‘Towards Sustainability’

Presented by:

DATO’ LEONG KIN MUN

President

Malaysia Biomass Industries Confederation (MBIC)

E-mail : kinmun.leong@biomass.org.my

Contact no: +6012-290 2898

BIO-ENERGY PROJECT FINANCING:

PPP Case Reference in Malaysia

Second Thematic Workshop of the Infrastructure Financing and

Public-Private Partnerships Network of Asia and the Pacific

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Green Technology Financing Scheme (GTFS) Criteria

1) Renewable Energy Project Financing is enabled by The Green Technology Financing Scheme (GTFS) which is administered by The Malaysian Green Technology and Climate Change Centre (MGTC)

2) GTFS 3.0 was announced by the Minister of Finance during Malaysia National Budget 2021 presentation. The Government will provide a fund size of RM2 billion for two years up to 2022 to continue the GTFS3.0 which will be guaranteed by Danajamin to encourage the issuance of Socially Responsible Investment (SRI) sukuk.

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GTFS Sectors

Source: GTFS website

Linkages with Participating Financial Institutions (PFIs)

Bank Rakyat

Bank Pembangunan

SME Bank

AGRO Bank

Bank Simpanan Nasional

EXIM Bank

Listing of commercial and Islamic banks from Bank NegaraMalaysia website

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Development Financial Institutions(DFIs)

PPP Model FOR RE Project Financing

80% Debts Financing through green loan : 20% EquityFinancing by Project Developer

The loan facilities are extended by Participating FinancialInstitutions (PFIs) whilst the Government subsidies/absorb2% interest rate.

The Government also provides guarantee up to 60% for theloan amount through Credit Guarantee Scheme.

Meanwhile, otherwise other public sector financing modelinclude government grant for qualified RE projects as well asthematic sustainable financing schemes provided bydevelopment financial institutions (DFIs) whcich arefinanced by green bond (Green Sukuk in the context ofMalaysia).

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Popularity Scale of Green Energy (GE)

Finance

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Popular FiT - Solar PV

Biomass Pellets

Semi-Popular Biogas

Mini Hydro

Unpopular Energy Efficiency (EE)

Biomass Power Plant

Waste-to-Energy

Bio-diesel

Emerging Models Electric Vehicle / EEV

Energy Efficiency

Energy Storage

Battery Technology

Financing Review

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◼ Biomass industries are eligible for renewable energy categories under the Green Technology Financing Scheme (GTFS) championed by 28 Participating Financial Institutions (PFIs).

◼ Eligible business models include waste cooking oil to biofuel, energy pellets, dried long fibre, biofertilizer, animal feed, biogas and biomass power plant etc.

◼ However, out of 626 approved GTFS projects between 2011 to 2017, only 37 projects are from biomass sector pre-dominantly focused on biomass pellets and biomass power plants.

◼ Whilst the biogas sector contributed 38 projects out of total 626 approved GTFS projects.

◼ Collectively, biomass and biogas sector represent 11.98% (75 projects) out of total number of approved GTFS projects.

Observation of Bio-Energy Projects Financing

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Fuel switching from Fossil Fuel to Biomass

Biomass Power Plant (F.I.T)

Biogas Project

Biomass Pellets

Financing Solutions for Renewable Energy Projects

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◼ Extension of the Green Technology Financing Scheme (GTFS) islaunched with RM2 billion (USD500 million) as announced inBudget 2021 and Malaysia Government subsidies 2% interestrate for the first 5 years with 60% guarantee furnished byGovernment’s Guarantee Scheme [Government SPV] underboth categories of producers/users. This continues to providecompetitive financing scheme to deserving green technologydevelopers.

◼ Meanwhile, the venture capital industry has also contributed tothe growth of Malaysia biomass SMEs recently. Twogovernment backed investment companies joint ventured withbiomass SME have collectively invested RM23.5 million in palmpellets manufacturing plant catered for export market.

Issues & Challenges

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◼ GTFS certificate holder will not guaranteed automatic loanapproval from the participating financial institution (PFIs) due toPFIs have their own evaluation criteria for different greentechnology projects.

◼ At the moment, majority of approved GTFS projects by PFIsfocus on solar PV projects due to improved understanding ofbankers for its business model.

◼ Meanwhile, based on review undertaken, the most popularbiomass projects financed by banks are biomass pellet andbiogas plant.

◼ Therefore, more engagement with bankers are needed for thepurpose of accessing finance for a wider range of biomassprojects such as bio-fertilizer, animal feed, bio-plastic,bioengineering products etc.

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Issues & Challenges

Finance (Biomass Power Plant)

◼ Some pioneer failed and failing biomass plants give a negativeperception of RE

◼ Most commercial banks shy away from financing RE project.

◼ RE is still a relatively new field to many bankers, thus the lack ofawareness concerning the technical aspect of the technology inRE projects constitutes of a higher perceived risk.

◼ Absence of long term fuel (biomass feedstock) supplyagreement between the RE project developers and feedstockowners.

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Take Home Points

◼ Hybrid Green Finance (Hybrid-GF) Solutions serves an emerging green financing models for viable and “non-viable” green energy projects by SMEs and large scale project developers.

◼ Customized Hybrid-GF solutions remain as the most practical solutions to address funding gap of various types of green energy projects.

◼ RE Projects especially Solar Farm has become the “Blue-eyed Boy” of Financiers among all RE Projects. Nevertheless more intervention from the Government, Financiers and Industry to unlocks its development potential of other RE (esp. biomass) .

◼ Strategies to Access Finance for Bio-Energy Projects

❑ Talk to the Right Banker ❑ Prepare Bankable Track Record❑ Ensure direct access to biomass feedstock (long term supply)❑ Proven “biomass to energy” technologies ❑ Innovative Hybrid Green Finance Solutions based on PPP Models