The government of Malaysia has recently decided to explore the feasibility of wind energy to generate electricity in the country. Their ambition is to achieve a measureable target in the percentage contribution of electricity generated by renewable energy technology in the national electricity generation mix. As part of this initiative, a study of wind energy policy has been conducted by identifying the optimal feed-in tariff (FiT) rates to support the development of wind energy in the country. The aim of this paper is to calculate the optimal level of tariff that is suitable with local wind conditions. A closed-form equation for optimal feed-in tariff rate of wind energy with consideration of the availability of capital allowance has been developed. The focus is on small- and utility-scale wind turbine installations. As a result, by considering the availability of capital allowance, the optimal FiT rates for small-scale wind turbines in Malaysia are between 0.9245–1.1313 RM/kWh, while utility-scale rates are between 0.7396 and 0.9050 RM/kWh. The level of FiT is changed with the changing value of economic parameters. Kudat, in northern Borneo, has been identified as a prime site for wind energy development in the country; however, more work needs to be conducted, including the development of a regional wind map and measurement of wind data at more new potential sites.

In this paper, we present a continuous time autoregressive moving average (CARMA) model with stochastic speed of mean reversion. This model allows the mean reversion rates to behave stochastically and governed by an Ornstein-Uhlenbeck process. We provide closed-form solution to the CARMA with stochastic speed of mean reversion and formulate the price of temperature insurance using spot-forward relationship framework. We demonstrate the insurance pricing based on the cumulative average temperatures (CAT) index by simulating the temperature variations. We found that our proposed model may explain the temperature evolution well and the price of CAT-based index insurance looks reasonable.