Malaysia’s Tipping Point in Energy

How is Malaysia’s energy sector faring?

Greenpeace, the NGO that concerns themselves with environmental problems and their causes around the world, has just released a Scorecard for the Southeast Asian Power Sector. Its scope is wide and covers energy sectors in many of the region’s countries.

Malaysia was given a D+ for its score.

The International Energy Agency (IEA) reported that Southeast Asia’s electricity demand growth has been among the fastest in the world and will continue on that trajectory. It is driven by economic expansion – with markers being rising incomes, industrialisation and urbanisation. This increase in demand for energy brings with it opportunities for the use of renewable energy (RE). In Malaysia, however, coal and natural gas remain popular while the development of solar and wind are bottlenecked.

Why coal and gas are still popular

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Levelized Cost of Electricity (LCOE) for different energy sources. Source: Bloomberg New Energy Finance (BNEF), H1 2020

Coal has gained popularity over the years due to its low cost, with Malaysia importing 80% of its coal consumption. Meanwhile, the country’s abundance in natural gas best explains the direct reasons for its popularity. As easy products for export, Petronas has played a role in making natural gas a sizable contributor to the nation’s economy. And since the economy relies on gas production, phasing it out of local use and foreign exports will remain a challenge.

Hydropower is not worth it

As much as they are a source of renewable energy, hydroelectric dams have long planning and construction timelines. Most importantly though, these projects have severe adverse effects on the surrounding environment and local communities.

In short, the financial and economic benefits that hydropower promises must be balanced against its social and ecological impacts. This is because these projects damage the environment and further disenfranchise Orang Asli in trade-offs for a low-cost source of power. As proof of ongoing conflict, last year the indigenous people won a case against developers over the construction of a plant in Perak to protect against encroachment and destruction of their ancestral land.

Solar power, the most likely renewable

The remaining hope then falls on solar and wind; however, the latter sees the lowest demand of all because of low mean wind speeds in Malaysia.

Arguments against RE are not new. As far as solar and wind go, their investment in Southeast Asia has been classed as risky because of high upfront costs. However, Malaysia has some of the world’s highest solar potential, firstly owed to its strategic location near the equator.

The country is also capable through technology of becoming the region’s RE champion, given its position as a global solar manufacturing hub and adequate grid development. After China and Taiwan, it is the world’s third-largest manufacturer of photovoltaic (PV) cells and modules.

More than 90% of its current solar capacity was installed in the last 10 years, even though the technology has been around for longer. This rise in installed solar capacity is owed firstly to increased efficiency of solar panels all around – from just over 5% in the 1950s to about 20% in recent years, according to the Smithsonian Journal

Secondly, we also see the government taking an interest and incentivising solar adoption country-wide in 2010 through the Feed-in-Tariff. It allows electricity produced from private renewable energy resources to be sold to power utilities at a fixed price.

Possible futures as explained by policy

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Greenpeace’s report projected a Business As Usual (BAU) case. Source: Greenpeace

The BAU Case is Malaysia’s energy mix based on data from current Power Development Plans (PDPs). Under it, Malaysia’s dependency on coal, natural gas, and hydropower are apparent. 

Just last year, Yeo Bee Yin, the Energy Minister at the time, set a goal for the country – that by 2025, 20% of all electricity in the country would be supplied by renewable sources. Today, that figure sits at 2%. Besides, the Sustainable Energy Development Authority (SEDA) has announced and extended its tax initiatives, like the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE), until 2023.

The intentions of these policies are yet to be realised, as current investment, both private and public, remains lower than is needed to stay on target for 2025. 

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The Greenpeace report also had a Best-Case Scenario. Source: Greenpeace

The Best RE Case in Malaysia prioritises solar power, and Greenpeace’s report says the difference between the two cases lies in Malaysia’s solar panel manufacturing potential.

Along with that, the imminent announcement of Budget 2021 in November has the potential for incentives that could drive the nation towards being a technically proficient solar manufacturer, exporter, and adopter. In the coming years, as Malaysia continues to grow its economy, it should consider its current advantages and invest more of its resources in solar energy sooner rather than later.

By Hongrui Chin, Public Relations Executive, Mustard Tree Communications

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