Challenges for Industrial Upgrading in the Malaysian Solar Industry

Ishana Ratan

BASC conference on Key Issues in the Global Economy, 2019

Emerging economies in the Indo-Pacific are leading in solar technology, with industrial policies like the feed in tariff (FiT) and large-scale auctions reducing the cost of renewable energy. However, states vary in the level of solar industry investment received through these policies. This paper explores the role of policy design and energy market structure FiT implementation in two Southeast Asian states that are developmentally comparable but diverge in terms of firm representation in the energy sector: Thailand and Malaysia. In Thailand, political turnover following a military coup disrupted entrenched incumbents, and solar projects went to large scale foreign investors. In Malaysia, state control over the energy sector led to restrictions on foreign investment in the solar market, and a focus on domestic firms. Using geospatial project level data, I show that Malaysian solar contract allocation favored urban wealthy constituencies most capable of affording solar and grid connection fees while Thailand targeted larger, foreign investors in more rural areas. I trace this variation in domestic solar deployment to the development of political institutions, particularly in the energy sector, and conclude with a discussion of implications for other middle-income countries.

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