Malaysia RE Law/Policy

Table of Contents

Last updated Feb. 6, 2024.

Electricity Sector Overview

The electricity industry in Peninsular Malaysia and Sabah is regulated by the Energy Commission while the electricity industry in Sarawak is regulated by the state’s Electrical Inspectorate Unit.1Loh Wei Lian & Amin Abdul Majid, Renewable Energy Law and Policy in Malaysia, Renewable Energy Law and Policy Review Vol. 7 No. 1 (2016), https://www.jstor.org/stable/26256484; Overview Electricity Sector in Malaysia, Department of Statistics Malaysia (2018), https://www.dosm.gov.my/v1/uploads/files/6_Newsletter/newsletter%202018/Series%2010_Electricity%20Sector.pdf. (Click here for a map of Malaysia’s grid system.) The three main utility companies are Tenaga Nasional Berhad for Peninsular Malaysia, Sabah Electricity Sendirian Berhad for Sabah and Syarikat SESCO Berhad for Sarawak.2Lian & Majid, supra.

The power grid in Malaysia is interconnected with Singapore, Thailand, and Indonesia.3Department of Statistics Malaysia, supra.

As of 2022, coal was the main source of energy, at 41.81% of the energy mix, followed by natural gas at 38.6% and hydropower at 17.02%. Solar only represented 1.11% of the energy mix, and wind 0%.4Malaysia Energy Country Profile, OurWorldinData.org, https://ourworldindata.org/energy/country/malaysia. The following charts illustrate Malaysia’s electricity mix:

Source: OurWorldinData.org. Click to access interactive graphs.

Additional References:

Summary of RE Laws/Policies

General

The Electricity Supply Act of 1990 governs the electricity supply industry in Peninsular Malaysia and Sabah while the Electricity Ordinance regulates the industry in Sarawak.5Lian & Majid, supra.

The renewable energy laws and policies responsible for initiating the trajectory of renewable energy in Malaysia include:

  • The Eighth Malaysia Plan 2001-2005, introducing the “Five-Fuel Diversification Policy,” which included renewable energy among Malaysia’s menu of energy sources for the first time6Kazeem Alasinrin Babatunde et al., Malaysia’s Electricity Decarbonisation Pathways: Exploring the Role of Renewable Energy Policies Using Agent-Based Modelling, Energies (2023), 16(4), 1720, https://doi.org/10.3390/en16041720.
  • Tenth Malaysia Plan, which ushered in the National Renewable Energy Policy & Action Plan

In 2023, Malaysia’s Ministry of Economy released the National Energy Transition Roadmap, outlining the government’s plan to reach net-zero emissions by 2050.

The main laws and policies for renewable energy in Malaysia are:

Policy Measures

The Renewable Energy Act established a feed-in tariff (FiT) mechanism in 2011, allowing the sale of electricity generated from solar PV systems to the utility company at a fixed premium for a specific time period.7Lin-Sea Lau et al., Expert insights on Malaysia’s residential solar-energy policies: shortcomings and recommendations, Clean Energy Vol. 6, Issue 4 (Aug. 2022), https://doi.org/10.1093/ce/zkac043. The FiT program ended in 2017 and was replaced with a net energy metering (NEM) program, allowing solar users to sell excess electricity to the grid.8Lin-Sea Lau et al., supra.

In 2014, Malaysia introduced the Green Technology Tax Incentive, which makes two incentives available to industry: the Green Investment Tax Allowance (GITA) for companies seeking to acquire green technology assets and the Green Income Tax Exemption (GITE) for qualifying green technology service provider companies.

The Malaysia Renewable Energy Roadmap (MyRER) promulgated in 2021 increased Malaysia’s renewables target to 31% share by 2025 and 40% by 2035.

The National Biofuel Policy introduced in 2006 aimed to promote the use of biodiesel in the transport sector.9Babatunde et al., supra.

Initial Critique of RE Laws/Policies

General

Researchers evaluating Malaysia’s electricity decarbonization pathways using agent-based modelling determined that the existing policy framework still needs to shift to bring Malaysia’s energy policy in line with emission reduction goals and to boost private investment.10Babatunde et al., supra.

In 2015, Kardooni et al. conducted a series of expert interviews to analyze the failure of Malaysia’s government to meet its renewable energy share target of 5% stated in the Eighth and Ninth Malaysia Plans, and determined that economic and political factors were most often cited as barriers to implementing renewable energy policy.11Roozbeh Kardooni et al., BARRIERS TO RENEWABLE ENERGY DEVELOPMENT: FIVE FUEL POLICY IN MALAYSIA, Energy & Environment, Vol. 26, No. 8 (2015), pp. 1353-1361, https://www.jstor.org/stable/90006544. Economic factors included subsidies for fossil fuels, tariff issues, and difficulties in obtaining bank financing.12Kardooni et al., supra. Political factors included “weak plans,” unrealistic targets, and lack of follow-through on prioritizing policies.13Kardooni et al., supra. Another barrier has been the lack of agreement among the various agencies and departments responsible for renewable energy planning and implementation.14Lian & Majid, supra; Kardooni et al., supra.

On Residential Solar Policies

Experts have observed low residential demand for solar energy in Malaysia and partly attributed it to deficiencies in policy for promoting residential solar.15Lin-Sea Lau et al., supra. For instance, the GITA, GITE, and GTFS financial incentives for “green technology” are only available to companies, not to individuals.16Lin-Sea Lau et al., supra. The lack of financial incentives for individuals has resulted in installation costs too high for many to afford.17Lin-Sea Lau et al., supra. Moreover, heavy subsidies for traditional electricity further widen the gap in cost between the much-more-affordable traditional electricity sources and solar PV.18Lin-Sea Lau et al., supra.

The NEM program, which replaced the feed-in tariff (FiT) mechanism in 2017, is controversial, with some arguing that the FiT scheme was more beneficial and should be re-proposed, and that the NEM only helps consumers who fall under the high electricity tariff block.19Lin-Sea Lau et al., supra.

Recommendations for Rooftop Solar

The following recommendations have been made to enhance Malaysia’s policies to support individual consumer adoption of solar rooftop technologies20Lin-Sea Lau et al., supra.:

  • Provide financial incentives for individuals to encourage solar usage
  • Enhance public awareness of the importance of switching from fossil fuels to renewable energy sources (e.g. including the topic in school curricula)
  • Develop legislation to protect solar consumers, as current laws do not protect consumers from exploitation by solar companies

Developments in 2024

On the International Clean Day of Energy on January 26, 2024, Malaysia’s Ministry of Energy Transition and Public Utilities announced the implementation of four renewable energy programs for 2024.21Renewable Energy: NEM Quotas and LSS, Low Carbon Energy Generation, and BESS programmes announced, SKRINE (Feb. 2, 2024), https://www.skrine.com/insights/alerts/february-2024/renewable-energy-nem-quotas-and-lss-low-carbon-ene. The announced programs include:

  • Additional quotas for the Net Energy Metering (NEM) program: 100MW for the NEM Rakyat Initiative and 300 MW for the NEM NOVA initiative;
  • Fifth competitive bidding round for the large-scale solar (LSS) program;
  • Low Carbon Energy Generation Programme, introduced as part of the New Enhanced Dispatch Arrangement (“NEDA”) mechanism, with a quota of 400MW; and
  • Battery Energy Storage System (BESS) project with a total capacity of 400MWh.

On April 15, 2024, the Malaysian Government announced that it would establish an Energy Exchange Malaysia (“ENEGEM”) to facilitate cross-border sales of clean electricity to neighbouring countries under the “CBES RE Scheme.”22Mark Lim et al., Malaysia: Energy exchange update, ESG (April 25, 2024), https://e-aset.st.gov.my/contents/files/download/68/CBES_Guide_Mac_2024.pdf; Guide for Cross-Border Electricity Sales, Suruhanjaya Tenaga Energy Commission, https://e-aset.st.gov.my/contents/files/download/68/CBES_Guide_Mac_2024.pdf.

Other References

  • Noor Faezah Khairudin et al., Renewable energy development in Malaysia: Communication barriers toward achieving the national renewable energy target, 2020 IOP Conf. Ser.: Earth Environ. Sci. 476 012080, https://doi.org/10.1088/1755-1315/476/1/012080.

Renewable Energy Targets

Renewable Energy Laws/Policies

Incentives for Renewable Energy

  • Green Technology Tax Incentive
    • Info
    • Provides companies an option of two incentives: the Green Investment Tax Allowance (GITA) and the Green Income Tax Exemption (GITE).
    • The Green Investment Tax Allowance rants allowances to companies for adopting renewable energies in their operations, upgrading their energy efficiency, constructing “green buildings,” or undertaking integrated waste management projects.27Reuters, supra.
  • Net Energy Metering (NEM) (introduced in 2017)
    • Info
    • Allows solar users to sell excess electricity to the grid.
    • Guideline for Solar Photovoltaic Installation Under the Programme of NEM Rakyat and NEM GoMEn in Peninsular Malaysia
    • Net Energy Metering (NEM) Contract for NEM Rakyat
    • Net Energy Metering (NEM) Contract for NEM GoMEn
  • Green Technology Financing Scheme (GTFS)
    • Info (official website) / More Info
    • Financing green projects to encourage RE usage
  • National Biofuel Policy 2006
  • Large Scale Solar (LSS) Programme

Energy Efficiency

  • Code of Practice on Energy Efficiency and Use of Renewable Energy for Non-Residential Buildings (MS1525)
  • National Energy Efficiency Action Plan (NEEAP) 2016-2025
  • National Energy Efficiency Action Plan 2026-2035 (NEEAP 2.0)

Contextual Laws/Policies

References