THE transformation to a low-carbon electricity system requires substantial investments, and public finances alone are insufficient to realise this ambition.
Energy policies should create a sustainable market that can translate private sector demand for clean electricity into funds to accelerate renewable deployment.
Green electricity demand in businesses worldwide is rising.
The number of RE100 MNCs (Multi-National Corporations) committed to sourcing 100% renewable electricity by 2035 has doubled from just over 200 in 2019 to over 400 in 2023.
This trend highlights the growing consumer willingness to pay for green electricity as well as the risks that our local supply chains and partnerships with these MNCs would face if Malaysia fails to provide an adequate supply of green electricity.
However, Malaysia needs to provide an adequate supply of green electricity to avoid losing long-term business opportunities to neighbouring countries.
While the current system for purchasing renewable electricity certificates through TNB’s Green Electricity Tariff (GET) scheme and virtual power purchase agreements is a good start for Malaysia’s long-lived low-carbon electricity journey, it has certain limitations.
These certificate offsetting schemes lack a comprehensive mechanism to accurately verify whether the physical electricity consumed by an off-taker comes from low-carbon sources.
Under the existing schemes, a large energy user could claim to use zero carbon electricity for their operations when in reality the physical electricity flow towards their processes could still be carbon intensive.
The increase in electricity demand caused by large energy users during peak demand periods with little renewable power generation, such as during evening hours, is not being mitigated with clean electricity that they purchased through the existing schemes but, instead, leads to higher reliance on carbon-emitting thermal power plants in meeting the exacerbated peak demand that it caused.
Such arrangements focusing on offsetting are misleading, with several European utility companies recently raising concerns about greenwashing.
Hence, the current lack of a credible physical renewable power procurement pathway can be perceived as a risk to meaningful decarbonisation for experienced MNCs.
Furthermore, the lack of product differentiation between renewable electricity certificates (i.e, solar versus hydro) under GET does not allow businesses to develop a credible electricity decarbonisation strategy that considers the temporal balances of renewable electricity they procure.
Besides ensuring the temporal balances of green electricity procured, MNCs are increasingly concerned about the actual impact of their green electricity purchase in bringing additional renewable projects online.
Therefore, it is essential to have an avenue for these MNCs to meaningfully negotiate, invest and enable specific renewable projects to come online and bring additional value to the national power system decarbonisation.
Enabling third-party access to the national grid is crucial to achieving this goal.
With this framework in place, corporations committed to sourcing green electricity can directly negotiate a corporate power purchase agreement (CPPA) with renewable power plants without involving TNB heavily, who will only be paid a fee for maintaining and developing the national grid under this enhanced market arrangement.
This power market liberalisation through the third-party-access framework would also enable private sector players committed to meaningful decarbonisation to be more proactive in developing innovative solutions like early-stage investments into energy storage.
This could help diversify Malaysia’s national renewable electricity mix, enhancing the resilience of our future low-carbon power system besides enabling corporates to drive additional renewable projects to our power systems.
Enabling CPPAs will also provide corporates with greater operating cost certainty by securing their long-term power prices, which is especially critical for large energy users, including data centres, which was identified as a crucial growth area for Malaysia.
This could enhance the business case to invest in Malaysia as it allows large energy users to reduce their exposure to fluctuations in electricity prices due to unpredictable geopolitical events that could drive up fossil fuel power plants’ marginal cost of electricity production, such as the recent Russia-Ukraine crisis, and the coal supply chain issue which has led to an increase in power prices for MNCs in the country.
Nevertheless, policymakers must ensure the right balance between cost-reflectivity and simplicity of the third-party-access framework, particularly regarding the grid access payment made to TNB for covering the cost of use-of-network and maintaining system balancing and adequacy.
For example, it would not be equitable if all newly built power plants and CPPA electricity off-takers were charged the same network fee when some are causing more network congestion and further network development requirements than others.
The use-of-network charges for each project can be differentiated by reflecting the length and capacity of networks used to deliver the electricity from a generator to its CPPA off-taker or by the level of network congestion the CPPA arrangement creates.
Moreover, a differentiated payment that reflects the system imbalance a project can cause would help send market signals to incentivise a more diverse mix of renewable generations to be brought online.
Charging a higher system balancing cost to solar compared with solar with on-site battery storage, wind or hydro in grid access payments can incentivise a diverse renewable generation mix.
Excessive development of solar generation can only lead to high future power system imbalance costs.
By reflecting the need to diversify through the cost differentials, the market can bring online the best solar-alternative energy sources to diversify the generation profile of intermittent renewables, resulting in enhanced power system balancing and cost savings in the long run.
This enables the private sector’s sustainability innovations to drive more cost-effective development of the national power system.
While cost reflectivity is essential, policymakers should ensure the simplicity and predictability of the grid-access payment when designing the third-party-access framework.
Policymakers should carefully consider the suitability of adopting other countries’ complex calculation frameworks such as Great Britain’s Transmission Network Use of System tariff calculation, which looks at each power plant generation and each substation electricity demand’s contribution to network congestion across the region’s three highest electricity peak demand period annually.
While robust in theory, such frameworks may be impractical for Malaysia, given the need for simplicity and predictability to attract investments.
Complex grid access payment calculations can lead to perceived opaqueness, potentially driving away investments.
A simple and predictable but still cost-reflective grid access payment calculation needs to be designed and communicated to market players to address this issue.
One way to achieve this objective is to request TNB to publish its grid-access-cost calculation methodology alongside a credible forward-looking forecast for the next few years annually, ensuring transparency on the charges that market players will be incurred.
This could provide greater certainty, strengthen market players’ confidence, and attract greater investments, particularly from the over 400 MNCs that pledged to procure 100% renewable electricity under the RE100 initiative.
This would ultimately accelerate the transition towards a low-carbon electricity system and economy in Malaysia through private finances.
Overall, revisiting market reform to enable greater market participation through third-party access is critical. The detailed market design should ensure the grid-access payment framework’s simplicity, predictability, and cost reflectivity.
Evan Ng is an energy market consultant focusing on power and low carbon solutions at a leading consulting firm in London and holds an MSc in Energy Systems from the University of Oxford. Comments: letters@thesundaily.com
