Malaysia’s Clean Energy Transition Plans: Gazing into the Crystal Ball

Malaysia’s Ministry of Energy and Natural Resources (‘KETSA’) has issued a media release with respect to several key features of Malaysia’s energy transition plans until year 2040.1 The preview of these key features was presented during the Special Meeting of ASEAN Ministers on Energy and the Ministry of Economy, Trade and Industry of Japan which took place on 21 June 2021.
The National Renewable Energy Policy targets the achievement of 20% renewable energy (‘RE’) share in the nation’s power capacity mix by 2025. The Malaysian Government has now revised its RE target to 31% by year 2025 and 40% by year 2035.
The 40% RE target by year 2035 is an ambitious one. By way of illustration, the installed capacity for RE is presently at 7,995 MW. By year 2035, the projected installed capacity for RE is approximately 18,000 MW – which is more than double the present installed capacity.
KETSA has stated that with the above RE targets, the carbon emission intensity from the power sector is set to be reduced by 45% in year 2030, and by a further 60% in 2035. This will be consistent with Malaysia’s targets under the Paris Agreement.
Solar energy has been identified as being the RE with the highest potential in sunny Malaysia. With that in mind, Malaysia intends to introduce battery energy storage systems with a total capacity of 500MW from year 2030 year 2034. These battery energy storage systems will enable the storing of excess energy generated by solar panels for later use. This is particularly useful for solar energy installations, as the generation of energy from such installations is dependent on the presence of sunlight.
It is pertinent to note that the Net Energy Metering 3.0 (Net Offset Virtual Aggregation) Programme (‘NEM NOVA Programme’) already envisages and allows for the use of battery energy storage systems in solar installations. This is reflected in the Energy Commission Malaysia’s guidelines in relation to the NEM NOVA Programme. It would seem that the first steps to encourage the use of battery energy storage systems have already been taken.
KETSA has noted that the power purchase agreements for more than 7000 MW of coal-fired power plants in Malaysia will expire by 2033. While the Malaysian Government does not intend to build any new coal-fired power plants, it also does not discount the possibility of extending the operation of these affected plants. The decision on whether to allow such plants to continue their operations will very much depend on the availability of technology in the future and the cost of such technology. As highlighted by the Minister in the Prime Minister’s Department (Economy), Datuk Seri Mustapa Mohamed, the phasing out of coal will have to be a gradual process to ensure a balance between environmental protection and the energy requirements of the economy.2
The release of the National Energy Policy has been pushed back several times, with the latest release date estimated to be in the third quarter of this year. KETSA’s media release therefore provides a long-awaited preview on what is in store for Malaysia’s clean energy transition and the future of the energy industry.
With solar energy remaining the cornerstone of our RE initiatives, it will be interesting to see the Government’s initiatives to encourage the shift to it and whether solar energy will still be an attractive prospect to industry players in the years to come. It also remains to be seen whether the Malaysian Government will be considering other renewable resources such as hydrogen and wind, which other countries have begun doing.
Please contact Richard Khoo (Partner) or Rachel Chiah (Senior Associate) if you have any queries relating to this Alert.