Sector Summary

Renewable Energy & Energy Efficiency

Historical overview

In terms of the energy sector, the oil and gas industry has played a critical role in Malaysia’s economic development, serving as the country’s primary source of power. However, increased awareness of declining fossil fuels in recent decades, in conjunction with an understanding of the negative impacts of climate change arising from man-made carbon dioxide emissions, have driven authorities to seek alternate sources of power.

Energy consumption in Malaysia, especially of electricity, has been driven primarily by the process of industrialisation over recent decades. In fact, total energy consumption on a decade-by-decade basis has increased from 13 million tonnes of oil equivalent (TOE) in 1990 to approximately 41 million TOE in 2010, which represents an annual average growth rate of 6 per cent. This figure will have grown further by 2020.

Following the establishment of Petroliam Nasional Berhad (PETRONAS) as Malaysia’s national oil company in 1974, the government enacted the National Petroleum Policy, in 1975, with the primary objective of ensuring the efficient utilisation of oil for industrial development. A broader energy policy was subsequently devised under the National Energy Policy of 1979, which aimed to ensure efficient, secure and environmentally sustainable supplies of energy.

Further steps were taken to support the production of four key sources of identified energy, namely oil, gas, hydropower and coal, by means of the Four-Fuel Diversification Policy 1981. This legislation was subsequently replaced by the Five-Fuel Diversification Policy that came into force in 2001, with the addition of renewable energy, which includes green energy, as the fifth fuel source.

The National Renewable Energy Policy and Action Plan, adopted in 2010, further strengthened the position of renewable energy sources on the government agenda.

As the demand for energy continued to grow, increasing energy security and climate concerns motivated the passage of the Renewable Energy Act 2011 and the Sustainable Energy Development Authority Act 2011. By means of the latter, the Sustainable Energy Development Authority Malaysia (SEDA) was established. The main responsibility of SEDA is to manage the implementation of the Feed-in Tariff mechanism that is mandated under the Renewable Energy Act 2011 and which is geared towards boosting investment in renewable, and particularly green sources of energy.

In 2015, Malaysia undertook a further commitment to boost the development of its renewable and green energy sector by pledging to reduce greenhouse gas emissions by up to 40 per cent from 2005 levels by 2020, under the 2015 United Nations Paris Agreement (COP 21).



1974 Establishment of Petroliam Nasional Berhad (PETRONAS)

1975 National Petroleum Policy

1979 National Energy Policy

1980 National Depletion Policy

1981 Four-Fuel Diversification Policy

2001 Five-Fuel Diversification Policy

2006 National Biofuel Policy

2010 National Renewable Energy Policy and Action Plan

2011 Renewable Energy Act, Sustainable Energy Development Authority Act, and the establishment of the Sustainable Energy Development Authority Malaysia

2015 Paris Agreement (COP 21) adopted under the United Nations Framework Convention on Climate Change


State of the market

The joint challenge of meeting the energy demand while ensuring energy sustainability continues to be a pressing concern for resource-rich Malaysia, particularly since final energy demand grew at an estimated average rate of 6.6 per cent between 2011 and 2015. Significantly in this regard, while oil and gas remain the two primary sources of energy, the country is actively seeking to further develop green energy as an additional power source, in accordance with the Eleventh Malaysia Plan (2016-2020).

The country holds a number of indigenous green energy sources, all of which are renewable, including significant quantities of biomass material produced from the palm oil industry, small hydropower, solar photovoltaic (PV) power, wind power, and geothermal energy. There is also significant potential in terms of biogas produced from solid waste and landfill which, although not green, is renewable.

Significant amounts of energy are also produced from large hydropower projects; approximately 16 per cent of the Malaysian energy mix is expected to come from hydropower by 2020. While large hydropower is not deemed green, due to the carbon footprint of large dams, it is considered renewable and is set to play a significant role in the national renewable energy portfolio moving forward.

In 2014, renewable energy sources, excluding large hydropower, accounted for 243.4 megawatts, or 1 per cent, of the total installed capacity in Peninsular Malaysia and Sabah; approximately two thirds of which were generated from solar PV. In fact, solar power generation is playing an increasingly important role in Malaysia. The country has successfully attracted a number of solar PV manufacturers and, as of 2014, the domestic industry employed approximately 18,000 people, up from 10,700 in 2013. This number continues to rise.

Furthermore, Malaysia has increased biofuel production significantly in recent years from comparatively low levels. As one of the world’s largest producers of crude palm oil, the country has great potential in terms of generating green energy from palm oil waste. For example, palm oil waste contributes to approximately four-fifths of the total biomass production in Malaysia.


How the market operates

Malaysia has a number of ministries and agencies mandated to operate in the energy sector. Their tasks include planning, implementing and overseeing policies related to the supply and demand for energy and market intervention. The main entities are as follows:

Economic Planning Unit (EPU)

The main role of the Energy Section of the EPU is to formulate policies and strategies for the sustainable development of the energy sector. As such, that agency is responsible for promoting the increased use of green and renewable energy and energy efficient practices, as well as for allocating resources for energy-related development programmes. It is also in charge of conducting the ongoing evaluation of all these programmes.

Energy Commission (EC)

The EC became fully operational in 2002 and is responsible for regulating the electricity supply and piped gas supply industries in Peninsular Malaysia and Sabah, from the technical, safety and economic sides. In addition, the EC advises the Ministry of Energy, Green Technology and Water on matters related to electricity and tariffs, including the promotion of energy efficiency.

Ministry of Energy, Green Technology and Water (KeTTHA)

KeTTHA was established in 2009 and oversees the sustainable energy, green technology and water industries in Malaysia. Its broad range of tasks includes: ensuring the effective implementation of development policies in the power, water and green technology industries; providing a conducive environment for industrial development and technology; undertaking research and development to increase the use of related technology; guaranteeing an efficient, effective and affordable service delivery system; and ensuring regulatory mechanisms are implemented in accordance with the provisions of existing legislation.

Sustainable Energy Development Authority Malaysia (SEDA)

SEDA was established in 2011 and its key responsibility is to administer and manage the implementation of the Feed-in Tariff mechanism, which was mandated under the Renewable Energy Act 2011. The Feed-in Tariff mechanism seeks to boost investment in the green energy sector in the following segments: biogas, biomass, geothermal, small hydropower and solar PV.


Investment climate

With demand for energy in Southeast Asia expected to grow by as much by 80 per cent between 2013 and 2040, governments in the region are seeking to diversify their energy-mix and attract greater investment in green technologies. Significantly, this projected rise in energy demand, in conjunction with governments’ searches to diversify their energy supplies, will generate a growing number of opportunities for investors interested in the sector.

Sustainable economic growth forms a key part of Malaysia’s long-term development outlook and green energy sources and technology are fundamental components of this plan. Matching energy supply with national demand is, in turn, crucial to ensuring such economic development can be driven forward.

In response, Malaysia provides several incentives aimed at attracting and increasing investment. These include schemes such as a tax-free Pioneer Status or an Investment Tax Allowance (IVA), certain import duty and sales tax exemptions, as well as tax exemptions on capital expenditure for qualifying companies and activities.

Moreover, the Green Technology Financing Scheme, which was created by the Malaysian government in 2010 to benefit producers and users of green technology, is offering soft loans to eligible companies. Finally, the FiT mechanism also supports the growth of the green energy sector by incentivising investment based on long-term contracts and guaranteed pricing.


Main players and market share

The Malaysian green energy sector consists of several segments and the country offers a number of services across the value chain. Key players include First Solar, Gading Kencana, Green Innotech and Solarvest, all of which specialise in solar power. In general, Malaysia has been highly successful in attracting a number of multinational solar manufacturing companies to establish their operations in-country.

Furthermore, the biomass industry, which is comprised of the bioenergy, bio-agriculture, eco-products and biochemical segments, is a major contributor to the green energy sector and is expected to grow in line with the government’s National Biomass Strategy 2020.