Spotlight on energy markets in Malaysia
All the questions
i Development of energy markets
Prior to the 1990s, TNB had a monopoly in the electricity supply industry in Malaysia, at the generation, transmission and distribution levels. In 1993, the first power purchase agreement was signed in Malaysia, with Malaysia’s first IPP. Since then, the Malaysian energy market has been gradually liberalized, with the Commission awarding power plant projects to companies through a combination of direct tenders and public tenders. The Malaysian government maintains absolute discretion in awarding these projects. The Commission’s position has been that direct awards of power plant projects are the exception and not the rule.23
The current power sector framework in Malaysia is based on a single buyer model in which IPPs and TNB’s power generation arm are responsible for power generation, which is sold to TNB (in Peninsular Malaysia), Sarawak Energy (in Sarawak) and SESB (in Saba). These parties are then responsible for the distribution and retailing of electricity in their respective jurisdictions. Malaysia also has a number of captive power plants; however, captive power remains a marginal contributor to Malaysia’s total power generation capacity. In recent years, the Malaysian government has pushed for increased use of renewable energy – the Commission held tenders for four utility scale solar (LSS) projects, in 2016, 2017, 2019 and 2020, and the commissioning commissioning of a number of these projects likely contributed significantly to renewables accounting for 23% of national installed electricity capacity by the end of 2020.24
The Commission also introduced the NEDA (New Enhanced Dispatch Arrangement) system in 2015, which allows IPPs to supply electricity to the national grid without entering into a PPA. Existing IPPs can also participate, but they must also comply with the terms of their respective PPAs. NEDA has worked to reduce energy prices by introducing a system in which energy producers bid daily on variable operating tariffs, in accordance with NEDA rules.
Prior to 2015, no PPA had ever been granted to a majority foreign-owned company (i.e. a company owned and controlled by non-Malaysians). Government policies required that an IPP operator hold no more than 49 percent of its capital in the hands of non-Malaysian entities. In late 2015, the government made an exception for the acquisition of the energy assets of 1Malaysia Development Bhd by China General Nuclear for 9.83 billion ringgit, making it the largest acquisition by value in the history of the industry. Malaysian Energy Company and the first – and so far, only – instance in which the Malaysian government made an exception to the foreign equity rule and allowed a non-Malaysian entity to acquire 100% equity in a PPI.25
On March 12, 2021, the Commission shortlisted 30 bids for the development of solar parks (with export capacity ranging from 10MW to 50MW) under Malaysia’s fourth round of LSS tenders, commissioning to begin in late 2022 or early 2023.26
ii Energy market rules and regulations
The laws and authorities regulating the production of energy also govern its supply and sale. Energy continues to be sold to consumers at fixed government-approved rates. Despite Malaysia’s privatization policy, competition in the energy market is mainly at the level of tenders for energy projects and electricity generation, and has little direct effect on the price paid by end consumers for their electricity.
iii Energy Sales Contracts
In Peninsular Malaysia, power generated by IPPs is sold to TNB (as the buyer) under the terms of their respective PPAs. TNB then resells the electricity to end consumers. IPPs do not enter into contracts with individual consumers, except in very exceptional circumstances).
Historically, all gas used for power generation was sold by PETRONAS to IPPs in accordance with the terms of gas sales agreements between PETRONAS and IPPs, and in accordance with the “Guidelines for the Implementation of the Master Agreement on Gas (GFA)’ of the Commission in the Electricity Sector’. The single buyer determines the quantity of gas that the IPPs need to generate their allocated capacity and organizes its delivery and offtake between PETRONAS and the IPPs. The terms of individual gas sales agreements between PETRONAS and IPPs are fairly standard and there is generally little room for negotiation on non-commercial matters. Liberalization of the gas supply market has allowed third parties to resell gas to consumers through the PETRONAS piping system. However, the ability to negotiate supply conditions is limited by the fact that consumers do not have a choice of supplier; they obtain their gas supply from the retail licensee who owns the pipeline system supplying the gas to the consumer’s premises. The government also reserves the right to determine gasoline prices and will do so when it deems it necessary to protect the interests of consumers.27
iv Market evolutionGreen electricity tariff
In November 2021, the Ministry of Energy launched the Green Electricity Tariff (GET) program,28 which offers electricity consumers the possibility of purchasing electricity produced from renewable energy sources comprising:
- LSS factories;
- hydroelectric power stations owned by TNB or subsidiaries of TNB; and
- any other renewable energy plant approved by the Commission.
The total quota of green electricity offered under the GET will be 4,500 GW per year. As of this writing, TNB announced on their website that GET is fully subscribed.29
A consumer interested in participating in the GET is required to request a subscription in blocks of 100kWh (residential) or in blocks of 1000kWh (non-residential). The amount subscribed must be less than or equivalent to the consumer’s monthly consumption, as determined by TNB. After approval of the application, the consumer is required to enter into a GET contract with TNB. The subscription to GET is based on a one-year cycle, with automatic renewal at the current conditions, and the consumer will have to request the termination or modification of the subscription.
Consumers subscribing to GET will have to pay an increased tariff, currently set at 3.7 sen/kWh. This premium is separate from and in addition to the applicable official tariff rate charged to the consumer.
A key aspect of GET is the issuance of renewable energy certificates on an annual basis, enabling consumers to reduce their carbon footprint. This likely contributed to the strong response to GET, with major companies and Malaysian banks pledging to procure green electricity under the scheme.