Recognising and taking advantage of its rich renewable sources of energy, Malaysia embarked on active renewable energy (RE) development in 2001 through designating RE as an additional fifth fuel in the national energy mix of oil, gas, coal and hydropower, in what was known as the Five-Fuel Policy introduced under the 8^th Malaysia Plan (2001-2005). The core focus of the policy was to supplement the country’s energy sources to include contribution from RE, thereby reducing its dependence on depletable fossil fuels and enhancing its energy security. The Small Renewable Energy Power (SREP) Programme was launched in the same year as one of the initiatives to stimulate RE activities, where the principle adopted was to leverage on the market forces to deliver the intended outcomes towards RE electricity generation for supply to the grid. Based on the key lessons learnt from and the challenges encountered by this policy mechanism that a ‘business-as-usual’ approach was not sustainable, appropriate nor productive, the National Renewable Energy Policy and Action Plan was officially launched in 2010 to map out the design for an effective policy framework. Subsequently, the Renewable Energy Act (Act 725), which was gazetted and came into force in 2011, ushered in the Feed-in Tariff (FiT) scheme which was aimed at augmenting the share of RE in the power generation fuel mix from indigenous RE sources, so as to enhance national electricity supply security and sustainable socio-economic development.  Concomitantly, the Sustainable Energy Development Authority of Malaysia (SEDA Malaysia),  a statutory body incorporated pursuant to the Sustainable Energy Development Authority Act 2011 (Act 726), was established to administer and manage the implementation of the FiT mechanism. The geographical regions covered by the scheme include Peninsular Malaysia, Sabah and the Federal Territory of Labuan. Sarawak does not participate in the scheme as it has its own system of electricity regulation.

The renewable sources eligible under the FiT scheme are as set out  in the First Column of the Schedule of Act 725, and they are comprised of biogas (agroindustrial waste and landfill gas), biomass (agrowaste and municipal solid waste), small hydropower,  solar photovoltaic and geothermal. It is stipulated that these must be indigenous renewable sources and must not be imported from other countries.

Under this mitigation action which provides a legal framework for grid-connected RE generation, Distribution Licensees (licensed electricity distribution entities) are obliged to purchase from Feed-in Approval Holders (individuals or companies who hold feed-in approval certificates issued by SEDA Malaysia) the electricity generated from eligible renewable sources at the respective set FiT rates and for specific durations. The FiT mechanism, financed by the Renewable Energy Fund established under Act 725 and sustained by additional surcharge on electricity tariffs collected by Distribution Licensees, is a fixed premium rate payable for each unit of RE sold to the Distribution Licensee, and it differs for different renewable sources and installed capacities. A bonus FiT rate applies when the criteria for the bonus conditions are met. The duration during which the RE electricity can be sold and paid with the FiT rate is based on the characteristics of the renewable sources and the applied technologies. Under the scheme, the duration (FiT Effective Period) is 16 years for biomass and biogas, and 21 years for small hydropower, solar photovoltaic and geothermal technologies.

This regulated mitigation action is expected to bring about positive impact not only on the accelerated and sustained growth of RE’s share in the power sector’s fuel mix, but also on the advancement  of RE as a viable and sound long-term investment in the energy industry through guaranteeing direct access of RE to the grid and setting a favourable price. The scheme targets to achieve total approved RE capacity for grid connection to reach 2,080 MW generating 11.3 GWh/year, accounting for 11% of total electricity generation in 2020 as stipulated under the National Renewable Energy Policy and Action Plan 2010.