Opportunities in risks

BY FATIHAH MANAF

There is a massive opportunity for biogas in Malaysia as the country moves towards a lower-carbon economy. However, the biogas business can be both expensive and risky, especially for new players.

Having financiers such as Hong Leong Bank Berhad that better understand developers’ concerns helps to move this industry forward. In one of its sustainability roundtables, Hong Leong Bank discussed the role of biogas in supporting Malaysia’s energy mix.

The discussion highlighted the government’s initiatives to increase the adoption of biogas and opportunities and challenges in the biogas sector. The session was moderated by Nik Shahrizal Sulaiman (Partner, Risk Assurance Service of PwC Malaysia) and featured speakers Edisham Mohd Sukor, Datuk Khairuddin Tan Sri Mohd Hussin, Chan Yan Loon, Soon Hun Yang and Gladys Mak.

Mak, the Renewable Energy Specialist Business & Corporate Banking of Hong Leong Bank, said the bank had been very supportive of renewable projects, including solar and biogas.

“Not only biogas from palm oil mill effluents, but we’re also looking at different sorts of waste resources. All this waste can be turned into a commodity,” she said.

Opportunities in biogas development

Edisham, the Director Market Operations of Sustainable Energy Development Authority (SEDA) Malaysia, said only one out of four renewable energy programmes in Malaysia catered to non-solar resources projects such as biogas, biomass and small hydro, which is Feed-in Tariff (FiT) programme.

Technically, he shared that Malaysia was blessed with 3.6 gigawatts of bio-energy resource availability combining both biomass and biogas.

“Biogas itself is about 736 megawatt. Still, a huge potential to explore,” he stated, explaining that biogas can be produced by utilising the anaerobic digester to break down waste such as municipal solid waste, waste from agriculture, animal waste and landfill.

“I must say that the biogas potential in Malaysia is huge. One thing about Malaysia, we are very blessed whereby we have more than sufficient feedstock to do biogas,” said Khairuddin, the Chief Executive Officer of Concord Group.

He explained that almost all biogas plants in Malaysia received their feedstock from the palm oil mills already available here in the country. Unfortunately, only 20 to 30 per cent of these palm oil mills had biogas plants. He then shared the income opportunity for mill owners through SEDA Malaysia’s FiT programme.

“FiT system is very attractive. One more thing, it is very certain because you have to sign with SEDA Malaysia and sign the power purchase agreement with TNB over 21 years. So, when you do the project, you have the comfort, and your stakeholders have the comfort that your income is certain. Your off-taker is certain to move forward,” said Khairuddin, adding that there were also alternative uses for biogas such as converting it into bio-CNG.

Khairuddin then shared that Concord Group, as part of its corporate social responsibility initiative, guided by SEDA, was looking into localising a lot of biogas technology.

“We are also training some university students as trainees in our plants,” he said, adding that Concord Group also created biogas modules for a university in Terengganu for its diploma and undergraduate programmes.

Challenges in biogas development

“I do see a lot of opportunities but also a lot of challenges in developing these (biogas) projects,” said Soon, the Chief Executive Officer, Eco-Ideal Consulting Sdn Bhd.

“For example, in Sabah and Sarawak, it’s a different landscape compared to Peninsular Malaysia. We have a different electricity grid system. In Sarawak, it’s run by Sarawak Energy and in Sabah, by Sabah Electricity Sdn Bhd (SESB). Because of the vast land and relatively low population density, the infrastructure for electricity is not there.”

He then explained that the situation led to many of the sources of this biogas, such as palm oil mills, being off-grid. This condition naturally gave biogas developers a challenge to generate revenue from the power generation.

“What the country needs to do, moving forward to explore the remaining biogas potential, is to develop new economic instruments. For example, the government should look at how to incentivise upgrading of biogas into bio-CNG as one option or giving other options to the sources of the biogas plants.”

Sharing the company’s experience, Chan, Deputy General Manager of Berjaya Energies Sdn Bhd, said: “We encountered the design error, interconnection issues, electricity load issues, unstable gas extraction and the gas delivery (issue).”

He shared, over the years, the company learned that having good workers was essential in running successful landfill biogas. He also opined that human resource was a determining factor in maintaining the efficiency of any power generation system.

Mak, who used to work in SEDA Malaysia, then added that the rate was one of the most significant issues in biogas development. She said without a return on investment (ROI) or internal rate of return (IRR), the biogas projects were not going to take off.

She said: “I remember telling the government at that point of time that we have to make it profitable as well, and then businesses will come in naturally. The incentives do not have to be so much but just enough to catalyse, and then we’ll go into a market sort of arrangement.”

Addressing the risks in biogas projects

Khairuddin said there were some risks that players had to look into before investing in biogas plants. He then shared some aspects that players must take into account to reduce the risk of investment which include:

I. Perform feasibility and viability studies

II. Know your project partners (e.g., mill owners)

III. Do proper cash flow

IV. Have a strong banker and financier

Soon then added the pandemic as one of the risks faced by biogas operators. As the situation was unprecedented, the operators did not include it in their cash flow estimation. Additionally, he mentioned climate-related impacts like El Nino also affected the operational efficiency of the mills. Soon also agreed that the academic sector had a more significant role in creating the right talents to work in the biogas sector.

He said: “A lot of research and technical expertise shall continue to be developed in Malaysia. My wish is to see the talent pool be more organised in Malaysia so that we can build knowledge upon each other.”

In assessing the risks, Mak said developers also need to consider the location that might be affected by floods, extreme weather, and other climate-related risks. She said it was important for players to consult experts in assessing and mitigating the risks.

Soon and Chan then added lightning as one of the natural disasters which could interrupt the biogas projects.

“It’s not a direct hit from the lightning. The landfill is an open area, so it’s prone to lightning to strike or be nearby on the ground. That extra-low voltage equipment will easily fry up because of all this sudden surge (of electricity),” explained Chan, sharing that measures had been taken to reduce the risks.

Moving forward, Khairuddin then shared that Malaysia must localise more technology designs and prepare for the risks that might affect biogas plant operations. — @Green