The Malaysian Government has been driving ahead of its Southeast Asian counterparts in its efforts to transition to a low-carbon future. In the Energy Transition Index 2023 published by the World Economic Forum, Malaysia was recognised as the “best country in the Southeast Asian region” considering system performance and a country’s readiness to switch to more environmentally friendly energy sources.
It is also a government that is keen to stay ahead of the game, with the recent announcement on 13 October 2023 of the Budget 2024 that, amongst others, focusses on measures to stimulate the adoption of green energy in the country. As part of these efforts, various ministries have published roadmaps to inform the public of their strategic plans / goals of how it expects to, amongst others, achieve net zero greenhouse gas emissions as early as 2050.
In this blog post, we discuss the following two roadmaps:
The National Energy Transition Roadmap (NETR)
The NETR consists of two parts, with Part 1 published earlier this year in July and Part 2 recently at the end of August.
Part 1 identifies six energy transition “levers” to facilitate Malaysia’s energy transition along with catalyst projects under each lever, which collectively aim to reduce carbon emissions, generate investment / jobs and increase overall accessibility to clean energy resources.
The six levers are (i) energy efficiency, (ii) renewable energy, (iii) hydrogen, (iv) bioenergy, (v) green mobility and (vi) carbon capture, utilisation & storage (CCUS).
Of these, we expect our clients to be particularly interested in the following:
- Renewable Energy – catalyst projects include the development by Tenaga Nasional Berhad (TNB) (Malaysia’s only energy utility in Peninsular Malaysia) of large-scale solar power parks across five sites (100MW per site), development of a pilot renewable energy zone consisting of an industrial park, residential areas and a data centre integrated with the largest solar PV plant in the SEA region (1GW) and other initiatives for securing long-term energy supply for the Sabah state through the development of renewable projects including large-scale solar and small hydropower plants.
- Hydrogen – catalyst projects include implementation of three integrated projects for the production of green hydrogen in East Malaysia to be completed by 2025 / 2027 for both export and local usage and decarbonisation of TNB generation plants by co-firing of hydrogen and ammonia.
- CCUS – catalyst projects include implementation of catalyst projects in high-carbon dioxide fields and establishing a regulatory framework for CCUS projects.
The catalyst projects for all six levers are expected to create investment opportunities of up to RM1.85trillion by 2050.
Other than the six levers and the catalyst projects highlighted above, Part 1 of the NETR also identifies five enablers which will support the realisation of such catalyst projects, including governance, policy and regulation, finance and investment, human capital and capabilities, and technology and infrastructure.
Part 2 is the fuller form of the NETR which delves further into the initiatives presented in Part 1 and further bolsters what the market has noted were government-led decisions to increase the country’s installed renewable energy capacity from 40% in 2035 to 70% by 2050, allowing cross border renewable energy trade through the establishment of an electricity exchange system and allowing third party access to the grid by broadening access to the current grid infrastructure.
In respect of the renewable energy lever, Part 2 establishes plans to, amongst others:
- promote floating solar projects by removing existing regulatory barriers and rolling out clear guidelines to facilitate such projects;
- develop the third-party access framework for wheeling fee calculations to bridge the demand-supply gap for green electricity and to allow solar developers taking part in the Corporate Green Power Programme to sell excess power to a single buyer; and
- enable cross-border renewable energy trading by providing regulations for an exchange hub, an upgrade of existing interconnector infrastructure with neighbouring countries and establishing a market aggregator.
The focus on hydrogen recognises its potential as a clean and emerging energy carrier that can be utilised, particularly by the transportation sector. Part 2 establishes the following targets for the hydrogen lever:
- to completely phase out the use of grey hydrogen as feedstock by 2050;
- to produce up to 2.5Mtpw of green hydrogen by 2050 from renewable energy sources such as hydroelectric power and solar; and
- to establish one low-carbon hydrogen hub by 2030, and an additional two hubs by 2050.
The NETR also recognised the current lack of policy support, defined standards and regulations governing hydrogen in Malaysia and therefore proposes a number of key initiatives (e.g., establishing hydrogen regulations, establishing guarantee of origin certification that meets the standards of importing countries, and streamlining the permitting process for hydrogen projects) to correct this.
CCUS is a crucial aspect in any country’s journey to net zero. Malaysia has targets to develop three CCUS hubs with a total storage capacity of up to 15 Mtpa by 2030, and to develop a further three carbon capture hubs with total storage capacity between 40 to 80 Mtpa by 2050. However, there is also clear recognition in the NETR that Malaysia has yet to develop a policy and regulatory framework on CCUS (although there have been tax incentives for companies carrying out activities related to CCUS, including those who undertake in-house CCS activities or use CCS services). Key initiatives identified for the CCUS lever in Part 2 include:
- developing CCUS-specific policies and regulations;
- strengthening CCUS adoption through provision of incentives;
- facilitating CCUS hub infrastructure development;
- establishing transboundary CO2 agreements; and
- promote local utilisation of CO2 in the relevant industries.
The buzz in the market following the publication of the NETR (both Parts 1 and 2) show that Malaysia has, at least, achieved its goal of making clear the direction of the government in achieving the energy transition targets and Malaysia’s commitment to an energy transition process that benefits its people, creates business opportunities and supports technological innovation.
The Hydrogen Economy and Technology Roadmap (HETR)
Earlier this year, Malaysia’s Minister of Natural Resources, Environment and Climate Change commented that “it would be remiss” not to mention green hydrogen’s potential as a fuel alternative. He further stated that the government, in collaboration with utilities like TNB, are excited to explore the prospect of harnessing a new energy carrier and the knock-on economic effects it would bring.
The HETR, recently launched on 5 October 2023, is key to unlocking the hydrogen economy in Malaysia. It establishes an ambitious target for the country to be a leading hydrogen economy country with projected revenues of more than RM400billion by 2050.
China, Japan, South Korea and Singapore are expected to be Malaysia’s primary export markets as these jurisdictions have a mature hydrogen ecosystem. Demand for hydrogen is also high, with China expected to require 35 MTPA of hydrogen in 2030 and up to 60 MTPA of hydrogen in 2050. Geographically, Malaysia is strategically located to become Asia Pacific’s hydrogen trading hub between the arguably more established hydrogen exporters like Australia and the Middle East. Malaysia also plans to build strategic partnerships with hydrogen demand-intensive countries by way of Government-to-Government initiatives focussing on hydrogen export.
However, Malaysia must of course first be able to produce the hydrogen before even considering export matters. The HETR identifies several challenges related to developing a hydrogen economy in Malaysia across the value chain, as set out in the table below.
Source: Hydrogen and Economy and Technology Roadmap
To address these challenges, the HETR also proposes five strategic thrusts with detailed action plans, to amongst others, strengthen the governance system, institutional framework and regulatory mechanisms, facilitate an enabling environment in Malaysia for the growth of the hydrogen economy, commercialisation of technology required for hydrogen production (e.g. by building hydrogen infrastructure and investing in research and development) and developing capacity and capability in the workforce to drive the hydrogen ecosystem.
In conclusion, Malaysia's clear plans on how it intends to action its energy transition as well as its focus on the hydrogen economy as mapped out in the NETR and the HETR present a wealth of opportunities for investors and businesses looking to play a part in the country's low-carbon future. With the National Energy Transition Roadmap and the Hydrogen Economy and Technology Roadmap providing clear strategic plans and ambitious targets, it is evident that Malaysia is well on its way to becoming a significant player in the Asia energy landscape.
We are uniquely positioned to provide international clients with the necessary legal guidance and support to navigate the rapidly evolving energy market in Malaysia and continue to monitor developments in this country as well as the wider Asia regional energy transition landscape. In the meantime, please get in touch if you would like more details on the above or discuss any opportunities with us.