Power generation in Malaysia has historically been reliant on fossil fuel such as cheap regulated natural gas and coal. Up until 2010, the country's reliance on natural gas as an energy source has been steadily increasing, and at the end of 2010 natural gas accounted for 71,543ktoe of the 106,794ktoe total energy produced nationwide.2 Since then, the increasing local demand for energy supply and rapidly diminishing hydrocarbon resources has instigated a gradual but sure shift in energy sector policies as the country strives to reduce its dependency on fossil fuels and develop its renewable energy market infrastructure. In 2014, the Malaysian government awarded the first utility-scale solar project, with an aggregate capacity of 50MW and a 25-year power purchase agreement.3 Since then, the Energy Commission of Malaysia (the Commission) has held two further tenders for large scale solar projects, which were awarded in 2016 and 2017, placing Malaysia on track to develop 1,000MW of utility scale solar in 2020. As of 2016, the country's energy grid generation mix of 154.1 TWh comprised 36.5 per cent natural gas, 44 per cent coal, 2 per cent fuel oil and diesel and 17.5 per cent renewable resources of which 16.6 per cent comprised hydropower and the remaining was sourced from biodiesel, geothermal, solar energy, biomass and biogas.4

The national electric utility company, Tenaga Nasional Berhad (TNB) remains the largest power generation company in Malaysia but several other independent power producers operate in Malaysia such as YTL Power, Genting Sanyen, Malakoff and Edra Global. At the time of writing, we understand that the general policy of the government is that foreign equity participation in power generation projects is capped at 49 per cent and that exceptions to this policy will be considered on a case-by-case basis.


The energy sector in Malaysia was formerly a state monopoly, where TNB held the exclusive rights to generate, transmit and distribute electricity in Peninsular Malaysia and Sabah. However, a nationwide blackout that resulted in losses of an estimated 218 million ringgit in the manufacturing sector alone5 set off a chain of events that culminated in the privatisation of the energy distribution sector and the entry of independent power producers (IPPs) into the energy market, as well as the emergence of the first power purchase agreements (PPAs). The PPA dictates the terms upon which the IPPs would sell the electricity that they generate to TNB, who is the exclusive owner and operator of Malaysia's electricity distribution network.

i The regulators

The energy market in Malaysia and its participants are subject to a host of legislation governing the supply of electricity generally and the mining of energy resources. More recently, new legislation has been introduced to account for the growing renewable energy sector. The laws that are relevant to the energy sector in Peninsular Malaysia and Sabah6 are as follows:

    1. Electricity Supply Act (ESA) 1990;
    2. Gas Supply Act 1993;
    3. Renewable Energy Act 2011;
    4. Environmental Quality Act 1974;
    5. Occupational Safety and Health Act 1994;
    6. Factories and Machinery Act 1967;
    7. Petroleum Development Act 1974;
    8. Petroleum (Safety Measures) Act 1984; and
    9. Petroleum and Electricity Control of Supplies Act 1974.

The legislation listed above also require compliance with the regulations, orders, rules and other sub-legislation made thereunder. Some of the more relevant ones are listed below:

    1. Efficient Management of Electrical Energy Regulations 2008;
    2. Electricity Regulations 1994;
    3. Licensee Supply Regulations 1990;
    4. Gas Supply Regulations 1997;
    5. Renewable Energy (Feed-In Approval and Feed-in Tariff) Rules 2011;
    6. Renewable Energy (Renewable Energy Power Purchase Agreement) Rules 2011;
    7. Renewable Energy (Technical and Operational Requirements) Rules 2011; and
    8. Petroleum Regulations 1974.

The sub-legislation deals in much greater detail with the practicalities of complying with the laws, and include regulations on, inter alia, safety, licensing, management of supply, transport and transmission, technical and operational requirements and exemptions. The laws may also empower the relevant ministers or regulatory authorities to make further guidelines or directives in respect of their regulatory sphere.

There are multiple regulatory authorities in Malaysia overseeing the various segments of the energy sector. Today, the Commission is the primary regulator of the energy and gas supply in Peninsular Malaysia and Sabah.7 The Commission is empowered with, inter alia, the following functions:8

    1. to advise the Minister of Energy, Green Technology and Water (Minister) on all matters concerning national policy objectives for energy supply activities;
    2. to advise the Minister on all matters relating to the generation, production, transmission, distribution, supply and use of electricity as provided under the electricity supply laws and the supply of gas through pipelines and the use of gas as provided under the gas supply laws;
    3. to promote and safeguard competition and fair and efficient market conduct or, in the absence of a competitive market, to prevent the misuse of monopoly or market power in respect of the generation, production, transmission, distribution and supply of electricity and the supply of gas through pipelines;
    4. to promote the use of renewable energy and the conservation of non-renewable energy; and
    5. to promote research into, and the development and the use of, new techniques relating to:
      •  the generation, production, transmission, distribution, supply and use of electricity; and
      •  the supply of gas through pipelines and the use of gas supplied through pipelines.

The Commission reports to the Malaysian Ministry of Energy, Green Technology and Water (KeTTHA) and is responsible for the oversight of all elements of the industry from tariffs and licensing to consumer safety. The Commission works in close cooperation with the Sustainable Energy Development Authority of Malaysia (SEDA), which is a statutory body formed under the Sustainable Energy Development Authority Act 2011 to administer and manage the implementation of the feed-in tariff mechanism under the Renewable Energy Act 2011 (see below). A company seeking to participate in the extraction of oil and gas in Malaysia will generally do so by entering into production-sharing contracts, joint operating agreements or farm-out agreements with Petroliam Nasional Berhad (PETRONAS),9 and a PETRONAS licence is required in order to operate a business of processing or refining of petroleum and marketing or distributing petroleum or petrochemical products.10

ii Regulated activities

Generation and supply of electricity

The construction, operation, management and use of electrical installations, plants and equipment designed for the supply or use of electricity requires a licence from the Commission.11 There are two main types of licence issued under the ESA:

    1. licences for 'private installations', meaning any installation operated by a licensee or owner solely for the supply of energy to and use on the licensee's or owner's own property or premises, or, in the case of a consumer, taking electricity from a public installation or supply authority, for use only on the licensee's or owner's property or premises; and
    2. licences for 'public installations', meaning an installation operated by a licensee for the sale and supply of electricity to any person other than the licensee.

The ESA provides that, except where expressly approved by the Minister, the maximum period for which such a licence may be granted is 21 years,12 and the licensee shall be required to pay an annual fee for the licence. The licences are non-transferrable and the licensee must at all times comply with the terms of its licence, which will state, inter alia, the area of supply, the declared and permitted voltage and the maximum charges that consumers may pay for the electricity. The licensee must also comply with the provisions of the Commission's guidelines and directives (e.g., the Single Buyers Rule Guidelines) as well as those of the Grid Code Operator. The Commission may attach other terms and conditions to the licence as they see fit.

A person seeking a licence under the ESA must apply via the Commission's online application system. Although neither the ESA nor the rules and regulations issued thereunder expressly imposes any ownership or equity limitations on the applicant, such limitations are usually set out in the terms and conditions of the licences and other regulatory approvals or, alternatively, they may be contained in the provisions of the PPAs signed between the IPPs and TNB.

The Commission may issue a provisional licence in restricted circumstances. A company that has obtained a Feed-in Tariff Approval from SEDA (see below) for any of the following types of public renewable energy installations may apply to the Commission for a provisional licence:

    1. biogas installations;
    2. biomass installations;
    3. solar photovoltaic installations; and
    4. small hydropower installations.

This is typically done to facilitate the development of the renewable energy project and to enable them to apply for financial incentives and programmes prior to the construction and operation of the facilities, and is intended to ease the entry of new participants to the renewable energy market. The Commission has stated that any company that requires a bank loan for the project and wishes to obtain a provisional licence is required to have a paid-up capital of at least 2 per cent of the total cost of the project, or 200,000 ringgit, whichever is the greater.13

Generation and supply of gas via pipelines (for private gas utilities and supply of gas to consumers)

The Gas Supply Act 1993 (GSA) applies to the delivery of gas to consumers via pipelines, downstream from the connection flange of the loading arm at the regasification terminal, or the last flange of the gas processing plant or onshore gas terminal.14 Prior to 2016, there were only two types of licences for the supply of piped gas in Peninsular Malaysia:

    1. private gas licence – allowing its holder to supply and use piped gas on their own premises, for example restaurants; and
    2. gas utility licence – allowing licence holders to supply gas via pipeline to third parties for use.

However, as part of the Tenth Malaysia Plan and the country's New Energy Policy, the Malaysian government has recently opened up the gas supply market in order to manage the growing demand for energy and gas in Malaysia and encourage economic growth. In 2016, the GSA was amended to provide more opportunities for third parties to have access to and manage gas distribution networks that they do not operate. Interested parties may now apply to the Commission for any of the following licences:

    1. import into regasification terminal licence;
    2. shipping licence;
    3. regasification licence;
    4. transportation licence;
    5. distribution licence;
    6. retail licence; and
    7. private gas licence.

In order to obtain a licence under the GSA, the applicant:15

    1. must be a Malaysian-incorporated company or, if incorporated outside Malaysia, must be approved by the Commission;
    2. must meet the minimum paid-up capital stipulated by the Commission (this ranges from 1 million ringgit to 5 million ringgit and depends on the type of licence being applied for);
    3. must not already hold any other GSA licences, and the applicant's directors must not hold any directorships in other GSA licence holders;
    4. must have sufficient financial capability;
    5. must have sufficient relevant technical capability; and
    6. must comply with such other additional requirements as may be set by the Commission from time to time.

Presently, licences shall not be granted to any person who is not incorporated in Malaysia, or who does not have a place of business in Malaysia (except for a licence for import of gas into a regasification terminal).16 Licences granted under the GSA are not transferrable or assignable without the written consent of the Commission or the Minister.17 The Commission has stated that the third-party access system will be implemented on 16 January 2017, and there will be a 12-month grace period for existing players to obtain the necessary licences in order to comply with the GSA.18

An application to the Commission for a licence for the distribution, retail or use of gas must include details regarding the area of supply; the site location plan and piping layout; the technical specifications of the piping system; and any other information that the Commission may request in order to enable it to organise and supervise the gas distribution network in the country.19

Other licences, certifications and approvals

The above licences relate to the construction of power plants and power installations, supply, sale, distribution and transmission of energy. Any person interested in entering the energy market in Malaysia should also be mindful that other ancillary licences and certifications may be required in the process of obtaining the above-mentioned licences and approvals from the Commission. Approvals from the Department of Environment of Malaysia or the Malaysian Department of Occupational Health and Safety would also be relevant to an IPP. As a condition of the ESA licences or PPAs, a licence holder would generally also be required to employ certain technically skilled and qualified persons, and potential applicants should bear in mind that although the Malaysian government has been gradually liberalising professional services in Malaysia – including engineering and construction services – the relevant laws continue to prescribe minimum qualification requirements that are favourable to Malaysians or require local participation (e.g., a minimum period of residency in Malaysia, or a minimum percentage of Malaysian or Bumiputera20 equity in an applicant company). A variety of other laws, such as the Factories and Machinery Act 1967 and the Petroleum (Safety Measures) Act 1984, also contain provisions addressing licences, approvals, certifications and registrations relating to safety, transportation and other ancillary matters that are ancillary, but nonetheless essential, to any party interested in entering the Malaysian energy market.


i Vertical integration and unbundling

The electricity transmission network in Peninsular Malaysia, known as the National Grid, is owned and operated by the national energy company, TNB. IPPs sell the electricity generated to the Single Buyer Unit of TNB at a pre-determined tariff. Likewise, the electrical grid that supplies power in Sabah is operated by Sabah Electricity Sdn Bhd, a company owned partly by TNB and partly by the Sabah State government; whereas the grid in Sarawak is owned by Sarawak Energy Berhad, which is fully owned by the Sarawak state government. These companies collectively have a monopoly on the ownership and operation of Malaysia's power grids, and are responsible for their construction, operation and maintenance. Since the privatisation of power production in the early 1990s, the upstream market for the generation of electricity remains highly competitive with a mix of local and foreign power producers and a competitive bidding system for power plant projects.

Regarding gas, as at the beginning of 2017, only two companies have been granted a gas utility licence by the Commission: Gas Malaysia Sdn Bhd, a PETRONAS-associated company that operates and maintains the Peninsular Gas Utilisation pipeline system in Peninsular Malaysia; and Sabah Energy Corporation Sdn Bhd, which operates and maintains the gas distribution pipelines in Sabah.21 However, as stated above, recent amendments to the GSA are expected to facilitate the entry of new market players into an industry that is presently dominated both on the upstream and downstream level by state-controlled enterprises comprising a duopoly market in Peninsular Malaysia and a monopoly in Sabah.22

ii Transmission/transportation and distribution access

The ESA provides that, save in very limited circumstances, an ESA licence holder has a duty to supply electricity to the premises to which his or her licence relates upon receiving a notice of request from the owner or occupier of those premises.23 The amended GSA imposes a similar duty on the holder of a gas retail licence to supply gas to (1) a consumer's premises; and (2) any regasification, transportation or distribution licensee, upon receiving notice of a request from them.24

iii Rates

The Commission is empowered to determine the tariffs for both electricity and gas under the ESA and GSA, and to issue guidelines of tariffs and charges including the methodology, principles or categories of tariffs and charges, and the duration for the imposition and review of said tariffs and charges.

Electricity prices are set by TNB under the regulation of the Malaysian government, via the Commission. Similarly, the tariffs for gas supply are set by Gas Malaysia Sdn Bhd, after approval of the rates by the Commission.

iv Security and technology restrictions

In the case of a lock-out, strike, or other emergency, or if he decides that public interest so requires, the reigning monarch of Malaysia, the Yang di-Pertuan Agong, may authorise the Commission to suspend the ESA licence or take temporary possession of any power installation or gas pipeline, and operate it in a manner that the Commission sees fit, or he may order that the licence and use of the installation or pipeline be withdrawn either partially or completely.

As to information security, both the ESA and GSA have similar information security provisions, requiring an ESA licence holder and GSA licence holder respectively to be responsible for the preservation of confidentiality, integrity and availability of its information, information systems and supporting network infrastructure pertaining to its duties and other matters as provided under the relevant Act. He or she would also be required to take all necessary measures to protect the relevant information from unauthorised access, intrusion or removal or any risk thereof, and in the event he or she becomes aware of any incident that may interfere or affect the performance of his or her activities under the licence, he or she is obliged under the ESA to inform the Commission immediately.25


i Development of energy markets

The current Malaysian energy sector framework is based on a single-buyer model whereby IPPs and the power generation arm of TNB are responsible for generating electricity that is sold to the single-buyer unit of TNB (in Peninsular Malaysia), Sarawak Energy (in Sarawak) and Sabah Electricity (in Sabah). The single-buyer unit of TNB (In Peninsular Malaysia), Sarawak Energy (in Sarawak) and Sabah Electricity (in Sabah) are thereafter responsible for distribution and retailing electricity in their respective jurisdictions. Malaysia also has a number of captive power plants of which the centralised utilities facilities of PETRONAS Gas in Kerteh is the largest by capacity. Captive power is nonetheless a marginal contributor to Malaysia's total energy generation capacity. The Commission also recently introduced the New Enhanced Dispatch Arrangement (NEDA) system, which allows IPPs to supply power to the National Grid without necessarily entering into a PPA. (Although existing IPPs may also participate, they must at all times comply with the terms of their respective PPAs as well and in the event of conflict, the PPA terms will prevail). NEDA introduces a system by which energy generators bid against each other on variable operating rates on a daily basis, according to the rules set by the Commission, and it is hoped that the increased competition will drive down energy prices. The NEDA system is about halfway into its third year and is still undergoing changes and development, with the latest version of the NEDA Rules being published in April 2017. It is too early to determine if the implementation of NEDA has helped keep energy prices down, although on a related note, the government announced in December 2017 that energy tariffs in Peninsular Malaysia would be maintained until December 2020.26

Since the early 1990s, the Commission has awarded power plant projects to companies based on a competitive bidding system, although the absolute discretion regarding who to grant these projects to lies with the Malaysian government; to date, there have been three recorded instances where a power plant project has been awarded by direct negotiation with the company involved, as opposed to a bidding process. The Commission has stressed that direct awards of power plant projects are the exception and not the rule.27

Prior to 2015, no PPAs had ever been granted to a foreign company (i.e., a company owned and controlled by non-Malaysians). Government policies required an IPP operator to have no more than 49 per cent of its equity in the hands of non-Malaysian entities. At the end of 2015, the government made an exception for the acquisition of 1Malaysia Development Bhd's power assets by China General Nuclear for 9.83 billion ringgit, making it the largest acquisition by value in the history of Malaysia's energy industry and the first – and so far, the only – instance where the Malaysian government has made an exception to the foreign equity rule and allowed a non-Malaysian entity to acquire 100 per cent of the equity in an IPP.28

ii Energy market rules and regulation

The same laws, regulations and guidelines regulating the generation of energy also govern the supply and sale of that energy. The electricity generation licences granted under the energy laws of Malaysia (as detailed above) also authorise the generator to sell energy. Energy is sold to consumers at fixed tariff rates, which are approved by the Malaysian government. Notwithstanding Malaysia's policy of privatisation, which was announced by the then Prime Minister of Malaysia, Mahathir Mohamad in 1988, competition in the energy market lies mainly at the level of bidding for power projects and power generation, and has little direct effect on the price paid by end-consumers for their electricity (although the generation capacity in the country at a particular point in time may affect the government's decisions on approved tariff rates).

iii Contracts for sale of energy

In Peninsular Malaysia, electricity generated by the IPPs is sold to the Single Buyer Unit of TNB (as offtaker) pursuant to the terms of their respective PPAs. TNB then sells on the electricity to the final consumers. IPPs do not enter into contracts with individual consumers, save in highly exceptional circumstances (for instance, where the power is generated by a captive plant, to provide power to users that do not have access to the national power grid).

As for gas, all gas that is used in the generation of electricity is sold by PETRONAS to IPPs pursuant to the terms of the gas sales agreements between PETRONAS and the IPPs, and in accordance with the Commission's Guidelines for Implementation of Gas Framework Agreement. The single buyer determines the quantity of gas that the IPPs require in order to generate their allocated capacity, and arranges for the delivery and offtake of the same as between PETRONAS and the IPPs. The commercial terms of the individual gas sales agreements are negotiated between PETRONAS and the IPPs, but these agreements are fairly standard and generally there is little room to negotiate on non-commercial points. The liberalisation of the market for the supply of gas (see Section II.ii, above) has recently opened up the possibility for third parties to sell on the gas to consumers through the former's own piping system. However, the capacity for negotiation of the terms of supply is restricted by the fact that consumers do not have a choice of supplier; they obtain their gas supply from whichever retail licensee owns the piping system providing the gas to the consumer's premises. The Malaysian government also maintains the power to determine gas prices and will do so when it deems it necessary to protect the consumer's interest.

iv Market developments

Net Energy Metering

The Net Energy Metering (NEM) scheme is one of the more comprehensive developments to the renewable energy market in Malaysia. Under NEM, energy produced from the solar photovoltaic (PV) system installed will be consumed first, and any excess to be exported and sold to the distribution licensee (such as TNB for Peninsular Malaysia or Sabah Energy Corporation Sdn Bhd (SESB) for Sabah and Labuan) at the prevailing displaced cost (prescribed by the Energy Commission). The NEM programme was introduced with the intention of replacing the Feed-in Tariff (FiT) mechanism for solar photovoltaic installations, which closed at the end of 2017 (see below).

The scheme is executed by KeTTHA and regulated by the Commission, with SEDA as the implementing agency. To participate in NEM, applicants must register as consumers of distribution licensees in Peninsular Malaysia, Sabah and Labuan. Foreign entities are also eligible to apply as long as they are customers of the distribution licensees. The resources for producing electricity shall be from Solar Photovoltaic only; however, other renewable energy resources such as biogas, biomass, or micro hydro may be allowed on a case-by-case basis at the sole discretion of the Commission.29

The scheme is applicable to all domestic, residential, commercial (inclusive of government buildings) and industrial sectors, subject to the capacity limits set out in the Commission's Guidelines for Solar Photovoltaic Installation on Net Energy Metering Scheme.

Applications for NEM shall processed be on a first come first served basis up to the allocated quota, which is provided by SEDA on its website.30 The application may be made by the applicant's appointed registered PV service provider (RPVSP) or Registered Electrical Contractor (REC), and it should be submitted either manually to SEDA or online via SEDA's online application portal.

If NEM approval is granted, the NEM consumer will need to apply for a public generation licence with the Commission. Once successful, a NEM contract can be signed between the NEM consumer and the distribution licensee

NEM consumers may apply to convert to the FiT scheme provided that the consumer is successful in achieving the FiT quota; in such cases, all requirements under the FiT scheme shall apply.


i Development of renewable energy

Since the implementation of the Tenth Malaysia Plan, the government – via the Commission, KeTTHA, and SEDA – have implemented a range of programmes and projects to educate the Malaysian public and encourage electricity efficiency and energy conservation. Energy laws and regulations are reflective of this; for example, the Efficient Management of Electrical Energy Regulations 2008 authorises the Commission to require operators and owners of installations that consume 3 million kWh or more over a six-month period to engage a registered energy manager to analyse the total consumption of electrical energy, advise on the development and implementation of measures to ensure efficient management of energy and monitor the effectiveness of the implemented measures.31 The introduction of the feed-in tariff mechanism under the Renewable Energy Act 2011(REA)and the implementation of the Solid Waste and Public Cleansing Management Act (2007) were similarly enacted in aim of growing and developing the country's green energy industry while creating jobs and improving the quality of life of Malaysians generally.

There are currently a number of fiscal incentives in place that are specifically targeted at potential entrants to the renewable energy market in Malaysia. For example, KeTTHA has approved a budget of 5 billion ringgit to help fund new energy efficiency projects in Malaysia for the period 2018–2022.32 As of 1 September 2016, there have been a total of 509 applications processed, of which 243 projects were approved.33 Following the spirit of the Eleventh Malaysia Plan, SEDA – with the blessing of the Economic Planning Unit – has introduced the Energy Efficiency Projects Malaysia, which is a conditional energy audit grant for commercial buildings consuming more than 3 million kWh for six consecutive months.34

The Malaysian Investment Development Authority (MIDA) offers tax incentives for green technology projects and services. Subject to any other conditions imposed by MIDA, a Malaysian company that undertakes a green technology project may be eligible for Investment Tax Allowance of 100 per cent of the qualifying capital expenditure incurred in a green technology project from the year of assessment 2013 until year of assessment 2020. Similarly, a Malaysian company that provides green technology services or a company that purchases green technology assets as listed In MIDA's MyHijau Directory is eligible for an income tax exemption of 100 per cent of their statutory income from the year of assessment 2013 until year of assessment 2020.35

Feed-in tariff approvals and renewable energy power purchase agreements

A small producer of renewable energy may apply to SEDA for its approval to participate in the feed-in tariff system established under REA, which will allow locally produced electricity to be sold to power utilities at a fixed premium for a specific period. In particular, the REA states that the feed-in tariffs will provide for:

    1. the connection to supply-line connection points for the distribution of renewable energy generated by renewable energy installations that are owned by feed-in approval holders;
    2. the priority of purchase and distribution by the distribution licensee (meaning the holder of an ESA licence) for renewable energy generated and sold by feed-in approval holders; and
    3. the feed-in tariff to be paid by distribution licensees to feed-in approval holders for such renewable energy.

In order to be eligible to participate in the feed-in tariff system, the applicant must propose to generate renewable energy from a renewable energy installation with an installed capacity of not more than 30MW, or such higher installed capacity as may be approved by the Minister. In addition, Rule 3 of the Renewable Energy (Feed-In Approval and Feed-In Tariff Rate) Rules 2011 provides that where the producer is a corporate body, it is subject to the following requirements and provisos:

    1. the company must be incorporated in Malaysia;
    2. the foreign equity participation in the company must not exceed 49 per cent during the application and for the entire period of approval;36 and
    3. if the company is already a holder of a ESA licence, or if it is an associate of an existing ESA licence holder, then that company is prohibited from making any application for a feed-in approval relating to a renewable energy installation proposed to be connected to the electricity distribution network of the ESA licence holder.37

The application may be made by the company or its authorised representative, and it should be submitted either manually to SEDA, or online via SEDA's online application portal. The application should include supporting information regarding the renewable energy installation, including:

    1. a description of the installation including the type of renewable energy resource to be used;
    2. the proposed location of the installation;
    3. the proposed installed capacity of the installation;
    4. the proposed feed-in tariff commencement date; and
    5. the name of the ESA licence holder whose electricity distribution network is proposed to be connected to the renewable energy installation, including the location, details and specifications of the proposed connection.

The other pre-requisites for SEDA approval may vary according to the source of the renewable energy (solar, biomass, hydroelectricity, etc.) and the output of the renewable energy installation. SEDA has a number of guidelines and documents on its website detailing the application processes, tests and checks to be carried out and technical requirements for each particular type of renewable energy installation. For instance, corporate applicants must have a minimum paid-up capital of 20,000 ringgit or equivalent if they intend to develop renewable energy installations with a rated kWp or net export capacity of up to 72kWp or kW. If the installation's net export capacity exceeds 72kWp, then this minimum paid-up capital is increased to 50,000 ringgit or its equivalent.38 Additionally, SEDA may require the applicant to conduct tests and checks, including a Connection Confirmation Check or Power System Study conducted in accordance with the Renewable Energy (Technical and Operational Requirements) Rules 2011.

A feed-in approval granted under the REA may be assigned or transferred, but only with the consent of SEDA, which has absolute discretion as to whether to approve or refuse to allow the assignment or transfer of the feed-in tariff approval.39 SEDA will not approve such assignment or transfer unless it is satisfied that the proposed assignment or transfer:

    1. was not reasonably foreseeable at the time of application for the initial feed-in tariff approval;
    2. is just and reasonable; and
    3. is not inconsistent with the objectives of the REA and the current energy policies of the Malaysian government, taking into account the need for sustainability and diversity in renewable resources and the need for fair competition and transparency in the implementation of the feed-in tariff system.

If the feed-in tariff approval is granted, then the ESA licence holder whose distribution network is to be connected to the renewable energy power plant or installation to which the approval relates is required to enter into a renewable energy power purchase agreement (REPPA) with the feed-in approval holder in the form prescribed under the Renewable Energy (Renewable Energy Power Purchase Agreement) Rules 2011. The minimum terms of the REPPA vary according to the type of renewable resource used, and the capacity of the renewable energy installation. Similar to PPAs, REPPAs may contain restrictions on foreign participation, foreign control or transfer/assignment that are more stringent than those prescribed under the renewable energy laws, although these will generally be reflective of the existing government policies on foreign investment in the Malaysian energy sector.

It should be noted that Feed-in Tariff approvals are subject to a quota. Successful applications will be placed in a queue and subject to a ballot process until the quota is exhausted.40 With the introduction of the Net Energy Metering and Large Scale Solar Photovoltaic Plant Schemes (as described above), the Feed-In Tariff is being phased out with quotas only available for small hydropower installations at the time of writing.

Large-scale solar photovoltaic plants

As part of its plans to phase out the Feed-in Tariff Scheme, the Commission conducted a competitive bidding process to select developers or developer consortiums for the development of large scale photovoltaic plants to be located in West Malaysia and Sabah. The plant will be connected to the distribution or transmission grid depending on its proposed capacity, and sell its energy to the Single Buyer Unit of TNB or to SESB (as the case may be) under a power purchase agreement, and the large-scale solar capacity to be tendered will be from 1MWac to 50MWac.

Only Malaysian companies that pass the prescribed minimum Malaysian equity interest thresholds may participate in the large-scale solar (LSS) programme. These thresholders are:

    1. the equity of the participant company is held by at least 51 per cent Malaysians; or
    2. the equity of the participant company consists of a consortium of legal entities that includes a minimum of one Malaysian company, and where the Malaysian equity interest in the consortium is at least 51 per cent.

Successful bidders will enter into a PPA negotiation process with the distribution licensee or the single buyer based on the PPA that has been approved by the Commission. Upon successful negotiation, the bidders must fulfil all conditions precedents under the PPA. All LSS plants shall be licensed under Section 9 of the Electricity Supply Act 1990.

In December 2016, TNB, Malakoff Corporation Berhad, Mudajaya Group Bhd and Integrated Logistics Berhad were awarded projects to develop LSS plants. The PPAs signed were for a period of 21 years and are expected to become operational in 2018, save that the Commission subsequently revoked the approval of Malakoff Corporation Berhad.

ii Technological developments

A vital part of the Malaysian government's drive towards energy efficiency involves monitoring and educating consumers so as to improve management on the demand-side. In 2011, the Sustainability Achieved via Energy Efficiency programme was launched, whereby a total of 44.3 million ringgit was allocated as rebates for the purchase of new energy efficient refrigerators and air conditioners for domestic use, as well as chillers for industries. The total energy saved as a result of this initiative was 306.9GWh.41

In 2014, TNB, along with the government, launched a 1,000-unit smart meter, two-year pilot smart grid project in Melaka and Putrajaya.42 The project was funded by the government and is targeted at reducing energy consumption by encouraging Malaysians to be more engaged with their management of energy usage. The pilot has since extended to regions in the state of Selangor, according to a joint press statement by KeTTHA and TNB in late 2017. TNB has also announced plans to install advanced metering infrastructure in 8.3 million households across the country by 2021.43

The Malaysian government has also taken a 'lead-by-example' approach when it comes to renewable energy. Starting in 2013, the Ministry of Finance issued Government Green Procurement Guidelines, through which the government will actively acquire products and services that are environmentally friendly, and leverage its purchasing power to encourage industries and private enterprises to do likewise.44 Since its pilot in July 2013, five selected ministries have procured green products and services worth 352 million ringgit as of April 2015.45


    1. In September 2017, Malaysia signed a cross-border power trading agreement with Laos and Thailand. It is the first multilateral power exchange project in ASEAN and will allow Malaysia to purchase power from Laos, transmitting it through the transmission network of Thailand, before reaching Peninsular Malaysia.
    2. In September 2017, construction began on a 50MW LSS project in Kuala Langat, Selangor, which is reported as already being 50 per cent completed at the time of writing.46
    3. TNB is expanding its renewable energy portfolio on an international scale, including the acquisition of assets in solar, wind and hydro in the United Kingdom, Turkey and India. It most recently acquired an 80 per cent stake in two United Kingdom-based renewable energy companies for 418.13 million ringgit, bringing its total international renewable energy portfolio to about 280MW.47
    4. It was recently announced by the Sarawak Chief Minister that, as of July 2018, Sarawak will assume full regulatory authority over the upstream and downstream operations and activities of the oil and gas industry. He further announced that all persons and companies in the oil and gas industry in Sarawak would be required to obtain the requisite licences, permissions and approvals under the Sarawak Oil Mining Ordinance 1958 and the Gas Distribution Ordinance. Such announcement appears to indicate a prequel to changes in how exploration and production of oil and gas will be regulated in Sarawak in the future, which may also necessitate wholesale changes in the federal legislative framework. The Chief Minister's statements appear to have been made on assurances granted by the current Prime Minister of Malaysia, and it will be interesting to observe this development in Malaysian oil and gas law.48
    5. In an interview given by KeTTHA Minister Datuk Seri Dr Maximus Johnity Ongkili, Malaysia is currently on track to reach its 50 per cent renewable energy target by 2050, with power being mainly generated through solar energy, hydro, biomass and biogas. It was reported that, while geographically limited, there is still great potential to be gleaned from Malaysia's geothermal, wind, and wave power.49
    6. The Commission has recently published its Guidelines on Implementation of Gas Framework Agreements in the Power Sector, which sets out the gas power framework in Malaysia and defines the roles of the single buyer, gas supply operators, TNB, PETRONAS and IPPs, with respect to the nomination and allocation of gas to the Malaysian power sector.


Over the past year, Malaysia has made visible strides in its efforts to steer the country away from an overdependence on coal and gas, and encourage the production and use of renewable energy on a private and corporate level. The continuing decline in the cost of solar power generation looks to be the main driver of the continued growth of the renewable energy generation in Malaysia.

Gas price reforms in Malaysia and third-party access for gas distribution also points to the eventual removal of subsidies in the power sector, and may reduce the attractiveness of gas-fired plants, although gas will remain one of the major sources of power generation in the country in order to support the drive towards compliance with Malaysia's commitments under the Intended Nationally Determined Contribution to reduce its greenhouse gas emissions intensity (per unit of GDP) by 45 per cent by 2030, relative to the emissions intensity in 2005.

However, the most intriguing development in the Malaysian energy industry in the past year has been the recent announcement by the Chief Minister of Sarawak that the state of Sarawak fully intends to enforce its constitutional right to complete regulatory authority over the upstream and downstream oil and gas Industry in Sarawak.50 At the time of writing, the regulation of the oil and gas industry in Sarawak remains, as it has since the 1960s, within the jurisdiction of the Malaysian federal government. Being the largest state (by land mass) in Malaysia and one of the richest in natural resources, the shift of regulatory authority back to Sarawak after over 50 years would mean that current operators in Sarawak will have to apply for a new licence, permit or registration with the Sarawakian government in order to continue operating there. In addition, the announcement also raises questions on the status of the practical implementation process of the above, which remains unclear. It will be interesting to see how the state and federal government of Malaysia decide to move forward and how it will impact existing and incoming foreign investors.


1 Fariz Abdul Aziz is an energy partner and Karyn Khor is a legal associate at Skrine.

2 PricewaterhouseCoopers, 'The Malaysian Oil & Gas Industry: Challenging times, but fundamentals intact' (May 2016).

3 '1MDB plans giant solar farm' (5 May 2014) The Star, retrieved 30 March 2018.

4 Wood Mackenzie, 'Malaysia power and renewable markets long-term outlook 2017' (August 2017).

5 Ashoka Mody, Infrastructure Strategies in East Asia: The Untold Story (Washington, DC: The World Bank, 1998), p. 44.

6 On 1 September 1990, legislative powers in respect of energy laws in the state of Sarawak were delegated to the local state authority.

7 The regulation of energy and electricity in the state of Sarawak is under the purview of Sarawak Energy Berhad (SEB), known as the Sarawak Electricity Supply Corporation (SESCO) prior to privatisation. Additionally, Sarawak has its own state laws for environmental protection and occupational health and safety.

8 Section 14, Energy Commission Act 2001.

9 Section 2, Petroleum Development Act 1974.

10 Section 6, Petroleum Development Act 1974.

11 Section 9, Electricity Supply Act 1990.

12 Section 9(4), Electricity Supply Act 1990.

13 Commission Guidelines on Application for a Provisional Licence.

14 Section 1(3), Gas Supply Act 1993.

15 Energy Commission Guidelines on Licence Application Pursuant to Section 11A of Act 501.

16 Section 11B(2)(b), Gas Supply Act 1993.

17 Section 11B(4), Gas Supply Act 1993.

18 Energy Commission, 'Frequently Asked Questions for Third Party Access System', Version: 16012017.

19 Section 11A, Gas Supply Act 1993.

20 The term 'Bumiputera' or 'Bumiputra' is used to describe Malays and the indigenous peoples of Malaysia.

21 Mohamed Ridza & Co, Malaysia jurisdiction chapter in The International Comparative Legal Guide to Oil & Gas Regulation 2017 (ICLG, 4 January 2017).

22 'Malaysia Equity: Liberalising Gas Supply in Malaysia', MIDF Investment/MIDF Research (31 October 2016).

23 Section 24 and Section 25, Electricity Supply Act 1990.

24 Section 14 of Gas Supply Act 1993, subject also to Section 15 of the Gas Supply Act 1993.

25 Section 52A, Electricity Supply Act 1990 and Section 37G, Gas Supply Act 1993.

27 Cecilia Kok, 'EC: Competitive Pricing Still the Rule', The Star Online (8 September 2016). See also: Wan Ilaika Mohd Zakaria, 'Energy Commission Prefers Competitive Bids' www.thesundaily.my/news/2017/11/21/energy-commission-prefers-competitive-bids.

28 Elffie Chew, 'Malaysia's 1MDB Sells Power Unit in Step to Wind Down Operations', Bloomberg (23 November 2015).

29 Guidelines for Solar Photovoltaic Installation on Net Energy Metering Scheme under the Electricity Supply Act (Amendment) 2015 (Act A1501) See also: Publicover, B. (8 May 2017). Malaysia releases net metering guidelines. Retrieved 16 March 2018, from https://www.pv-magazine.com/2017/05/08/malaysia-releases-net-metering-guidelines/.

31 Regulation 6(1) of the Efficient Management of Electrical Energy Regulations 2008.

32 Mohd Khalemi, 'Green Tech Financing Scheme to Continue With RM5bil Funding | Green Technology Financing Scheme (GTFS)', KeTTHA, 2 March 2017.

33 GreenTech Malaysia, 'Pembiayaan GTFS Cecah RM2.79 Bilion', 1 September 2016.

35 Malaysia Investment Development Authority, 'Application for Incentive and/or Expatriate Posts for Green Technology'.

36 Rule 10 of the Renewable Energy (Feed-in Approval and Feed-in Tariff Rate) Rules 2011 requires the applicant company to submit 'its corporate information, including the ultimate beneficial shareholders of the company'.

37 Rule 3 of the Renewable Energy (Feed-in Approval and Feed-in Tariff Rate) Rules 2011.

38 Guidelines and Determinations of the Sustainable Energy Development Authority of Malaysia dated 5 February 2016.

39 Rule 19 of the Renewable Energy (Feed-in Approval and Feed-in Tariff Rate) Rules 2011.

40 Ibid. at footnote 36.

41 Economic Planning Unit, Prime Minister's Department, Malaysia, 'Eleventh Malaysia Plan Strategy Paper: Sustainable Usage of Energy to Support Growth', 2017, pp. 17–14 (available at http://epu.gov.my/sites/default/files/Strategy%20Paper%2017.pdf).

42 Malaysia Energy Commission, 'Intelligent Networks – Multi-impact Monitoring', Energy: Towards a World Class Energy Sector Volume 6, 2015.

43 'TNB: Smart meters nationwide by 2021' (18 April 2017), as reported by The Malaysian Reserve.

44 At the time of writing, the GGP (Version 2014) is available at www.scpmalaysia.gov.my/images/GGP%20GUIDELINES%20-%20FINAL%20-%20NAIM%20-%20080814.pdf.

45 Eleventh Malaysia Plan (2016–2020), pp. 6–16.

46 TNB Press Statement, 'TNB Seeks Opportunities to Dive Malaysia's RE Aspiration', 14 September 2017. See also: TNB's Large Scale Solar project already 50pct completed as reported by the News Straits Times.

47 Sangeetha Amarthalingam, 'Tenaga buys 80% of two UK renewable energy firms for £77.37m', The Edge Markets, 1 March 2018.

48 Source: J Wong (7 March 2018), 'Sarawak spells out rules on O&G ops and activities'. See also: C Edward (8 March 2018), 'Petronas welcomes Petros' (retrieved 21 March 2018, from www.theborneopost.com/2018/03/08/petronas-welcomes-petros/).

49 Kristy Inus, 'Malaysia will meet 2050 target of 50%', News Straits Times, 25 January 2018.

50 See the official statement released by the office of the Chief Minister of Sarawak, available at the following link: www.cm.sarawak.gov.my/modules/web/pages.php?mod=news&sub=news_view&nid=1968.