How does the National Biomass Strategy 2020 fit into the palm oil industry?
Melssen: Oil palm biomass represents the majority of total biomass available in Malaysia. We have been looking at creating new industries from this resource. It is very diverse as you can produce animal feed, wood products, electricity, energy pellets, solid biofuels, liquid biofuels and ultimately, bio-based chemicals. More so, this is an entirely new industry not covered by just one ministry, but cuts across many different sectors, government ministries and agencies. That is why Agensi Inovasi got involved to develop a separate strategy altogether on how the owners of biomass can be involved in downstream value creation from their biomass, rather than just packaging the biomass and supplying it as a commodity. Hopefully, in the near future, the palm oil industry players are going to benefit from this new revenue stream derived from the biomass.
Abdul Halim: FGV has experience working both in downstream and biomass. When I talked to a couple of foreign groups, they pointed out that it is difficult to implement any biomass project in Malaysia. They have to deal with several government ministries and different agencies to seek approval. So I would like to see a one-stop agency to ensure that our biomass projects can take off smoothly. As an example, when FGV set up its first biogas plant in Serting Hilir, we had to extend the cable as far as 8km away (to supply to the grid line). In Thailand, they can just connect the line to the nearest grid supply. So this is an additional cost and sometimes getting the approval takes a long time. We also have a problem with our plant in Jengka as the design and approval kept on changing when the approving engineers from the authorities changed, resulting in a bit of difficulty to do the project in speed time. And so, I’m really for a one-stop centre for approval.
Melssen: This is a very good point. Agensi Inovasi realises that biomass doesn’t have a natural home because it cuts across so many industries such as energy, chemicals, fuels, wood products and so on. That is why Prime Minister Datuk Seri Najib Razak launched the 1Malaysia Biomass Alternative Strategy (1MBAS) in March last year. I think a one-stop government centre is definitely something that we should consider as the next step in the National Biomass Strategy 2020, and it is only natural for the 1MBAS unit to be this one-stop centre.
It is interesting that you use the term “owners of biomass”. I always think of KLK and Tradewinds as plantation players, but here they are being addressed as biomass owners. How does biomass fit into KLK’s business plan?
Lee: When we talk about solid biomass, in plantations it is either turned into organic fertiliser through composting or direct application in the fields. Some of us use the biomass for energy generation through our boilers or use the fibre or palletisation for export. KLK is actually watching the next generation usage of biomass like bioethanol. The Malaysian Palm Oil Board (MPOB) is currently actively promoting the reduction of methane gas from our palm oil mill effluents (POME). Here the potential is huge as we can generate electricity at 35 sen/kW versus solar energy cost of RM1.20/kW. Also many issues exist like connection to the national grid. However, many bureaucratic problems still exist and our Government needs to co-ordinate better to make this reduction of methane gas an economic viability for the palm oil mills.
Mohd Noor: First, we have to understand what exactly is oil palm biomass – empty fruit bunches (EFB), fibre, sludge, POME, etc. At MPOA, our first emphasis is on palm oil productivity which involves reconditioning of the soil by sending back the EFB for composting and mulching. The long-term focus is on R&D, such as new high-yielding and disease-resistant clones or varieties which are responsive to the nutrients applied. The short-term focus is on revenue expenditure, labour and cost of fertiliser. Of course the industry is excited over biomass. If it makes money, we will participate. But our palm oil mills are so scattered, the production of energy from methane for example is not easily connected to the grid.
Melssen: There are two main points here. Some plantation companies say that all biomass should go back to the fields and who are we (the Government) to say that they shouldn’t? Because if a company feels this could affect its oil palm yields, which is its core business, then who are we to say they should do something else with it? The second point which Tan Sri Mohd Noor has pointed out is about palm oil mills being scattered all over the country. This is what we found out after producing the National Biomass Strategy 2020 which is a beautiful book but it will not mean anything if nobody does anything with it. We went to the ground and talked to mill owners asking why, when there are so many opportunities, nothing is happening? We soon found out that it doesn’t matter how big your company is or how many mills you have. It matters where the palm oil mills are (located), as nobody has a lot of mills in one single location. Then we identified the highest concentration of mills in the country is in Lahat Datu. We have developed a structure which will be finalised before the end of the year, with a number of individual private palm oil millers, medium-sized and several big plantation companies there. Basically, they pool all their biomass into a single entity created that is 100% owned by them, with the amount of biomass they commit representing their ownership percentage of the entity. Then, an independent management team will manage their biomass into a portfolio of different downstream activities. Downstream companies that want to make use of this resource require large volumes of biomass. That is why it was never happening (the biomass industry), because there is no company that can give a long term commitment for big volumes of biomass. But also, to be fair to the biomass owners, they need to participate in the value creation activities. Since they bring the biomass commitment, in exchange the company with the downstream technology and off-take should pay biomass owners replacement cost for current use. On top of that, biomass owners should be getting a percentage of profit from the downstream industry, based on their commitment of long term supply of biomass. This is the structure that we have developed, and many mill owners, big and small, have already subscribed to this.
Yusof: Just look at Germany where 6,000 small methane plants there are able to produce electricity whenever possible and this is in addition to the windmill farms that they have also set up aggressively. They have small-scale methane power plants all over Germany, whereas in Malaysia we have 450 palm oil mills. So you can imagine how funding or incentives can drive this development with the right subsidy and pricing. These methane-powered plants were initially conceived to use household wastes but later they found out that there was so little waste supply. So Germany imported corn from the US and elsewhere and started corn fermentation to generate methane to convert into energy. Just imagine the German government is funding such projects that will effectively be profitable for the operators. The same thing can work here when you have efficient technology and government support. Bureaucratic issues cannot be the stumbling block to the development of a new industry. Also, productivity in oil palm areas can be enhanced if we have very efficient conversion technology using methane to generate electrity for machines to irrigate the palm trees during the dry season because irrigation during the dry season can increase yield by at least 50%. So if planters can increase yield with irrigation using energy from methane, that should be the focus for the industry to convert methane gas into energy.
Lee: This is a very good suggestion for the industry because many of the mills are using generator sets to produce power, costing us about RM120 to RM140 per kW. If you can come up with a small plant converting POME into energy, then the mills can have a partial replacement for diesel to run the mills. But like what Tan Sri Yusof says, there is not enough R&D done on designing for smaller driven capacity. Smaller mills cannot get connected to the grid given their remote location. I think one of the roles of MPOB and Agensi Inovasi is to further stimulate such industry to enable such ideas to come to fruition. Anyway, we are just copying technology and it is not rocket science.