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Energy Watch’s Exclusive Interview with Nik Nazmi: On Private Investment, Targeted Subsidies, and the APG

Embracing Change for a Better Future

Over the next five to ten years, Malaysians can anticipate significant transformations in the Malaysian energy landscape, as the nation sets its sights on a greener and more sustainable future, according to YB Nik Nazmi.

In an interview with the Minister of Natural Resources, Environment and Climate Change (NRECC) Malaysia, Energy Watch had the opportunity to delve into the Minister’s latest aspirations and explore the key initiatives that will shape Malaysia’s energy landscape.

“Recent macroeconomic events, such as the geopolitical tensions in Eastern Europe, have accentuated the risks to energy security – resulting in volatile fuel prices. Malaysia is also hugely impacted. In reaction to this event, many countries are rethinking their energy mix, energy dependence and supply sources for diversification,” said Nik Nazmi.

“The recent energy crisis, which saw drastic fuel price increases from January 2023 to June 2023, serves as a stark reminder of the importance of securing our electricity supply. The tariff was previously marked at 11.81 sen/kWh from the six months prior, but surged to 27 sen/kWh,” he continued.

 Diversifying Energy Sources, Amplifying Sustainability

Malaysia has long relied on its ample resources, particularly oil and natural gas, to bolster its energy security. However, recognising the need for diversification, the country has continuously committed to reducing its reliance on fossil fuels and amplifying the contribution of renewable energy sources.

In pursuing an accelerated transition, the NRECC has recently unveiled plans to spearhead the development of renewable energy (RE) initiatives and programmes in collaboration with the Ministry of Economy, charting a path towards a remarkable goal: achieving a staggering 70% RE capacity in our electricity supply system by 2050.

“The Ministry has implemented the Power Development Plan (PDP), subject to yearly review. This plan encompasses all facets, including energy security and source diversification. With a targeted Herfindahl-Hirschman Index (HHI) of less than 0.5 for the generation mix, the Ministry is aiming to increase renewable energy (RE) generation and incorporate 2% hydrogen by 2040. The current mix stands at 0.43 HHI, comprising 43% coal, 49% gas, and 8% RE for Peninsular Malaysia,” Nik Nazmi explained.

To meet these aspirations, the Government has rolled out various programmes: Feed-in Tariff (FiT), Large Scale Solar (LSS), Net Energy Metering (NEM), Corporate Green Power Programme (CGPP), and Self-Consumption (SelCo) programmes – a buffet of options promoting renewable energy and offering incentives for corporates and individuals alike to participate in the green power agenda.

An additional 630MW quota for RE programmes was also announced earlier this year, in addition to the Government declaring a hard stop to new coal plants beyond 2040 under the National Energy Policy 2022-2040.

Unlocking Private Sector Investment by Incentivising Decarbonisation

Yet while it’s understood that the transition is a necessity, it also comes at a cost – one that the Minister keenly acknowledges.

“Based on the Malaysia Energy Transition Outlook (METO) study, an estimated investment of approximately RM637 billion until 2050 is required to finance the energy transition in the power sector,” he said.

Indeed a financial juggling act, the Minister foresees that the transition can be funded by both public and private sectors, as well as domestic and international capital markets.

“To foster a conducive environment for investment, the government has introduced a range of incentives, including the Green Investment Tax Allowance (GITA), Green Investment Tax Exemption (GITE), and Green Technology Financing Scheme. Additionally, programmes like the Energy Audit Conditional Grant (EACG) and Green Energy Tariff (GET) are implemented to further incentivise private sector participation in decarbonisation technologies,” he mentioned.

He added that “any investment by the Government, whether to upgrade the grid to enable more RE penetration or introduce new technologies, should be done in phases and in tandem with the country’s overall economic and financial situation.”

Targeted Subsidies: Promoting Energy Affordability and Equity

At present, the Government maintains electricity tariff subsidies amounting to RM8.82 billion for domestic users, small and medium-sized enterprises, and low-voltage special agriculture tariff consumers. Furthermore, it had previously partially subsidised non-domestic users, including Medium Voltage and High Voltage commercial and industry consumers, with a funding of RM1.93 billion.

Moving forward, however, the Government would be taking a more prudent and pragmatic approach by introducing targeted subsidies for the future ICPT period (July – December 2023), according to Nik Nazmi.

“The government will gradually implement targeted subsidies to the other group of consumers. The high escalation of fuel prices that we are facing must be dealt with prudently because the previous surcharge has already been controlled with subsidies. Therefore, some subsidies are still being considered by the government so that most consumers will not be affected,” he said.

“At the same time, we are carefully promoting and communicating the benefits of this energy transition, ensuring public acceptance and understanding. Our focus on funding will be directed towards upgrading our electricity grid in alignment with the Government’s vision for the future of the electricity supply industry,” he added.

Unleashing Economic Growth in a Low-Carbon Era

 When discussing the energy transition, the scope goes beyond saving the planet; it’s about advancing the economy and local talents too. According to Nik Nazmi, Malaysia’s strategic intent aligns with its commitment to transition to a low-carbon economy, unlocking new sources of economic growth, and attracting global organisations, especially those RE100 companies, to invest and operate in the country.

“The METO report which provided the possible Long Term Energy Scenario pathways for Malaysia to decarbonise its energy sector has indicated that electrification will be among the key levers in Malaysia’s journey towards reducing its carbon footprint. Therefore, it is important for the government to ramp up the share of RE in our power supply and to ensure that a clean electricity grid is in place to support the climate and energy transition agenda,” said Nik Nazmi.

“Based on METO’s study, a new investment of approximately RM637 billion up until 2050 is needed to finance the energy transition of the power sector, which includes investments in RE generation sources, strengthening of grid infrastructure including transmission lines enhancement, energy storage systems integration, and grid system network operation augmentation.

A breakdown of the needed investments include:

  • Generation – RM370 billion
  • Grid infrastructure – RM184 billion
  • Energy Storage – RM30 billion
  • Carbon Capture Utilisation Storage (CCUS) – RM53 billion

Meanwhile, in supercharging the nation’s grid, the government also has their eyes on a larger prize: the ASEAN Power Grid (APG).

A step towards materialising this, Malaysia contributed significantly to the success of both the Laos-Thailand-Malaysia (LTM) and the Laos-Thailand-Malaysia-Singapore (LTMS) projects, pioneering the first interconnection grid project in ASEAN that enables power trading across the four nations, electrifying the region.

“Malaysia’s well-developed energy infrastructure, including its transmission and distribution networks, can contribute to the accomplishment of the APG. Malaysia’s role in the APG would likely involve collaborating with other ASEAN member countries to establish interconnected grids, promote cross-border energy trade, and develop common frameworks and regulations for energy exchange.

“As Malaysia has the vision to be the energy hub for ASEAN, we hope to progress further in the future by forging connections with Cambodia and Vietnam,” said Nik Nazmi.

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