Malaysia’s Road to Sustainable Energy: New Initiatives Announced
09 September 2022
At the fifth International Sustainable Energy Summit (ISES) 2022 which recently took place, Malaysia’s Prime Minister, Dato’ Sri Ismail Sabri bin Yaakob, announced several new initiatives to support Malaysia’s transition to sustainable energy. The Ministry of Energy and Natural Resources (‘
KETSA’) has since published a statement on these new initiatives
1, which are considered below.
ALLOCATION AND REDISTRIBUTION OF 1,200MW FOR SOLAR RESOURCES
The Malaysian Government has approved the allocation and redistribution of a 1,200 MW quota for solar resources. Solar energy has been identified as a key renewable energy resource for Malaysia, and it is not surprising that it constitutes one of the focus areas for the new initiatives.
The allocation of the 1,200MW quota will be made through the following:
- Utilisation of existing RE mechanisms
These include rooftop solar installations which currently fall under the Net Energy Metering (NEM) programme as well as the New Enhanced Dispatch Arrangement (NEDA). The enhancement of existing RE mechanisms was one of the considerations in Malaysia’s Renewable Energy Roadmap and it would seem that this is on its way to being implemented.
- Exploration of new RE programmes
Among the programmes envisaged are the development of solar parks, supply of green electricity to data centres, and green hydrogen generation. With the introduction of the Green Electricity Tariff (‘GET’) programme in late 2021, it is possible that there will be an extension or variation of GET that will apply to data centres and consumers with similarly high electricity consumption.
It will be interesting to see how green hydrogen generation will be approached, as Malaysia’s RE framework does not presently cater to or consider the specific requirements and challenges of hydrogen projects.
- Procurement of green electricity via Virtual Power Purchase Agreement
Commercial consumers will have an option to procure green electricity by entering into a Virtual Power Purchase Agreement
2 (‘
VPPA’). This option will be introduced in the fourth quarter of 2022 and an initial quota of 600MW will be available for allocation.
It is pertinent to note that Malaysia’s electricity market operates on a single buyer model, with tariff rates for power producers fixed under their respective power purchase agreements with the utility company. In contrast, VPPAs are designed for wholesale markets where the power producer sells electricity at the market price. Given the difference in market structure, it will be interesting to see how the VPPA concept will be rolled out.
As a pilot initiative, three islands in Malaysia, namely Pulau Redang, Pulau Perhentian and Pulau Tioman, will become “green energy islands”. These islands will fully use RE for their electricity supply, with the aim of having electricity supply that is consistent, low-cost and low-carbon. Based on the Prime Minister’s announcement, the target is for consumers at Pulau Redang and Pulau Perhentian to receive 24-hour electricity by 2025
3.
At this stage, it is unclear how the green energy islands will be materialised. The Minister of KETSA has stated that a proposal paper on this initiative has been presented to Cabinet
4, but no details have been made publicly available at the time of writing.
DEVELOPMENT OF RENEWABLE ENERGY CERTIFICATE FRAMEWORK
A national Renewable Energy Certificate (‘
REC’) framework is being developed in order to ensure Malaysian RECs have credibility, transparency, and high value.
Currently, RECs
5 are issued by TNBX Sdn. Bhd., a subsidiary of Tenaga Nasional Berhad, and can be either sold or purchased on the Malaysia Green Attribute Tracking System (mGATS). There is a lack of clarity on the regulation and trading of RECs and it is hoped that the new national framework will address these aspects.
ESTABLISHMENT OF LEGAL FRAMEWORK FOR EV INFRASTRUCTURE DEVELOPMENT
The Malaysian Government also intends to establish a legal framework to regulate the development of electric vehicle (‘
EV’) infrastructure, with the objective of ensuring public safety. In connection with this, the Energy Commission’s “Guide on Electric Vehicle Charging System (EVCS)” which was published in late July 2022
6 will be enforced in the fourth quarter of 2022.
Electric vehicles, with their low to zero emissions, are commonly viewed as the future of the automotive industry. However, the use of EV is not without its challenges – the availability of charging stations, battery capacity, and consumer mindset being among them. Having a legal framework in place to regulate EV infrastructure is a positive step forward in combating these challenges, but there is certainly more work to be done in order to materialise the shift from fossil-fuel powered vehicles to EV.
MALAYSIA’S ROAD TO NET ZERO BY 2050
The new initiatives are commendable efforts towards reaching the target 40% RE share in national capacity by 2035 and realising the commitment to be a net zero nation by 2050. At the same time, they are ambitious plans and will require a significant amount of investment and time. The details of how these initiatives are to be implemented and their effectiveness also remain to be seen.
There is still a long road ahead for Malaysia’s clean energy transition, but the journey is certainly shaping up to be an eventful one.
Alert by Richard Khoo (Partner) and Rachel Chiah (Senior Associate) of the Projects and Infrastructure Practice of Skrine.
1 The full text of KETSA’s statement is available
here.
2 A VPPA is a long-term electricity supply agreement between a consumer and a power producer. Under a VPPA, the electricity generated by a power producer is not actually delivered to the consumer but is instead sold to the electricity market. In the event the market price is lower than the VPPA price, the power producer will pay the difference for the electricity produced to the consumer. However, if the market price is higher than the VPPA price, the consumer will pay the difference to the power producer.
3 “
Revised renewable energy quota sees new potentials being explored” published in the New Straits Times on 29 August 2022 and which is available
here.
4 “
Renewable energy proposed for three islands: Takiyuddin” published in The Sun daily on 29 August 2022 and which is available
here.
5 A REC represents the delivery of 1MWh of renewable energy to the grid and all associated environmental benefits arising from the displacement of the equivalent amount of conventional electricity. It acts to certify that the owner of the REC has the rights to the said 1MWh of green electricity and environmental benefits, which has the effect of reducing the owner’s carbon footprint.
6 The Energy Commission’s Guide on Electric Vehicle Charging System (EVCS) is available
here.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.