Glynn Cooper, Audrey Siew and Chelsea Choy
Malaysia has announced a new target for installed renewable energy (RE) capacity, aiming for 70% by 2050. As of December 2022, Malaysia’s installed RE capacity stood at 25% – the Malaysian government estimates that an investment of MYR 637 billion (approx. US$ 143 billion) will be required to achieve this new target.
In line with its Nationally Determined Contribution (NDC) under the Paris Agreement, Malaysia intends to reduce its greenhouse gas (GHG) emissions intensity against GDP by 45% by 2030, relative to its 2005 levels, on an unconditional basis. The Malaysian government has also previously announced its commitment to achieve net zero by ‘as early as’ 2050.
National Energy Policy 2022 – 2040
The National Energy Policy 2022 – 2040 was introduced by the Malaysian government in September 2022, and sets out the country’s Low Carbon Nation Aspiration 2040 which aims to achieve, among others, a higher level of RE in total installed capacity and total primary energy supply, with no new coal power plants being built.
The action plans set out in the policy include:
- long-term pipeline of Large Scale Solar (LSS) projects;
- exploring floating solar;
- increasing availability and competitiveness of private capital for solar investments, with optimisation of equity holding rules;
- investing in grid infrastructure upgrades and energy storage to support future mix with greater variable RE penetration; and
- facilitating green virtual power purchase agreements (VPPAs).
Corporate Green Power Programme (CGPP)
In November 2022, Malaysia launched the Corporate Green Power Programme (CGPP) – a VPPA programme which allows eligible corporate consumers to enter into a VPPA with a solar power producer for the virtual purchase of RE, including the value of any green credits available from the generation of such RE.
Some of the key features of the CGPP are set out below:
- Applications to participate in the CGPP can be submitted until 31 December 2023 or until the total quota has been allocated, whichever is earlier;
- Total quota of 800MW – as of 7 August 2023, 70% of the total quota has been allocated;
- Existing solar power plants are not permitted to participate in the CGPP;
- Each applicant (solar power producer) can only submit one application associated with a solar power plant with export capacity between 5MW and 30MW. The export capacity cannot exceed the total capacity of the maximum demands of its corporate consumers;
- The solar power producer must be either (i) a local company with Malaysian equity interest of at least 51%, or (ii) a consortium of local and/or foreign companies with Malaysian equity interest in the consortium of at least 51% and at least one member of the consortium being a local company;
- A corporate consumer is only allowed to enter into one VPPA with a solar power producer; and
- The price under the VPPA may be a fixed price per kWh or other price structure agreed between the solar power producer and the corporate consumer.
Export of renewable electricity
Malaysia has also recently lifted its ban on the export of renewable energy (which was put in place by the previous administration in 2021), allowing local companies in the RE business to benefit from the export of renewable energy, particularly to neighbouring Singapore which has announced that, post the 5-year transitional period from 2019 to 2023 (with carbon tax set at S$5/tCO2e), its carbon tax would be raised to S$25/tCO2e in 2024 and 2025, S$45/tCO2e in 2026 and 2027, with a view to reaching S$50-80/ tCO2e by 2030.
National Energy Transition Roadmap
More recently, the Malaysian government has published the National Energy Transition Roadmap (NETR). The NETR is guided by four core principles: (1) aligning the energy sector with sustainable development goals, (2) ensuring an equitable and efficient transition, (3) promoting comprehensive governance, and (4) creating valuable employment opportunities and economic prospects for small and medium-sized enterprises (SMEs).
The NETR outlines 10 flagship catalyst projects and initiatives for energy transition, including:
- establishment of a pilot RE zone encompassing an industrial park, zero-carbon city, residential development and date centre;
- development of centralised LSS parks with capacity of 100 MW per site across 5 sites in several states;
- development of 2,500 MW hybrid hydro-floating solar (HHFS) potential at TNB hydro dam reservoirs;
- development of utility-scale energy storage system to enable higher penetration of variable RE; and
- development of the state of Sarawak into a green hydrogen hub.
The key initiatives under the NETR include:
- development of a third-party access framework for RE, allowing solar power producers under the CGPP to sell excess RE to the single buyer (TNB);
- establishment of a RE exchange hub to enable cross-border RE trading, and establishment of new or upgrading interconnection with neighbouring countries; and
- allocation of MYR 2 billion as the initial seed fund for the National Energy Transition Facility (NETF). The NETF is intended to enable catalytic blended finance to ensure a seamless flow of financial resources towards energy transition projects that are marginally bankable or yielding below-market returns (with hydrogen being cited as one of the examples of such projects).
Potential carbon tax in Malaysia?
It has been unclear whether Malaysia will impose a carbon tax similar to that in Singapore – the Twelfth Malaysian Plan (2021 – 2025) states that a feasibility study would be conducted on carbon pricing, such as carbon tax or emissions trading scheme.
Based on Part 1 of the NETR, the Ministry of Finance (in collaboration with World Bank) is conducting a feasibility study on carbon pricing instrument (CPI) in Malaysia. The study is expected to be completed in 2025 to determine the CPI suitable for implementation in Malaysia.
These developments show that Malaysia recognises the importance of the transition to RE, and is taking steps to achieve its commitments and targets (although it remains to be seen whether these will be sufficient). The hope is that the Malaysian government will continue to develop and implement initiatives to fast track the transition to RE in Malaysia.
Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.