The Role of Feed in Tariff in FDI

This research examines the relationship between renewable energy policy and foreign direct investment in Malaysia, with a particular focus on the introduction of the Feed in Tariff mechanism and its impact on investment flows into the energy sector.

The study is situated within the broader context of Malaysia’s economic development strategy, where attracting foreign investment plays a critical role in supporting industrial growth, technological advancement, and energy transition.

The analysis highlights that by 2011, foreign direct investment in Malaysia had reached nearly 10 billion dollars, with a significant proportion directed towards the energy sector. This reflects the strategic importance of energy infrastructure in the country’s development agenda. At the same time, Malaysia has begun to shift its focus towards renewable energy as part of a long term sustainability strategy, recognising the environmental and economic limitations of continued dependence on fossil fuels.

A central feature of this transition is the introduction of the Feed in Tariff mechanism, which is designed to encourage investment in renewable energy by providing financial incentives to energy producers. Under this scheme, producers of renewable energy, particularly solar energy, are guaranteed a fixed payment for the electricity they generate over a defined period. This reduces investment risk and improves the financial attractiveness of renewable energy projects, making the sector more appealing to both domestic and foreign investors.

The study adopts an archival research approach, analysing existing data on foreign direct investment trends alongside policy developments in the renewable energy sector. By focusing specifically on the solar component of the Feed in Tariff scheme, the research provides a detailed understanding of how targeted policy interventions can influence investor behaviour. The findings suggest that the introduction of this mechanism has the potential to significantly reshape the structure of foreign investment in Malaysia, shifting it from traditional energy sectors towards cleaner and more sustainable alternatives.

Importantly, the research emphasises that policy design plays a crucial role in determining investment outcomes. The Feed in Tariff not only provides financial incentives but also signals government commitment to renewable energy development. This policy stability and clarity are key factors that attract foreign investors, particularly in sectors that require high initial capital and long term planning. As a result, the renewable energy sector, especially solar energy, becomes a competitive destination for international investment.

The study also highlights the broader regional implications of Malaysia’s experience. Countries within the ASEAN region, many of which face similar challenges related to energy demand, environmental sustainability, and economic development, can learn from this policy approach. By observing how the Feed in Tariff mechanism influences foreign direct investment in Malaysia, policymakers in other countries can design similar strategies to attract investment into renewable energy sectors.

Overall, the research demonstrates that well designed renewable energy policies can serve as powerful tools for attracting foreign direct investment. The Feed in Tariff mechanism not only supports the development of clean energy but also contributes to economic growth by creating new investment opportunities. The study concludes that aligning energy policy with investment strategy is essential for achieving both sustainability and economic objectives.

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