As the global economy increasingly prioritizes sustainability and climate action, corporate renewable energy procurement has emerged as a critical tool worldwide. To achieve their corporate sustainability goals, businesses have sought to secure renewable energy through Corporate Power Purchase Agreements (CPPA) with renewable energy developers.
Overview of System Charges: Their Role and Impact on Corporate Renewable Energy Procurement
CPPAs are one of the common approaches for businesses to procure renewable energy directly from renewable energy developers. Physical CPPAs involve two major cost components – energy costs and system charges. In this blog, we focus on system charges which are fees collected by utilities that include transmission and balancing components. Transmission charges cover the use of grid infrastructure to deliver electricity, while balancing charges cover the cost of maintaining real-time supply-demand stability.
Although system charges are a key cost component in physical CPPAs, they are typically not the primary cost drivers. Based on Wood Mackenzie’s cost estimate analysis for a 50-100MW solar CPPA across the various regulated and liberalized APAC markets of Malaysia, Thailand, Australia, Philippines, South Korea, Singapore, Japan and Taiwan, system charges typically make up less than 20% of the total CPPA price.
However, this share of system charges in the total CPPA price varies considerably between APAC markets. Australia, the Philippines and South Korea maintain system charges at between 10% - 20% of their solar CPPA prices. Singapore, Japan and Taiwan see the lowest proportion of system charges of solar CPPA prices at 7%, 6% and 5% respectively.
Malaysia's Moment: Optimizing SAC for CRESS Success
Announced in July 2024, CRESS allows for physical CPPAs from renewable energy projects of 30 MW and above. While CRESS opens new avenues for businesses to access renewable energy, the implementation of the System Access Charge (SAC), a surcharge imposed on renewable developers for using the Malaysian Grid under CRESS, has raised cost concerns within the industry.
Based on Wood Mackenzie’s analysis, Malaysia's SAC account for about 60% of the estimated total CPPA price in Peninsular Malaysia, assuming a solar production cost at USD57/MWh (based on the average of the large scale solar LLS3 & LLS4 - bid price range of MYR 0.19-0.28/MWh. The SAC significantly impacts the overall cost structure of renewable energy procurement. Malaysia’s SAC for solar “non-firm supply” under CRESS is currently set at 40sen/kWh or about USD/MWh making them the highest system charges applicable to CPPAs in the region.
Another concern relates to cost-transparency and ease of long-term cost forecast for buyers. Most APAC markets demonstrate high transparency in their methodologies for determining system charges. Countries like Australia and Japan provide clear breakdowns of cost components, including grid capital expenditure, operation expenditure, power losses, ancillary services, and market operation costs.
Even after analyzing other regulated markets like Thailand (where wheeling and balancing charges are based on UGT 2 tariff rates), Taiwan and South Korea, Malaysia’s SAC lacks transparency in its the system charges determination methodology, compared to three other vertically integrated Single Buyer markets like Peninsular Malaysia.
Such cost transparency, including detailed cost components and calculation methodology, is crucial for corporate energy buyers looking to increase predictability of electricity costs by entering long-term CPPAs. The high SAC charge poses a significant barrier to the adoption of renewable energy by industrial end-users like semiconductor manufacturers and makes it challenging for prospective CRESS buyers to understand how these charges may evolve over a 21-year contract period. The SAC under CRESS would be reviewed every 3 years and is subjected to a maximum variation of 15% from the prevailing charge.
Recommendations
The lack of transparency of the SAC could jeopardize Malaysia’s critical development objectives, such as attracting MYR500 billion (USD $110 billion) in semiconductor investments by 2030 under its National Semiconductor Strategy (NSS), or its 40% renewable installed capacity target by 2035 (or about 18 GW by 2035).
To address these challenges and create a more favourable environment for both semiconductor investments and renewable energy adoption, SEMI and Wood Mackenzie propose the following recommendations:
- Benchmarking SAC against transparent and established system charge components: Additional transparency would allow Malaysia to align with practices in both regulated and liberalized markets across the APAC region and allow more players to make long-term investments in Malaysia. Similar cost methodologies to the regulated tariff could be adopted. As an initial step, SAC should reflect Network Charges defined under the regulated tariff, and as a best practice, any differences between the SAC and the Network Charges in the regulated tariff should be clearly explained and justified (e.g. additional balancing costs induced by solar procured under the CRESS may be audited with the Single Buyer).
- Improving CRESS SAC stability and predictability: Ensuring transparency on the calculation methods behind SAC and its components, and predictable SAC levels, will allow businesses to proactively anticipate and plan for renewable energy procurement expenses, enabling informed decisions and on long-term corporate solar PPAs spanning 20 years’ time horizon under the CRESS framework. In particular, the maximum change in SAC charges can be narrowed down from 15% every three years.4
- Alignment of national sustainable energy policies: Strengthening policy support and ensuring accessible financing are essential to driving the widespread adoption of renewable energy. CRESS can only succeed if the scheme enables fair, transparent, and competitive access to clean energy. New renewable energy coming online via CRESS should not be put at an economic disadvantage through differentiated system charges from those applicable to other clean energy schemes. For example, no SACs are applied to solar under Large Scale Solar (LSS) projects, despite their system impacts being the same as under CRESS. Sustained efforts to improve affordability within CRESS are crucial for attracting investment, reducing the cost of SAC for buyers, and accelerating Malaysia’s transition to a sustainable, low-carbon future.
The Path Forward and Conclusion
Improving transparency and stability of SAC is crucial for facilitating Malaysia's development goals in semiconductor investments and renewable energy targets. By implementing these recommendations, Malaysia can enhance its competitiveness in attracting sustainable investments and accelerate its transition to clean energy.
As the voice of the global electronics manufacturing and design supply chain, SEMI is committed to working with policymakers, industry leaders, and stakeholders to address these challenges. SEMI and Wood Mackenzie believe that by fostering a more transparent and competitive environment for renewable energy procurement, Malaysia can unlock the full potential of the country’s semiconductor industry while contributing to a more sustainable future.
SoYoung Jang manages the SEMI Energy Collaborative programs at SEMI.
Antoine Gaudin and Chun Kang Eu are from Wood Mackenzie.
