CRESS Guidelines: Regulatory Framework and Requirements for Malaysia’s Third Party Access to Electricity Grid

25 September 2024

The announcement by Malaysia’s Ministry of Energy Transition and Water Transformation on 26 July 2024 on the new Corporate Renewable Energy Supply Scheme (‘CRESS’) represented a significant milestone for the country’s electricity market.¹ CRESS, which provides corporate consumers the opportunity to procure green electricity supply directly from a renewable energy producer, introduces the long-awaited concept of third party access to the grid. This reflects the intention to move away from the current single buyer model as well as further drive the efforts to increase accessibility to renewable energy.

In line with the target for CRESS to commence this month, the Energy Commission (‘Commission’) had on 20 September 2024 published the Guidelines for Corporate Renewable Energy Supply Scheme² (‘CRESS Guidelines’). The CRESS Guidelines set out the regulatory framework and requirements for participation in CRESS, and are effective from 20 September 2024. At the same time, the Commission issued a set of Frequently Asked Questions on CRESS (‘FAQ’).³

From the outset, it should be noted that CRESS will presently be available only in Peninsular Malaysia as the operation of the Electricity Supply Act 1990 (‘ESA’) has been suspended for the territories of Sarawak and Sabah.⁴

CRESS FRAMEWORK

It is pertinent to note that a dedicated connection between the green energy plant (‘Plant’) and the corporate consumer (‘Consumer’) is not allowed. Instead, CRESS will utilise the existing New Enhanced Dispatch Arrangement (‘NEDA’) framework whereby electricity generated will be exported to the grid operated by the Grid System Operator⁵. Electricity generated by the Plant will therefore be wheeled through the grid system to the Consumer.

A system access charge will be imposed by the Single Buyer⁶ on the Renewable Energy Developer (‘RED’) for purposes of recovering the cost of the network infrastructure and other necessary charges incurred in the delivery of electricity from the RED to the Consumer. The system access charge that has been set is 25 sen/kWh for firm output and 45 sen/kWh for non-firm output.⁷

ROLE AND RESPONSIBILITIES OF PARTIES

The role and responsibilities of each party involved in CRESS are summarised below:

PARTIES	ROLE AND RESPONSIBILITIES IN CRESS
1. Consumer	Purchases the green electricity generated by the Plant from the RED. Can be the owner of the RED and the Plant.
2. RED	Owns, develops and operates the Plant. Sells and supplies the green electricity generated by the Plant to the Consumer. Applies and maintains for licence under Section 9 of the ESA for the operation of the Plant.
3. Grid System Operator	Manages security of the grid and has the right to instruct for reduction, maintenance or increase in output of the Plant based on grid constraints. Manages dispatch of electricity produced by the Plant. Manages operational wheeling capacity of CRESS.
4. Single Buyer	Administer registration of the RED as a NEDA participant. Manages operation of energy generated by the Plant, including scheduling and settlement with the RED.

CONTRACTUAL FRAMEWORK UNDER CRESS

The CRESS Guidelines envisages at least five separate agreements in relation to the procurement of green electricity under CRESS. It also stipulates certain terms and conditions that these agreements should address.

Bilateral Energy Supply Contract

The Bilateral Energy Supply is entered into by the RED and the Consumer with respect to the sale and purchase of the green electricity. The terms shall include:

The governing law;
Roles and responsibilities of the RED;
Rights of the Consumer in relation to quality of supply;
Information in relation to the Plant, which includes the installed capacity, the location, commencement date of supply, commercial operation date of the Plant and metering;
Information on the sale of the green electricity, including the term of the agreement, the rate and energy payment;
Information on billing, which includes billing period, calculation, meter reading, payment and disputes on non-accuracy;
Information in relation to supply interruption, emergency conditions, scheduling and maintenance;
Information on the arrangement for green attributes such as renewable energy certificates (‘RECs’), if any; and
Force majeure events and suspension of sale and purchase of the green electricity.

The RED is allowed to contract with more than one Consumer, subject to its registered export energy. Similarly, the Consumer is allowed to contract with more than one RED, subject to its maximum declared energy.

Renewable Energy Supply Access Agreement

The Renewable Energy Supply Access Agreement is entered into by the RED and Tenaga Nasional Berhad (‘TNB’) as the grid owner. It has the effect of binding the RED to comply with the technical requirements, codes and guidelines for grid access.

NEDA Agreement

The NEDA Agreement is entered into by the RED and the Single Buyer for purposes of the RED’s participation in NEDA. By entering into the NEDA Agreement, the RED agrees to comply with the NEDA guidelines.

Corporate Renewable Energy Supply Agreement

The Corporate Renewable Energy Supply Agreement is entered into by the Consumer and the TNB’s retail entity (‘TNB Retail’) as the electricity utility provider. Under this agreement, TNB Retail manages the last mile connection to the Consumer. It also acts as a supplier of last resort in the event the RED is unable to generate and supply electricity to the Consumer.

Backfeed Agreement

The Backfeed Agreement is entered into by the RED and TNB Retail for purposes of obtaining electricity supply for consumption by the Plant, backfeed requirements during the construction phase and any other usage as the Plant may require. A backfeed charge rate of 36.5 sen/kWh hour will apply.⁸

REQUIREMENTS AND PRE-REQUISITES FOR PARTICIPATION IN CRESS

In order to participate in CRESS as either a RED or a Consumer, the applicant must fulfil the relevant requirements and pre-requisites as set out below.

TYPE OF APPLICANT	REQUIREMENTS AND PRE-REQUISITES
1. Consumer	New customer⁹ of TNB Retail. Existing customers can only participate by requesting additional load of 100MW, which will be the final load of their existing supply contract. Registered high voltage and medium voltage consumer.
2. RED	Ensure that electricity generated by the Plant is from renewable energy sources. Ensure that the Plant developed has a minimum 30MW capacity with a direct connection to the grid. Operates in Peninsular Malaysia. Minimum 51% local equity interest.

OWNERSHIP OF GREEN ATTRIBUTES UNDER CRESS

Under CRESS, the RED has ownership of the green attributes, including RECs. However, these green attributes may be transferred to the Consumer(s) pursuant to the terms of the relevant Bilateral Energy Supply Contract.

WITHDRAWAL OF CONSUMER

An issue that arose in relation to the Corporate Green Power Programme¹⁰ (‘CGPP’) was the consequences of a corporate consumer withdrawing from CGPP. This was of particular concern given that the CGPP required the power plant developer to have identified corporate consumers as part of its participation in the programme.

This is a matter that appears to have been addressed insofar as CRESS is concerned. The CRESS Guidelines provides that any excess energy exported which is caused by the withdrawal of a Consumer can be sold to the Single Buyer at a rate of 8 sen/kWh, subject to the grid system condition and the Grid System Operator’s approval. Further, no system access charge will be imposed if the RED is selling the excess energy to the Single Buyer.

DECOMMISSIONING OF PLANT

The CRESS Guidelines also address the decommissioning of the Plant. A Plant shall be subject to decommissioning if it has not been in operation for a period of twelve consecutive months or has ceased operation. If a Plant is decommissioned, it must be removed from the grid by the RED within twelve consecutive months or within the period specified in the decommissioning plan.

It is to be noted that the decommissioning plan is required to be submitted as part of the application for participation in CRESS. The decommissioning plan shall address the following issues:

Details of the entity responsible for implementing the decommissioning plan;
A statement of the conditions required for implementation of the decommissioning plan;
Identification of all components of the Plant;
A plan, with timeline and estimated cost, for removal of all components of the Plant; and
A plan for recycling or reuse of all components of the Plant, to the extent practicable.

APPLICATION FOR PARTICIPATION IN CRESS

Applications for participation in CRESS may be made to the Single Buyer from 30 September 2024 onwards. The RED is responsible for submitting the application on behalf of the Consumer(s).

The RED’s application shall include the following information:

Company profiles of the RED and the Consumer(s) and all relevant supporting documents;
Supply category for the Plant (firm or non-firm output)¹¹;
Details of the Plant including project costs, preliminary technical specifications, drawings and project schedule¹²;
Monthly export energy and allocation to each Consumer;
Letter of undertaking in relation to CRESS;
Power system study report and letter of approval;
Copy of land lease or land sale and purchase agreement;
Copy of the executed Bilateral Energy Supply Contract between the RED and each Consumer;
Default declaration document by the RED and the Consumer(s);
Decommissioning plan setting out the required details as described above; and
Any other documents prescribed by the Single Buyer.

The CRESS Guidelines highlight that the approval of a CRESS application will be subject to the RED’s successful registration with NEDA, completeness of all agreements required for CRESS, compliance with all requirements of the CRESS Guidelines, and compliance with all technical documents of the Grid System Operator.

A NEW ERA FOR MALAYSIA’S ELECTRICITY MARKET

By increasing access to green electricity supply, CRESS will be an avenue for corporations to reduce carbon emissions and achieve their sustainability targets. This will in turn further drive the country’s efforts to achieve 70% renewable energy installed capacity by year 2050.

In addition to the above, CRESS signifies the start of Malaysia’s transition to an open electricity market. This offers long-term benefits in the form of increased options for consumers with respect to obtaining electricity supply and creating a competitive environment which has the result of lowering energy costs. It will be interesting to see the development of third party access to the grid as well as the inevitable resulting changes to the country’s electricity supply landscape.

For enquiries on CRESS or the procurement of electricity supply in Malaysia, please contact Richard Khoo (Partner) and Rachel Chiah (Senior Associate) of the Energy Practice of Skrine.

¹ Our earlier Alert on CRESS is available here.

² The CRESS Guidelines are available here.

³ The FAQs are available here.

⁴ Refer to the Suspension of the Operation of the Act (Sarawak) Order 1990 [P.U. (A) 272/1990] and the Electricity Supply (Suspension of Operation of the Act for Sabah) Order 2023 [P.U.(A) 394/2023], Sabah and Sarawak have separate state enactments governing the supply of electricity within the respective territories.

⁵ The Grid System Operator is defined under the Grid Code for Peninsular Malaysia as the part of TNB which is responsible for operational planning, real-time re-scheduling, dispatch and control of the grid system and coordinating all parties connected to the grid system.

⁶ The Single Buyer is the entity authorised by the Minister of Energy Transition and Water Transformation pursuant to the ESA to conduct electricity planning and manage electricity procurement services for Peninsular Malaysia.

⁷ The system access charges for CRESS as published by the Commission are available here.

⁸ FAQ No. 15.

⁹ A new customer is a customer to whom electricity supply is given after the CRESS effective date.

¹⁰ Our Alerts on CGPP are available here and here.

¹¹ Dispatchable energy is defined as firm output, whereas intermittent energy is classified as non-firm output (FAQ No. 7). A RED is not allowed to switch from non-firm to firm (FAQ No. 6).

¹² Project development is allowed to proceed in phases, provided the CRESS capacity matches the overall project development (FAQ No. 12).

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.

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CRESS Guidelines: Regulatory Framework and Requirements for Malaysia’s Third Party Access to Electricity Grid