Malaysia wins praise for green electricity sales scheme with lower tariff, RECs

Malaysia introduced more incentives for renewable power purchases at the start of December after pledging to reach carbon neutrality by 2050 at the earliest, a move winning endorsement from policy experts and multinational companies.

From 1 December, domestic, commercial, and industrial users can all opt to acquire power from renewable sources by paying an extra Malaysian Ringgit 0.037 per kWh under the Green Electricity Tariff (GET) program.

This compares with a premium of RM0.08 under myGreen+, the previous procurement scheme being phased out.

With high renewable energy costs often cited as an obstacle to Malaysia's energy transition, IHS Markit Associator Director for Climate and Sustainability Joo Yeow Lee said the new scheme could promote more green electricity uptake.

"It is definitely more attractive as prices are significantly lower," Lee told Net-Zero Business Daily.

In November, an IHS Markit study found that member firms of RE100—a coalition of companies aiming to source all of their electricity from renewables—only met 1% of their power demand from low-carbon options in Malaysia.

This is despite Malaysia having close to 800 GWh of renewable supply on offer annually, enough to cover more than 60% of those companies' power consumption, according to the study.

"We have seen in other markets that when the price of renewable energy decreases, there is an increased market take-up," said William Stroll, a Singapore-based partner at law firm Pinsent Masons. "Whilst many corporates have a stated green agenda, often they are not willing to pursue this agenda where there is an increased cost."

Lee, Stroll, and some others agreed that Malaysian authorities also managed to sweeten the pot for power users by issuing internationally recognized Renewable Energy Certificates (RECs) under the GET. Domestic certificates are issued under myGreen+.

Based on international standards, a green power generator is eligible to issue one REC per MWh fed into the grid. While there is no way to track electrons through a power network, the RECs can be sold to electricity consumers and allow them to claim the usage of renewable power.

This instrument is popular among the multinational firms that aim to reduce their emissions.

Jared Braslawsky, executive director of the I-REC Standard Foundation, which establishes international criteria for such certificates, said his organization was "exceptionally glad to see" Malaysia provides "high-quality renewable energy products to end-users of all sizes."

"We are optimistic that the broader program will help support domestic renewable energy generation," Braslawsky said in a statement earlier this month.

According to state-owned utility Tenaga Nasional Berhad (TNB), Malaysia's largest power firm, 49 customers subscribed to the GET as of 14 December.

The Ministry of Energy and Natural Resources said some Malaysia-based subsidiaries of CIMB Bank, FrieslandCampina, HSBC, Sanlam Group, Nestlé, and Zurich Insurance Group are among the earliest subscribers. HSBC, Nestlé, and Zurich Insurance are RE100 members.

The Malaysian government said 4,500 GWh per year will be made available under the GET. The subscribers will start to receive renewable supplies from 1 January 2022.

Stronger climate ambitions

The market reform came after Malaysia's Prime Minister Ismail Sabri Yaakob announced a national target to reach carbon neutrality in 2050 or later in September.

Ismail Sabri promised that Malaysia will unveil a National Energy Policy and long-term low-emission development strategies by the end of 2022, which he said will include a CO2 emissions price.

The country will not build new coal power plants going forward, he added. According to the latest annual data from International Energy Agency, coal accounted for 45.9% of Malaysia's electricity mix in 2019.

When updating its Nationally Determined Contribution in July for submission to the UN Framework Convention on Climate Change, the government said Malaysia is committed to cutting the GHG intensity of its economy by 45% from 2005 levels by 2030. This was more ambitious than a previous goal of a 35% reduction set in 2016.

Malaysia has separately established targets to reduce CO2 emissions from its power sector by 45% by 2030 and 60% by 2035, relative to its 2005 level. TNB and Sarawak Energy, another state-owned utility, have committed to carbon neutrality by 2050.

Based on recent announcements, the government appears to be focusing on cutting coal usage rather than natural gas. More than 7 GW of coal-fired plants' power purchase agreements (PPAs) will expire by 2033, and the government plans to replace those with electricity generated from gas and renewables.

Phang Oy Cheng, executive director of sustainability advisory at KPMG Malaysia, said Malaysia faces challenges in decarbonizing its economy due to population growth and poverty outside of urban areas. The oil and gas sector supplies 35% of government revenues, according to globalEDGE data.

"The transition to net carbon zero will require not just political will but also significant structural and legislative reforms on a national scale," Phang said in a research note earlier this year.

Renewable targets

In 2018, Malaysia said it aimed to have 20% of its generation mix be renewables by 2025 without taking large hydropower projects into account. This was estimated to require 7 GW of solar and other renewable capacity additions on top of the end of 2018 level of nearly 1.4 GW.

The country established new renewable capacity targets of 31% by 2025 and 40% by 2035 in June. But hydroelectricity is to be counted this time.

With the new baseline, the energy ministry calculated that renewable capacity would need to increase from around 8 GW currently to 18 GW by 2035, but it did not disclose an interim figure. The country's installed hydropower capacity reached 6.28 GW as of the end of 2020, according to the International Hydropower Association.

IHS Markit expects Malaysia to meet the 2025 and 2035 targets. The government has been consistently conducting tenders for renewables in recent years, and it issued an order to block exports of renewable electricity to other countries in October, but Lee said the inclusion of hydroelectric also helps lower the bar.

Isabella Suarez, an analyst at the Center for Research on Energy and Clean Air, said the recent targets were not ambitious enough. "[The government] underestimates the potential for renewables such as wind, solar, and biomass in Malaysia," she said.

With the GET's subscription period lasting for just a year, some experts said Malaysia should allow energy users to acquire off-site renewable electricity via long-term PPAs to drive renewable expansion. Only utilities can do so for now.

There are also suggestions that the government should let RECs change hands freely in a secondary market in the country.

Moreover, Malaysian electricity suppliers should enhance the grid infrastructure to incorporate the upcoming expansion of renewable power, Ember Policy Analyst Muyi Yang said.

"The introduction of the GET is a good start, but much more is needed," Yang said. "Electricity decarbonization is not only a change in generation mix towards more reliance on renewable and other clean technologies. It also requires a reconfiguration of the electricity system."

Posted 15 December 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability