On 29 August 2023, Malaysia’s Prime Minister, Datuk Seri Anwar Ibrahim, launched the country’s National Energy Transition Roadmap (“NETR”)¹ at Tenaga Nasional Berhad’s inaugural Energy Transition Conference. This follows the launch of the first phase of the NETR on 27 July 2023, which saw the introduction of six energy transition levers and 10 flagship catalyst projects that would be undertaken in order to facilitate Malaysia’s transition to a clean energy, low-carbon economy.²
 
The NETR is a comprehensive document that delves into the six energy transition levers, including the initiatives under each lever, the potential opportunities arising from the same, and the challenges that are likely to be faced. It also sets out other initiatives to support the process of the energy transition.
 
ENERGY TRANSITION LEVERS: TARGETS, KEY INITIATIVES AND CHALLENGES
 

 
The NETR has identified energy efficiency, with its cost efficiency and optimisation of resources, as the most important energy transition lever. However, it notes that lack of public awareness will be a major challenge to implementation. Additionally, the scope of the existing Minimum Energy Performance Standards is too narrow, which limits the potential for savings across the residential, commercial and industrial sectors. Such circumstances have led to low demand for energy efficient products and low returns for ESCOs.
 

 
Globally, RE has been recognised as playing a vital role in energy transition, and Malaysia is no exception. The Malaysian Government has set an ambitious target of 70% RE installed capacity by 2040 and this is intended to be largely driven by solar photovoltaic installations.
 
The rise of solar as a RE resource in Malaysia has not been without its challenges. For instance, difficulties in obtaining land rights and unattractive returns have been a deterrent to participation in the LSS programme. There is also uncertainty at this early stage on the financial benefits arising from the virtual power purchase model under the CGPP. The above initiatives seem to be intended to address these concerns, which will be welcome news for RE players.
 
An interesting point to note is that the NETR has highlighted the need for investments in grid infrastructure. A key consideration with respect to increased RE in the generation mix is the readiness of the grid in terms of integration, capacity and the ability to balance supply and demand due to the intermittency of RE. A flexible, smart grid is essential in order to manage the risk of power imbalance. To this end, Tenaga Nasional Berhad has announced that they plan to invest upwards of RM90 billion over the next six years for their grid infrastructure, of which 40% will be channelled towards energy transition-related capital expenditure.⁴
 

 
Hydrogen has been touted as the alternative energy source of the future, with countries such as Australia and South Korea having made significant investments in hydrogen projects. Domestically, the state of Sarawak is taking the lead, with the Sarawak State Government having introduced the Sarawak Hydrogen Economy Roadmap and collaborating with multinational companies for the development of large-scale hydrogen production facilities.
 
However, there are technical and commercial hurdles that will need to be overcome in order to develop a hydrogen economy. At this early stage, the infrastructure and technology for hydrogen production, chiefly electrolysers and storage facilities, is somewhat limited. Further, such projects require high capital expenditure. There is also a lack of clear regulation – in this regard, it is to be noted that the NETR highlights the possibility of amending the Gas Supply Act 1993 and the Renewable Energy Act 2011 to address this gap.
 

 
It is telling that bioenergy projects at this time are relatively few and are small-scale in nature. The NETR recognises the challenges with respect to the adoption of bioenergy, which include supply security, the negative perception of waste to energy, and the economics of waste-to-energy plants.
Notwithstanding this, bioenergy is crucial to the energy transition given that it is a carbon-neutral energy source that could also serve as an alternative fuel. In addition, Malaysia’s generation of large quantities of municipal solid waste and production of palm oil can be utilised effectively.
 

 
The transportation sector is a major contributor to greenhouse gas emissions in Malaysia. As such, driving a shift towards green mobility is crucial to the energy transition and the achievement of the nation’s target to be net-zero by 2050. The materialisation of this shift is hampered by insufficient public transport connectivity and charging infrastructure, the cost impact arising from sustainable fuel adoption, and the lack of clarity and guidance by the relevant stakeholders. Overcoming these issues will be a long process that will require an extensive roll-out of targeted frameworks and policies for the various sub-sectors of transportation.
 

 
CCUS is poised to play a key role in decarbonisation of the energy sector. Being in its infancy, however, there is still much to be done in order to materialise the projected impact of CCUS. In Malaysia, there is currently no regulatory framework in place which could help spur CCUS investment and development. Further, as a nascent technology, CCUS is costly – although the NETR envisages that such cost will be subject to a steady decline. With the initiatives above, which reflect the Malaysian Government’s commitment to support CCUS development and adoption, it is likely that we will be seeing an uptick in CCUS investment.
 
INITIATIVES TO SUPPORT THE ENERGY TRANSITION PROCESS
 
The energy transition process is not an easy one, and it requires careful management of the energy trilemma: security, sustainability, and affordability. An effective energy transition necessitates the balancing of environmental and socioeconomic concerns. In this regard, the NETR emphasises a just, inclusive and cost-effective energy transition.
 
Key initiatives under the NETR that are aimed at supporting the energy transition process include: 

In addition, the Malaysian Government announced that a National Energy Council will be established to facilitate the implementation of the NETR.⁵ 
 
THE FUTURE OF MALAYSIA’S ENERGY LANDSCAPE
 
While there are many obstacles to overcome and extensive implementation will be required, the NETR does indicate strong commitment by the public sector to drive energy transition in Malaysia. To this end, various ministries and agencies have been identified in the NETR to spearhead the key initiatives under each of the six levers. We anticipate that there will be various policy, legal and regulatory developments and changes in the next decade as the country strives towards a future of clean energy and achieving net-zero by 2050.
 
For enquiries on matters relating to energy transition, please contact Richard Khoo (Partner) and Rachel Chiah (Senior Associate) of the Energy Practice of Skrine.
 

---