From 2% to 20% – Accelerating Renewable Energy Development in Malaysia, part 1
Country Background: Malaysia
Malaysia remains one of the wealthiest nations in South East Asia, next to Singapore and Brunei. The strong and steady economic growth of Malaysia, with an average GDP pegged at ~5%, was mainly due to its manufacturing industry, oil exports, and, palm oil and rubber production. The country can be divided into two regions, the west and east Malaysia. West Malaysia, or commonly called Peninsular Malaysia, is the core of the economic activities of the country. On the other hand, East Malaysia, which consists of Sabah and Sarawak in Borneo Island, is a less developed region with certain towns and villages still lacking stable electricity supply. The electrification rate in Peninsular Malaysia is at 99.8%, while Sarawak is at 91% and Sabah at 94.1% as of the end of 2017.
Energy security and access are required to facilitate continued economic growth. At present, Malaysia, which still is a developing nation, continues to rely heavily on fossil fuels such as coal, oil, and natural gas to meet its energy requirements. With dwindling indigenous fossil fuel sources, Malaysia shifts its focus to tap into its good renewable energy potential to address its growing energy needs and to also participate in the global action against climate change. Upon its signing of the Paris Agreement, Malaysia committed to reducing its greenhouse gas (GHG) emission intensity to GDP by 45% by 2030, from 2005 GHG intensity to GDP value in 2005.
Energy Supply Mix and Consumption
As of 2017, Malaysia has a total installed capacity of 36GW, with more than 80% coming from fossil fuel generation. Contrary to other developing nations that are usually dominated by coal, Malaysia is heavily reliant on natural gas. Chatri et al (2018) mentioned that gas-fired generation continues to grow, resulting in a shortage of domestic gas supply from state-owned oil and gas company PETRONAS. The government provides a significant subsidy on gas supply; hence, gas-fired power generators have one of the cheapest fuel gas rates in the region. In 2015, the grant for gas for power generation totaled US$ 1.4 billion. Without this subsidy on gas, coal will be a cheaper alternative for power generation.
In terms of renewable energy, Malaysia has a significant share of hydropower at 17%, with the majority of the hydropower plants located in the Sarawak region and Peninsular Malaysia. Figure 1 shows the capacity per generation technology in 2017. Note that back in 2017, other renewable energy technologies account for <1% of the total energy mix. However, in 2019, this number grew to 2%, and the government aims to push forward its increase to 20% in 2025. There is no known geothermal resource for power generation in Malaysia, while wind is not technically viable at the moment due to the low wind regime in the country.
In 2016, the Energy Commission of Malaysia measured the total electricity demand to be at 150.4 GWh. Electricity demand in Malaysia is expected to grow by up to 3.5% in the next ten years, and by 2.7% in the next 20 years (Business France, 2018).
Electricity Market Structure and Key Players
Malaysia’s electricity market is transitioning to a market-based, liberalized system with several market participants and IPPs through Malaysia Electricity Supply Industry 1.0 (MESI 1.0). Energy Commission, or Suruhanjaya Tenaga (ST), is the national regulator for electricity and gas supply formed under the enactment of the Energy Commission Act of 2001. Tenaga Nasional Berhad (TNB) is a private company wholly owned by the government, which replaced the National Electricity Board (NEB) in 1990 as the country’s electricity operator for Peninsular Malaysia and Sabah. Sarawak Energy is the vertically integrated utility company servicing the Sarawak region.
Initially, TNB is the only generator; however, this has changed since the MESI 1.0 reform in 2010, opening up the power generation sector to IPPs and in limited areas of the distribution segment. Figure 2 shows a simplified schematic of the current “managed” electricity market of Malaysia. Figure 3 shows the list of various Independent Power Producers and TNB affiliate generators present in the three regions. An attempt to improve market liberalization, from generation to distribution, is stipulated in a 10-year masterplan MESI 2.0, which was approved in September 2019.
Electricity Tariff in Malaysia
Malaysian electricity tariff is subsidized, and consumers experience one of the cheapest electricity in the region, an average rate ranging from 8 to 8.7 c/kWh for residential and commercial consumers (medium voltage, general).
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