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Getting Regulations Right for the Clean Energy Transition in Malaysia

Governments are said to do three things: tax, spend, and regulate – with regulation being the least understood. While every industry is regulated to some degree, the global energy sector is particularly shaped and influenced by regulations. This is because energy is not a commodity like any other, it is a public good vital for everyone in society.

As such, energy regulations are intended to preserve a balance in meeting the diverse interests of government, industry, and consumers. Achieving this balance has become even more critical in the face of climate change, with regulations directly impacting the economics of decarbonisation, electrification, and the overall transition to clean energy.

However, over-regulation can lead to unintended consequences that end up stifling innovation and growth. As the world looks to extensively rebuild the global energy system, energy regulations must equally adapt and evolve to continue maintaining a balance between energy security, affordability, and sustainability.

The unique role of energy regulations

Regulation, in its broadest sense, aims to rectify “market failures” which occur when markets fail to allocate resources efficiently towards socially optimal outcomes. This is deemed necessary to safeguarding consumers, society, and the environment by protecting socially desirable goods and services, like energy.

The earliest energy regulations date back to the 1900s, largely in industrialised nations like the United States and the United Kingdom. These were focused on coal mining safety standards in response to worsening conditions in the industry. Fast forward to the 2000s, the Kyoto Protocol marked the first global effort to reduce greenhouse gas emissions.

Soon followed the landmark Paris Agreement, which marks the beginning of a shift towards a net-zero emissions world. The Agreement set the stage for what Peter Fox-Penner, a reputable American author on energy topics, aptly termed as the “regulatory mountain”, emphasising the extensive efforts needed to ensure a successful transition.

Regulations are indispensable across various facets of the energy transition, including areas such as carbon capture and storage, electric vehicles, solar energy, smart grids, distributed generation, and nuclear power. They play a fundamental role in shaping the trajectory of the energy sector towards greater sustainability and resilience.

Good regulation finds the right balance

The complexity of developing and implementing a robust regulatory framework is often overlooked by the public, like an unnoticed referee at a sports game who plays a crucial yet understated role.

The complexity of developing and implementing a robust regulatory framework is often overlooked by the public, like an unnoticed referee at a sports game who plays a crucial yet understated role. Effective regulations balance the interests of government, industry, and consumers – without bias – ensuring transparency and accountability.

The best regulations are often ones that broaden their scope to incorporate diverse stakeholders. They consider both intended and unintended consequences and have the agility to course correct. This balancing act, though challenging to maintain, generally functions smoothly until something happens to prompt the need for changes.

Regulations must be sensitive enough to these changes to be able to adapt accordingly. Here in Malaysia, the Ministry of Energy Transition and Water Transformation (PETRA) was recently formed to ensure the nation’s energy policies reflect the realities of the sustainability transition while protecting people and industries.

PETRA is further supported by the Energy Commission (ST) and the Sustainable Energy Development Authority (SEDA) in achieving this balance. Malaysia’s Incentive-Based Regulation (IBR) framework administered by ST for instance is one mechanism that allows for adaptive adjustments in electricity tariffs to reflect actual costs.

What’s more, adaptable energy regulations can enable pathways for investments in renewable technologies. Singapore’s Energy Market Authority updated regulations to allow more space for solar development, which boosted the city-state’s installed solar capacity from 0.4 megawatts (MW) in 2008 to an impressive 443.6MWs by Q1 of 2021.

Incentive-based regulations can also create self-sustaining opportunities that reduce development costs around clean technology, thus eliminating the need for incentives. Examples of technologies boosted by incentives include photovoltaics in California, electric vehicles in Europe, as well as wind and solar all around the world.

In Malaysia, the Feed-in-Tariff (FiT) scheme administered by SEDA empowers prosumers to sell their own electricity generated from renewable sources to the grid. By setting a favourable price per unit of energy, the FiT mechanism ensures renewable energy becomes a viable and sound long-term investment for both industries and individuals.

Beyond affordability and sustainability, effective regulations must ultimately complete the energy puzzle by making sure the energy system is secure and reliable. Threats to energy flows can take many forms today – from natural disasters to geopolitical wars – and energy systems must be secure to provide reliable access to sustainable energy.

As Malaysia’s leading utility company, Tenaga Nasional Berhad (TNB) has been an active contributor in the government’s endeavour to futureproof the nation’s energy infrastructure. This includes spearheading three key large-scale clean energy initiatives: centralised large-scale solar parks, hybrid hydro-floating solar (HHFS) and hydrogen and ammonia co-firing projects.

Malaysia already boasts an impressive performance presenting one of the lowest tariffs for domestic consumers in ASEAN. On top of that, the country possesses an excellent track record of minimal blackouts, with TNB’s power plants recording a solid 83.3% availability factor throughout 2023. The System Average Interruption Duration Index (SAIDI) in Peninsular Malaysia stands at just 45.06 minutes per customer per year, being among ASEAN member states with the fewest power outages, reflecting a robust and reliable power supply framework.

All these examples underscore the critical role of regulation in shaping effective energy policies. Good regulation properly considers each component of the energy trilemma to seek the right balance. It’s incumbent on all stakeholders to work together in sustaining this regulatory equilibrium to successfully achieve our shared energy aspirations.

Rewriting the rules of effective regulation

As the global energy landscape evolves rapidly, the imperative for energy regulations to equally adapt is increasingly clear. The Asian Development Bank projects countries in Asia and the Pacific will need to invest a staggering $11.7 trillion investment by 2035 to meet energy demands, which includes $1.7 trillion in annual infrastructure costs alone.

For Malaysia, the government has set ambitious targets towards renewable energy (RE) integration, aiming to achieve 70% RE capacity by 2050. Ultimately, committing to be net-zero as early as 2050. These targets necessitate substantial investments in renewable energy projects and grid infrastructure to facilitate a secure and seamless transition while protecting people and industries.

However, the current market scenario is marred by uncertainties, which could dissuade stakeholders from embracing innovative climate change solutions The best way to reduce these blockers and positively transform energy markets is to implement regulations with clarity, consistency, and certainty.

A transparent and predictable ruleset to follow empowers stakeholders to navigate transformation by setting clear goals, establishing precise timelines, and defining clean energy criteria accurately. Companies and industries cannot invest the kind of capital required for the energy transition if policies change every few years.

For any business to assume financial risks confidently, there must be guarantees that goals and timelines will not be unaffected by or fluctuate with political cycles or external factors. Policy horizons should provide ample time to recoup investments in innovation and generate market demand.

Ultimately, energy policies must anticipate both intended outcomes and unintended consequences when crafting regulatory frameworks. To do this, policy makers need to expand diversity of thought and perspective. When more diverse stakeholders help set the rules, energy regulations often look very different.

Evolving energy regulations for the sustainability era

Effective regulation is not just a component, but a cornerstone of the fundamental change needed to transition towards zero- and low-carbon energy markets.

Climate change mitigation requires robust public policies and regulations that foster climate-friendly transformation in the energy sector’s supply and demand dynamics. Effective regulation is not just a component, but a cornerstone of the fundamental change needed to transition towards zero- and low-carbon energy markets.

In recent years, Malaysia has been focused on evolving with a whole of nation approach, driving numerous key policy changes to foster this change. This includes the passing of the Energy Efficiency Conservation Act (EECA), tabling of a progressive regulatory framework bill on carbon capture, utilisation and storage (CCUS) as well as the National Climate Change bill in 2025 alongside its move to liberalise the industry, with the implementation of Third Party Access (TPA) in September 2024.

The launch of Malaysia’s National Energy Transition Roadmap (NETR) is an important milestone in revolutionising the nation’s journey towards achieving our net-zero ambition. But the journey going forward from here will rely on our ability to consistently adapt to change, while holding true to our collective principles and aspirations.

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