Power policy

Coal and gas dominate power generation in Malaysia, accounting for 74% of the installed capacity and 83% of electricity generation in 2020. This share has largely remained stable over the last three years despite the government’s efforts to promote renewable energy.

Malaysia passed the Renewable Energy Act in June 2011 and followed it up with the Renewable Energy (Feed-in Approval and Feed-in Tariff Rate) Rules in the same year. Solar PV, small hydro, biomass and biogas projects were allowed to apply for feed-in tariffs. In 2016, the government announced rules for auctions of large-scale solar power projects (greater than 30 megawatts of capacity). The country has conducted four rounds of solar PV capacity auctions until 2020 and has awarded 2.3 gigawatts of new projects since 2016 through this route. Malaysia’s 12th Plan includes a target for renewable energy to account for 31% total energy capacity by 2025. The country’s renewable energy capacity currently makes up an estimated 23% of its energy mix.

In 2018, the Malaysian government announced that it targets 20% of the country’s electricity generation from renewable energy sources by 2025. In October 2020, the government approved a new target for Malaysia to have renewables, including large hydro, account for 31% of the installed generation capacity by 2025 and 40% by 2035.

Power prices and costs

The electricity sector is partially unbundled, with private participation allowed in electricity generation. Independent power producers account for about 70% of all power generation assets in Malaysia. The three state-owned utilities – TNB, Serawak Energy and Sabah Electricity – are the only entities allowed to participate in electricity transmission and distribution.

Malaysian residential electricity is among the cheapest in the region at $52/MWh, while commercial and industrial tariffs are higher, at $91-$104/MWh. Average power prices have remained the same across all segments for the last five years. However, Malaysia also has a cost passthrough mechanism that adjusts electricity bills for variations in fuel prices.

An adjustment to the base electricity tariff is expected between 2022-24 following the release of Malaysia’s 12th plan.

Power market

Feed-in tariff projects are incentivized to use locally sourced equipment by providing bonus tariffs. Land for large-scale projects is a growing constraint, as much of the available acreage is high-value agricultural land. The average electricity tariff for residential consumers is significantly lower than that for commercial and industrial consumers. The electricity tariffs in the country have been left unchanged for the last five years. This makes it difficult for solar rooftop projects to compete in the residential segment.

Doing business and barriers

Foreign investors are not allowed to have majority shareholding in renewable energy assets in the country. This forces foreign companies to tie up with local partners to participate in auctions and other feed-in tariff projects.

EV market

Several tax incentives for EVs were introduced in Malaysia’s recent budget announcement including a complete tax exemption for EVs and individual tax relief of up to RM2,500 for the purchase, installation, rental and subscription fees for EV-charging facilities up to 2023.

EV policy

Malaysia is the second-largest market for electric vehicles in Southeast Asia currently. Electric vehicles sales in the country surged from less than 500 in 2012 to over 6,000 in 2017. Tax breaks offered by the government to manufacturers helped boost sales of plug-in hybrid electric vehicles (PHEV) from luxury brands like Mercedes-Benz and BMW during this period.

Sales of battery electric vehicles (BEV) in Malaysia are still negligible. The lack of incentives for BEVs has limited the number of models available in the market and has held back sales. Malaysia’s vehicle fleet had less than 200 passenger BEVs and 3,200 electric two-wheelers in 2020.

The Malaysian government is yet to announce a long-term target for EV sales or production. It also doesn’t offer any direct purchase subsidies or tax incentives for electric vehicles.

Buildings market

Malaysia has introduced the National Energy Efficiency Action Plan to improve energy efficiency in the country and proposes to mandate minimum energy efficiency requirements for new buildings. However, these standards are not enforced.

Buildings policy

Malaysia has introduced the National Energy Efficiency Action Plan to improve energy efficiency in the country and proposes to mandate minimum energy efficiency requirements for new buildings. However, these standards are not enforced.