transport sectoroil
a b

P.Y. Gan, Z. Li / Energy Policy 36 (2008) 890899

Annual growth rate (%) 2020 2030 20102020 20202030

ktoe ktoe ktoe

369.7 75.5 294.2

1159.6 760.8 398.8

4104.7 3599.3 505.3

12.1 26.0 3.1

13.5 16.8 2.4

ktoe ktoe ktoe ktoe ktoe ktoe ktoe ktoe kt-c kt-c kt-c kt-c kt-c

465.2 171.0 171.0 0.0 294.2 0.0 0.0 0.0 355.9 109.6 109.6 0.0 246.3

2115.1 1716.3 1050.7 665.6 398.8 1080.3 599.0 481.3 1726.1 1392.3 673.5 718.8 333.8

8404.5 7899.2 5123.8 2775.4 505.3 3107.7 2497.9 609.8 6703.7 6280.7 3283.3 2997.4 423.0

16.4 25.9 19.9 0.0 3.1 0.0 0.0 0.0 17.1 28.9 19.9 0.0 3.1

14.8 16.5 17.2 15.3 2.4 11.1 15.4 2.4 14.5 16.3 17.2 15.3 2.4

Figures here represent the net increment or reduction between reference and RE scenarios. Imports are virtually that of coal and oil as Malaysia is expected to remain a net natural gas exporter. Domestic coal production is assumed at 10% of total primary coal consumption, domestic oil production is adopted from Malaysian government and EIA projections.

Fig. 5. Comparison of carbon and fossil fuel intensity in power generation sector.

important to establish a suitable institutional and regulatory framework, as well as be supported by sufcient enforcement to realize the benets of RE. Similarly in the use of biodiesel in the domestic market, a supporting regulatory framework needs to be established to facilitate successful implementation. Besides, the development of palm oil-based biodiesel has drawn much opposition, in particular the environmental claim pertaining to the clearing of rainforest for palm oil plantation. Immediate actions are necessary to change public

sentiments with regard to the sustainability of palm oil, as well as to justify the economic competitiveness and compatibility of palm oil as biofuel feedstock, in line with other vegetable oil. There is also debate regarding competition between biofuel and food use. Conventional biofuel production is mainly from the rst-generation feedstock, which comprises various grain and vegetable crops. Increased demand for biofuel in some cases competes for land and water resources with food production, triggers an increase in

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crop prices as well as in other markets. However, it is important to realize the benets of biofuel without compromising food security. For these reasons, the use of second-generation cellulosic biomass feedstock, which is more abundant than food crops and will help reduce the potential for fuel/food conicts, is essential to allow largescale use of biofuel in the future (IEA, 2004, 2006; TERI, 2005; Worldwatch Institute, 2006). 5. Conclusion We developed a comprehensive econometric model consisting of a macroeconomic sub-model and an energyenvironment sub-model for the projection of Malaysias economy, energy and environmental outlook to 2030. Under the reference scenario, Malaysias GDP is predicted to grow by 4.6% on average from 2004 to 2030. Within the same period, total primary energy consumption will increase from 53.9 Mtoe in 2004 to 160.9 Mtoe in 2030 and future energy intensity would drop gradually by 0.3% per annum on average. The use of coal will increase due to governmental policy of intensifying its use for power generation, replacing natural gas. With this, future coal import is expected to increase, as domestic production will remain insignicant. In addition, oil import is predicted to take place by 2013 and reach 45 Mtoe in 2030. Therefore, in the near future, Malaysias energy sector is expected to depend more on import in meeting rising energy demand. Carbon emissions will triple by 2030. On the other hand, in a comparative RE scenario, our projections indicated that the use of RE is a strategic option to improve energy security and environmental performance of Malaysia in the long term. Nevertheless, substantial governmental intervention and support are necessary. References
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