The Energy Regulation and Markets Review: Malaysia


Power generation in Malaysia has historically been reliant on fossil fuel such as cheap regulated natural gas and coal. Up to 2010, the country's reliance on natural gas as an energy source steadily increased, and at the end of that year, natural gas accounted for 71,543ktoe2 of the 106,794ktoe of all energy produced nationwide.3 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.4 Since then, the Energy Commission of Malaysia (the Commission) has held two further tenders for large-scale solar (LSS) projects, which were awarded in 2017 and 2019. As of 2018, the country's energy grid generation mix has comprised 29.4 per cent natural gas, 45.9 per cent coal, 7.8 per cent fuel oil and diesel, and 16.9 per cent renewable resources, of which 15.7 per cent was comprised of hydropower, the remainder being sourced from biodiesel, geothermal, solar energy, biomass and biogas.5 In 2018, Malaysia announced that it had set a target of 20 per cent renewable energy in its generation mix by 2025.

The national electricity 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 case by case.


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

The legislation listed above also requires compliance with the regulations, orders, rules and other sub-legislation made thereunder. The most relevant of these are as follows:

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

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 rules, guidelines or directives in respect of their regulatory sphere.

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

  1. to advise the Minister of Energy, Science, Technology, Environment and Climate Change (the 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.8

The Commission reports to the Malaysian Ministry of Energy, Science, Technology, Environment and Climate Change (MESTECC) 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 Section V). 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 Bhd (PETRONAS),9 and a PETRONAS licence is required to operate a business to process or refine petroleum, or to market or distribute petroleum or petrochemical products.10

In April 2018, the Commission implemented a single buyer regime by establishing an entity known as the Single Buyer, which would be responsible for managing the procurement of electricity and related services in Peninsular Malaysia, which includes scheduling, procurement and settlement, and registration under the Commission's Single Buyer rules.

More recently, Sarawak, a state in east Malaysia, has developed a regulatory role in gas distribution within the state via Petroleum Sarawak Bhd (PETROS).

ii Regulated activities

The 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 licences issued under the ESA (ESA licences):

  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 any 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-transferable 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 (for example, the Guidelines for Single Buyer Market (Peninsular Malaysia)) and those of the Grid Code Operator. The Commission may attach other terms and conditions to the licence as it sees 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 impose any ownership or equity limitations on the applicant, typically, limitations are set out in the terms and conditions of licences and other regulatory approvals, or may be contained in the provisions of the power purchase agreements (PPAs) signed between the independent power producers (IPPs) and TNB.13

The Commission may issue a provisional licence in restricted circumstances. A company that has obtained a feed-in tariff approval from SEDA (see Section V.i) 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 a renewable energy project and to enable the operator 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 into 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.14

Generation and supply of gas via pipelines (for private utilities and supply 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.15 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 its own premises (e.g., restaurants); and
  2. gas utility licence – allowing licence holders to supply gas via pipelines to third parties for their use.

Historically, industrial consumers of gas were only able to source gas from PETRONAS and for power producers, this requirement was embedded under the terms of the relevant PPAs. However, as part of the Tenth Malaysia Plan and the country's New Energy Policy, the government has opened up the gas supply market 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 to liberalise the downstream gas markets. Following these amendments, the Third Party Access System (the TPA System) has been implemented during the past two years in all states in Malaysia except Sarawak, whereby new suppliers can bring liquefied natural gas into Malaysia via the regasification terminals for later distribution to Malaysian buyers. The TPA System was implemented with the aim of permitting third parties to have access to and manage gas distribution networks and promoting competition in Malaysian gas markets. Recently, TNB Fuel Services Sdn Bhd took delivery of the very first gas shipment under the TPA System from Shell Malaysia Trading Sdn Bhd at a price that is below the regulated gas price. The gas will be used as fuel for TNB's Tuanku Jaafar Power Station in Port Dickson and Connaught Bridge Power Station in Klang.

To participate in the TPA System, interested parties must obtain the relevant licence, or licences, from the following list, depending on the activity to be carried out:

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

Save and except for private gas licences and any other circumstances as may be determined by the Commission, an entity may only hold one licence at any particular time.16 The tariff for utilisation of gas facilities will be determined by the Commission, but TPA System licensees will be able to negotiate gas prices with buyers on a willing-buyer willing-seller basis, albeit the government retains the right to regulate the price of gas to retail customers as necessary to protect consumer interest.

To obtain a licence under the GSA, the applicant must:

  1. be a Malaysian-incorporated company or, if incorporated outside Malaysia, must be approved by the Commission;
  2. meet the minimum paid-up capital stipulated by the Commission (this ranges from 1 million to 5 million ringgit and depends on the type of licence being applied for);
  3. not already hold any other GSA licences, and the applicant's directors must not hold any directorships of other GSA licence holders or applicants;
  4. have sufficient financial capability;
  5. have sufficient relevant technical capability; and
  6. comply with such other additional requirements or licence-specific requirements as may be set by the Commission from time to time.17

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 importing gas into a regasification terminal).18 Licences granted under the GSA are not transferable or assignable without the written consent of the Commission or the Minister.19

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 to enable it to organise and supervise the national gas distribution network.20

Other licences, certifications and approvals

The above-mentioned licences relate to the construction of power plants and power installations, and to the 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 Safety and Health 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 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 Bumiputera21 equity in an applicant company). Certain 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 matters that are ancillary, but nonetheless essential, to any party interested in entering the Malaysian energy market.

Transmission/transportation and distribution services

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 electricity grid that supplies power in Sabah is operated by Sabah Electricity Sdn Bhd (SESB), a company owned partly by TNB and partly by the Sabah state government, whereas the grid in Sarawak is owned by SESB, 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 mixture of local and foreign power producers and a competitive bidding system for power plant projects.

Regarding gas, several licences have already been issued by the Commission under the GSA since the implementation of the TPA System. A full list of licensees is available at the Commission's official website. The notable new licence holders who have come into play since the TPA System was established include the gas distribution company Gas Malaysia Bhd, which was established by PETRONAS to supply and distribute gas throughout Malaysia. Gas Malaysia operates and maintains the Peninsular Gas Utilisation pipeline system and its subsidiaries, Gas Malaysia Distribution Sdn Bhd and Gas Malaysia Energy and Services Sdn Bhd, have successfully obtained gas distribution and shipping licences, respectively, from the Commission. Sabah Energy Corporation Sdn Bhd (SEC) operates and maintains the gas distribution pipelines in Sabah, in east Malaysia.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 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 a notice of request from the licensee.24

iii Rates

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

Electricity prices are regulated by the Malaysian government, via the Commission. Similarly, the tariffs for gas supply are vetted and approved by the Commission.

iv Security and technology restrictions

In the case of a lockout, strike or other emergency, or if the constitutional monarch of Malaysia (the Yang di-Pertuan Agong) decides that public interest so requires, he may authorise the Commission to suspend an ESA licence or take temporary possession of any power installation or gas pipeline, and operate it in a manner that the Commission sees fit. Alternatively, 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 the GSA have similar information security provisions, requiring the holder of either an ESA or a GSA licence 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 that 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 to inform the Commission immediately.25

Energy markets

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, which is sold to the Single Buyer unit of TNB (in Peninsular Malaysia), Sarawak Energy (in Sarawak) and the SESB (in Sabah). The single-buyer units 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 Kertih is the largest by capacity. Captive power is nonetheless a marginal contributor to Malaysia's total energy generation capacity. The Commission also introduced a New Enhanced Dispatch Arrangement (NEDA) system in 2015, 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 introduced a system by which energy generators bid against each other daily on variable operating rates, according to the rules set by the Commission, with the aim of the increased competition driving down energy prices. NEDA was fully launched in June 2017 and in May 2019, the guidelines were updated to include 'solar power producer' as a new category of NEDA participant. The government announced in December 2017 that notwithstanding the implementation of NEDA, 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 in which 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 in which 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

There have also been developments in renewables projects. In February 2019, the government announced its third 500MW LSS power project tender (LSS3). There were more than 100 bids in the tender for the project, with offer prices ranging from 0.17 to 0.58 ringgit per kilowatt hour. Five companies were shortlisted by the Commission. They are expected to commence operations online by 2021.29

ii Energy market rules and regulations

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 earlier in this chapter) also authorise the generator to sell energy. Energy is sold to consumers at fixed tariff rates, which are approved by the government. Notwithstanding Malaysia's policy of privatisation, which was announced in 1988 by the then Prime Minister of Malaysia, Mahathir Mohamad, 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, historically, 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 end consumers. IPPs do not enter into contracts with individual consumers, save in highly exceptional circumstances (for instance, if the power is generated by a captive plant, to provide power to users who do not have access to the national power grid).

Historically, all gas 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 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) 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 government also maintains that it has the power to determine gas prices and will do so when it deems it necessary to protect the consumer's interests.30

However, as of late 2019, the Commission has announced that for the purpose of implementing the government's energy policy, Malaysia Electricity Supply Industry 2.0 (MESI 2.0) and the liberalisation of Malaysia's power industry, the Commission will no longer approve IPP projects that are tied to PPAs. (See Section VI for more information about MESI 2.0.)

iv Market developments

Net Energy Metering

Under the Net Energy Metering (NEM) scheme, energy produced from the solar photovoltaic (PV) system will be consumed first, and any excess is to be exported and sold to the appropriate distribution licensee (such as TNB for Peninsular Malaysia or the SEC for Sabah and Labuan). The NEM programme was introduced with the intention of replacing the feed-in tariff (FiT) mechanism for solar PV installations, which was closed at the end of 2017.

The scheme is executed by MESTECC, regulated by the Commission, with SEDA as the implementing agency. To participate in NEM, applicants must register as customers of distribution licensees in Peninsular Malaysia, Sabah and Labuan. Foreign entities also are eligible to apply as long as they are customers of the distribution licensees. The resources for producing electricity shall be from solar PV only; however, other renewable energy resources, such as biogas, biomass or micro hydro, may be allowed case by case, at the sole discretion of the Commission.31

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

Applications for NEM shall be processed on a first-come first-served basis up to the allocated quota, which is provided by SEDA on its website.32 The application may be made by the applicant's appointed registered PV service provider or registered electrical contractor, and it should be submitted either manually to SEDA or via SEDA's online application portal.

If NEM approval is granted, the NEM consumer will need to apply to the Commission for a public generation licence. Once successful, an NEM contract can be signed between the NEM consumer and the distribution licensee. Energy produced by the NEM consumer's system will first be used for the NEM consumer's own energy needs and the excess sold back, or offset on a one-to-one basis by the energy consumed from the national grid.

Renewable energy and conservation

i Development of renewable energy

Since the implementation of the Tenth Malaysia Plan, the government – via the Commission, MESTECC and SEDA – has implemented a range of programmes and projects to educate the Malaysian public and encourage electricity efficiency and energy conservation. Energy laws and regulations reflect 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 during 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.33 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 with the aim of expanding and developing the country's green energy industry while creating jobs and improving the quality of life of Malaysians generally.

There are a number of fiscal incentives in place that are specifically targeted at potential entrants to the renewable energy market in Malaysia. For example, MESTECC has approved a budget of 5 billion ringgit under the Green Technology Financing Scheme (GTFS) to help fund new energy efficiency projects in Malaysia for the period 2018–2022.34 Additionally, on 6 March 2019, the Ministry of Finance approved an upgraded scheme, GTFS 2.0, for companies that are majority Malaysian-owned, allocating 2 billion ringgit for the period between January 2019 and the end of 2020. GTFS 2.0, which will last for two years, offers successful applicants an interest/profit rate subsidy of 2 per cent per year on loans and financing for the first seven years of the financing term, and a government-issued financial guarantee of 60 per cent of the green component cost.35 At the time of writing, the official GTFS website lists 655 projects that have been approved and certified for the GTFS scheme.36

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.37

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, or a company that purchases green technology assets as listed in MIDA's MyHijau Directory, may be eligible for an investment tax allowance of 100 per cent of the qualifying capital expenditure incurred in a green technology project or asset from the year of assessment 2013 until the year of assessment 2020. Similarly, a Malaysian company that provides green technology services is eligible for an income tax exemption of 100 per cent of its statutory income from the year of assessment 2013 until the year of assessment 2020.38

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 the 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. 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 the renewable energy.

To be eligible to participate in the feed-in tariff system, an applicant must propose to generate renewable energy from a renewable energy installation with an installed capacity of not more than 30MW, or a 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 if 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;39 and
  3. if the company is already holds an 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.40

The application may be made by the company or its authorised representative, and it should be submitted either manually to SEDA, or 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 prerequisites 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 72kW. If the installation's net export capacity exceeds 72kWp, then the minimum paid-up capital is increased to 50,000 ringgit or its equivalent.41 Additionally, SEDA may require the applicant to conduct tests and checks, including a connection confirmation check or a 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.42 SEDA will not approve an 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 will 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 or 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 quotas that are announced by SEDA on its official website. Successful applications will be placed in a queue and be subject to a ballot process until the quota is exhausted.43 In January 2020, SEDA announced a feed-in tariff quota of 20MW for biomass installations, 20MW for biogas and 116MW for small hydro installations. An e-bidding process for the latter two was carried out in the first quarter of 2020.

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 LSS PV 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 or to SESB (as the case may be) under a power purchase agreement, and the LSS capacity to be tendered will be between 1 MWac and 100 MWac.

Only Malaysian companies that pass the prescribed minimum Malaysian equity interest thresholds may participate in the LSS programme. These thresholds 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 in which the Malaysian equity interest in the consortium is at least 51 per cent.

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. Under the terms of the latest request for tender in respect of the LSS programme, all contractors engaged for the development of the project must be registered as a 'local contractor' with the Construction Industry Development Board of Malaysia, which significantly reduces the ability of foreign contractors to participate in these projects.

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, and chillers for industries. The total energy saved as a result of this initiative was 306.9GWh.44

The government has also taken the approach to lead by example in respect of renewable energy. There is strong encouragement that government procurement activities should comply with Government Green Procurement (GGP) Guidelines, which require that the acquisition of products and services abides by certain environmentally friendly criteria, thereby allowing the government to leverage its purchasing power to encourage industries and private enterprises to do likewise.45 The degree to which each ministry enforces the GGP Guidelines varies, and progress is overseen and facilitated by a steering committee and a working committee.46

In October 2018, MESTECC, in conjunction with TNB, launched the GSPARX programme, which permits consumers to install solar panels on their property (with the capital cost funded fully by GSPARX). At the time of launch, it was announced that GSPARX has a target of offering 1,500MW of self-generation for solar PV investment by 2025. The scheme is intended to encourage consumers to rely more on renewable energy, and push the country towards achieving its goal of 20 per cent of the country's generation capacity being fulfilled by renewable energy by 2025.

At the time of writing, the focus on developments in energy technology is strongly renewables-centric, and one of the key objectives is to solve or at least mitigate the issue of intermittent supply of renewables in Malaysia. Anti-theft and anti-tampering technology – including smart grids and advanced theft detection systems – is another of the main items on MESTECC's table to push Malaysia closer towards its goal of an increasingly sustainable energy sector.

The year in review

In October 2018, Malaysia hosted the ninth International Greentech and Eco Products Exhibition and Conference Malaysia, at which 30 countries engaged in round-table discussions and memoranda of understanding signed between various participants, with the aim of facilitating Malaysia's shift towards renewables.47

In April 2019, PETRONAS took its first step into renewables with the acquisition of Amplus Energy Solutions Pte Ltd. Amplus' portfolio includes a six-year history of supplying and distributing renewable energy in Asia.48

In September 2019, the government introduced MESI 2.0, which is intended to reform and liberalise the power industry in Malaysia by attaining three key objectives: to boost efficiency in the industry, to future-proof key processes, regulations and structure in the industry, and to empower consumers by democratising and decentralising the electricity supply industry.49 It remains to be seen how this will be implemented during the initiative's 10-year life cycle.

In late 2019, Shell Malaysia Trading Sdn Bhd successfully negotiated and delivered a shipment of liquefied natural gas to TNB via the TPA System, marking the first occurrence of sale and delivery of gas via the TPA System.

MESTECC, the Commission and SEDA (in consultation with key industry players) began to develop a Renewable Energy Transition Road Map for 2035 in late 2019, focusing on the growth of renewable energy in Malaysia, in particular its affordability, accessibility and stability, increasing the suitability of renewables as a viable alternative to existing energy sources. It was announced that the outcome of the Road Map would form part of the Twelfth Malaysia Plan (2021–2025).

Pursuant to the Sarawak Distribution of Gas Ordinance 2016 (the Ordinance), any person who intends to undertake activities in the Malaysian state of Sarawak is required to obtain the relevant licence from the Ministry of Utilities of Sarawak. Although the Ordinance officially came into force on 1 July 2018, an informal grace period up to 31 December 2019 was provided for existing industry participants to comply with the provisions of the Ordinance.

In March 2020, a high court held that the state of Sarawak had the power to impose its state sales tax (5 per cent) on PETRONAS for the export of petroleum products from the state.50

Conclusions and outlook

There is a strong push in Malaysia towards the development of renewable energy, which is reflected in recent policy developments by MESTECC and in the introduction of strong, key market players at various levels of the renewables fields, including state-owned enterprise PETRONAS, whose energy portfolio prior to this has been solely in petroleum and gas markets. Policy and infrastructure changes in renewables regulations in recent years have been aimed at facilitating a swift and smooth growth curve in Malaysia's renewables markets. It remains to be seen to what extent these efforts will be hindered by low oil prices and the state of the economy as a result of the coronavirus pandemic.

These strong statements and policy developments come at a time when Malaysia's political environment remains relatively volatile, and the liberalisation of the power sector will develop alongside continuing discussions between state and federal governments – particularly the state of Sarawak – in respect of regulatory authority over upstream and downstream oil and gas industries. It appears likely that we can expect key regulatory changes during the next decade to reflect the changing power landscape in Malaysia.


1 Fariz Abdul Aziz is a partner and Karyn Khor is a senior associate at Skrine.

2 ktoe = thousand tonnes of oil equivalent.

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

5 Wood Mackenzie, 'Malaysia power and renewable markets long-term outlook 2019' (June 2019).

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, known as the Sarawak Electricity Supply Corporation prior to privatisation. Additionally, Sarawak has its own state laws for environmental protection and occupational health and safety.

8 Energy Commission Act 2001, Section 14.

9 Petroleum Development Act 1974, Section 2.

10 id., at Section 6.

11 Electricity Supply Act 1990, Section 9.

12 id., at Section 9(4).

13 However, the Energy Commission's Guidelines on Large Scale Solar Photovoltaic Plant For Connection to Electricity Networks do prescribe a 49 per cent foreign equity limit for large-scale solar plant projects.

14 Commission Guidelines on Application for a Provisional Licence.

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

16 Energy Commission Guidelines on Licence Application (Amendment 4/2018).

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

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

19 id., at Section 11B(4).

20 id., at Section 11A.

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

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

23 Electricity Supply Act 1990, Sections 24 and 25.

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

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

26 Tenaga Nasional Berhad, press release, 'The current tariff schedule for Peninsular Malaysia to be maintained' (26 December 2017), at malaysia-to-be-maintained.

27 Cecilia Kok, 'EC: Competitive Pricing Still the Rule', The Star Online (9 September 2016).
See also Wan Ilaika Mohd Zakaria, 'Energy Commission Prefers Competitive Bids', The Sun Daily (21 November 2017), at competitive-bids.

28 Elffie Chew, 'Malaysia's 1MDB Sells Power Unit in Step to Wind Down Operations', Bloomberg (23 November 2015), at china-general-nuclear-for-2-3-billion.

30 Energy Commission, 'Frequently Asked Questions for Third Party Access System (TPA)', at

31 Guidelines for Solar Photovoltaic Installation on Net Energy Metering Scheme under the Electricity Supply Act (Amendment) 2015 (Act A1501). See also Brian Publicover, 'Malaysia releases net metering guidelines' pv magazine (8 May 2017), at

32 See Sustainable Energy Development Authority [SEDA] website, at auth/login.

33 Efficient Management of Electrical Energy Regulations 2008, Regulation 6(1).

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

35 See the official website for GTFS 2.0, at

38 Malaysia Investment Development Authority, application for Incentive and/or Expatriate Posts for Green Technology.

39 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'.

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

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

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

44 Economic Planning Unit, Prime Minister's Department, Malaysia, Eleventh Malaysia Plan, 'Strategy Paper 17: Sustainable Usage of Energy to Support Growth', 2017, p. 17-14, at

45 The latest Government Green Procurement Guidelines were issued in 2018 and are available (in Malay) at 2018-Inner-FA.pdf.

46 Eleventh Malaysia Plan (2016–2020), p. 6-16.

47 Energy Commission, Energy Malaysia: Towards a World-Class Energy Sector, Volume 18, 'Shaping the Future of Malaysia's Energy Sector' (2019).

48 See PETRONAS, press release, 'PETRONAS To Acquire Asia's Leading Distributed Energy Solutions Provider' (15 April 2019), at distributed-energy-solutions-provider.

49 Energy Commission, Energy Malaysia: Towards a World-Class Energy Sector, Volume 17, 'Exciting and Electrifying' (2018).

50 Sulok Tawie, 'High Court rules for Sarawak in sales tax dispute with Petronas', Malay Mail (13 March 2020).

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