The Maldives, with its 1,192 islands in the central Indian Ocean, is the lowest lying nation in the world. The geographical characteristics of the country make it particularly vulnerable to the ill effects of climate change. Currently, the country’s power sector is largely dependent on imported fossil fuels, mainly diesel. In 2019, the country imported over 700,000 metric tonnes of fuel. A high level of import dependence for electricity generation has increasingly put pressure on the country’s fiscal health.
The International Energy Agency has stated that an island country such as Maldives can only achieve energy security through the diversification of its energy resources to reduce its dependence on imports. To this end, the country has set an ambitious target of achieving net zero emissions by 2030. It also aims to establish a 70 per cent power generation capacity from renewable energy sources by 2030.
Furthermore, the economic distress faced by countries world over in the aftermath of the Covid-19 pandemic has shed light on the importance of building resilience to external shocks. Currently, the economy of the Maldives is largely driven by the tourism and hospitality industry. Investing in renewable energy sources such as solar, wind, ocean current and wave energy can help make the Maldivian economy more resilient by creating higher-value financial and business opportunities. The possibility of substituting part of its diesel consumption with cost-effective, efficient and low emission generating liquefied natural gas can also be harnessed. The Maldives government has thus initiated a transition towards non fossil fuel-based power sources to lower its imports and, subsequently, its greenhouse gas emissions and electricity production costs to reduce the burden on the country’s financial and environmental health.
Overview of the energy portfolio
The Maldives’ vision for its energy sector involves the provision of sufficient, reliable, sustainable, secure and affordable energy for its population. This would involve an overhaul of its power sector and a rapid transition towards renewable energy sources for power generation. At present, the country’s energy sector is largely dependent on fossil fuel imports, with the power production industry consuming about 50 per cent of the total imported fossil fuels. As the country has no proven reserves of fossil fuels, imports of these fuels account for roughly 10 per cent of its GDP. At present, the power supply in each island is driven by fossil fuel-based generation systems and grids. The inhabited islands in the country have 186 diesel-based powerhouses with a total installed capacity of 290 MW and over 22 MW of renewable energy installations as of 2021. The majority of the powerhouses are operated by FENAKA Corporation Limited, followed by State Electric Company Limited. Some powerhouses are also operated by the island councils.
Despite new renewable energy projects (primarily solar) being developed in the country, the overall penetration of renewable energy in the energy mix has been slow. The installed solar PV capacity has risen from 1.64 MW in 2009 to about 22 MW in 2020. Yet, renewable energy accounts for only 4 per cent of the total energy portfolio of the Maldives. However, due to the abundance of renewable energy sources such as solar, wind and ocean, there is immense potential for further developing renewable energy in the country. As per the Asian Development Bank (ADB), solar radiation in the Maldives is roughly 1,200 kWh per square metre per annum. Several solar projects in the country are now under way. These include hybrid solar PV projects being set up under ADB’s Preparing Outer Islands for Sustainable Energy Development programme and other solar PV projects under the World Bank’s initiatives. To support the Maldives government, the World Bank began the Accelerating Sustainable Private Investment in Renew – able Energy (ASPIRE) project in 2014. It also launched the Accelerating Renewable Energy Integration and Sustainable Energy (ARISE) project recently. The ASPIRE project supported two rounds of competitive bidding for solar PV independent power producers (IPPs) with a total generation capacity of 6.5 MW.
The government recently announced tenders for grid modernisation and solar power integration in the Maldives. Prior to this, it had announced three tenders for a 11-14 MW solar project and 40 MWh of battery energy storage systems in 14 islands under the ARISE project, and an 11 MW request for proposal under the third phase of the ASPIRE project. In November 2020, the government launched a 5 MW solar project as part of ASPIRE. A PPA was signed with Thailand based Ensys Co. Limited to deploy solar grids at a significantly lower tariff as compared to a similar project signed in 2017. The ADB has also stated its intention to support the Maldives government tender for 20-30 MW of solar generation capacity, to be installed in 1-2 MW arrays across 20-25 of the state’s outer islands. Thus, with renewable energy at the forefront of the government’s goals, the energy sector is expected to witness a new phase of innovation in the Maldives, especially with the exploration of offshore wind, wave energy, green hydrogen and electric vehicles (EVs).
Despite achieving universal access to energy in 2008, the Maldives faces various financial, technical, regulatory and infrastructural challenges in its power sector. The high cost of power generation in the country continues to be one of its biggest challenges. Heavy reliance on the import of fossil fuels, and the subsequent high transportation costs of accessing the fuel, lack of economies of scale and poor infrastructure have severely increased the cost of electricity. The World Bank has estimated this cost to be steep, ranging from $0.23 per kWh in the most efficient diesel generators to $0.7 per kWh in the smaller inhabited islands. The country also faces limitations in financing due to reduced public sector financing capacity and difficulties in structuring financing models for renewable energy projects. As a result, the Maldives is currently dependent on grants and soft loans from development organisations to boost private investments in the power sector.
Since the sector is capital intensive, boosting private sector participation would be crucial for achieving the 2030 targets. There is also a lack of trained personnel to keep up with the technical know-how required for a smooth shift to renewable energy. For sustained energy security, investing in human resources and R&D would be crucial for the country’s energy transition. Creating an enabling regulatory and policy environment to provide the required resources, attract attention and build investor confidence is also essential. This can be done by laying down well-defined standards for renewable energy developers, and offering tax exemptions/reductions and other fiscal/non-fiscal incentives.
As the Maldives transitions towards a greener power sector, it must address the potential opportunities and challenges in the sector. There are several sectors that provide an opportunity for the integration of renewable energy in the country. Sea transport is critical to the country’s economic activities. There is immense potential to create energy efficient fleets and a modern harbour infrastructure that utilises solar PV or wind energy. The public transport sector can also drive the uptake of EVs, while local sea boats can be run on hybrid solar power. The building construction code should be updated in accordance with the goals of the power sector. These codes can issue obligations for the establishment of energy technologies such as rooftop solar panels, solar water heating and EV charging infrastructure in existing as well as new buildings.
Access to domestic financing is another necessary prerequisite to make the power sector cleaner. A few financing mechanisms at the national level have been established in the country. These include the Maldives Green Fund operated by the Ministry of Environment since 2019, the Green Loan Scheme operated by the Bank of Maldives, the Renewable Energy Development Fund and the Fund for Renewable Energy System Applications. Such financing models should be developed consistently to keep up with the requirements of the industry. Further, policies that promote skill development, private investments, knowledge sharing and bilateral cooperation can be adopted to enable swifter development in the sector. In the coming years, the Maldivian government is likely to witness greater renewable energy integration in its energy portfolio. Pilot projects for exploring floating solar PV, ocean energy, fuel cells, EVs and energy storage are also expected to come up.