THE minister for energy, green technology and water recently blogged (http://peterchin.my) that "we are quickly moving towards becoming a country that has to rely on imports to meet our domestic energy needs".
One may wonder on reading this: so what? How is life different for an energy importing country relative to an energy exporting one? Like it or not, the difference is much larger than one might expect, because an importing country is fully exposed to the global energy situation.
The background to the situation facing Malaysia is that the world is facing depleting fossil fuel reserves, resource nationalism, the emergence of China as a major energy consumer and greater awareness of environmental issues (particularly global warming).
These factors are not within Malaysia's control and will push fuel prices up.
Malaysians have been "protected" from global energy prices for a long time. Malaysia's subsidies for gas, electricity and petrol are well known. This policy has been implemented together with an energy sector where various sub-sectors are dominated by only one or at most a few players.
Perhaps these policies were appropriate in the past; they were well intended and based on Malaysia having large oil and gas surpluses combined with shortages of skilled technical and managerial personnel at the different stages of the energy chain.
However, these circumstances no longer exist. While we are rapidly becoming an energy importer, the good news is that we have developed the skills to manage the full energy chain.
If we accept that we are becoming an energy importer, the question becomes, "What is the key issue for an energy importer?" Clearly, the answer is not "energy prices", but rather "energy security", which has to be addressed in a systematic and comprehensive manner.
For example, the price of electricity is only important if electricity is available when and where we need it.
If we constantly have brown-outs and blackouts, then "cheap" electricity is of no value.
What would a Malaysian policy framework encouraging innovation and efficiency (as also mentioned by the minister) look like? Perhaps this can be illustrated by focusing on the electricity sector, since the recent sale of Tanjung's power assets puts this in the news.
In order to get the right balance between price and security, a country has to accept what it cannot affect, and focus on what it can affect. Thus, a possible approach for the electricity generation chain could look like this:
DIVERSIFY fuel supply options to reduce the risk and impact of unforeseen events (this would include options for importing gas and coal, and perhaps also new players in the import space).
SELECT a fuel mix which provides a weightage to Malaysia's remaining fossil fuel reserves (for example, gas in Sabah and Sarawak) to provide a natural "strategic reserve" for times of crisis.
OPEN up the independent power producer (IPP) space to new players to encourage competition (as might happen if Tanjung assets are sold to a non-IPP player).
SEPARATE electricity transmission from power generation to encourage market forces in generation, transmission and distribution.
GIVE incentives to consumers to increase energy efficiency (yes, this might require raising prices).
PROVIDE spare generation capacity appropriate to Malaysia's rate of energy demand growth.
Taken together, such initiatives would encourage innovation and efficiency in areas which can be controlled by Malaysia, while reducing the risk and impact of unforeseen events, problems or disasters.
Perhaps more importantly, such an approach would, by rationalising prices, set the stage for the next step in electricity management, which includes smart grids, smart meters and the like.
These new technologies are designed to optimise energy efficiency and overall cost to society, but they typically do this best in an environment where the price of electricity reflects the true cost of generation and distribution (which in turn should be as efficient as possible).
Recent events, (for example, the severe losses borne by Tenaga Nasional Berhad because of gas shortages), show that it would be better if such initiatives were introduced in a planned fashion, well in advance of the next energy “crisis”.
In this regard, the pre-qualification exercise for the Prai power plant appears to be a good step, attracting many interested parties.
An even better step would be to develop, publish and periodically update clear plant-up sequences for future power generation. This would have the effect of providing clarity to consumers, industry and potential investors.
It would allow industry players the best opportunity to prepare for future power plant tenders. The result would be to increase the overall quality of proposals and hence increase the likelihood that the winning bid is actually the best value for money.
The global energy industry is going through a significant period of change. Because of this, there is clearly much to do as we move forward on energy in Malaysia.
It does appear though, that the Energy, Green Technology and Water Ministry, MyPower Corp, Energy Commission and others are focusing on the correct issues. We should wish them well.