As signatories to the United Nations Framework Convention on Climate Change, Malaysia and Singapore are making ambitious strides towards environmental sustainability. Malaysia aims to reduce its greenhouse gas emissions intensity by 45% by 2030 and achieve net-zero emissions by 2050, leveraging its abundant solar and hydro resources to position itself as a clean energy leader in Southeast Asia. Similarly, Singapore, despite its limited renewable energy options, targets a reduction in greenhouse gas emissions by 36% by 2030 and net-zero emissions by 2050. Given their close economic ties and geographical proximity, the two countries are ideally positioned to collaborate by leveraging their respective strengths in renewable energy (RE).

Renewable energy landscape in Malaysia and Singapore

Malaysia’s initiatives:

1. National Energy Transition Roadmap (NETR): Launched in late 2023, the NETR is a comprehensive plan outlining Malaysia’s transition to clean energy. It includes 10 flagship projects across various sectors, including energy efficiency, renewable energy, and hydrogen and carbon capture. These initiatives, which require substantial investments (estimated to be over RM25 billion), present significant opportunities for regional investors including those from Singapore.

2. Energy Exchange Malaysia (Enegem): This platform was initiated to streamline the cross-border sale of green electricity, primarily to Singapore and Thailand. The first auction in April 2024 marked the beginning of a 100 MW pilot run, leveraging an upgraded interconnection that supports bidirectional flows of up to 1,000 MW. This is a step forward in the Asean Power Grid initiative, enhancing regional energy collaboration.

3. Large Scale Solar Photovoltaic Programme (LSS): The fifth bidding round for this programme began in April 2024, offering a total quota of 2,000 MWac. This round uniquely allows foreign investors to participate in specific packages, signalling an opening for international capital in Malaysia’s RE landscape.

4. Corporate Green Power Programme (CGPP): Targeting corporate consumers, this programme encourages the adoption of green electricity through virtual power purchase agreements. This innovative approach enables companies to procure renewable energy without needing physical installations.

Singapore’s strategic RE efforts:

Singapore’s focus has been on maximising its limited space for renewable installations, primarily solar energy, and enhancing its capacity to import green electricity:

1. Cross-border electricity import plans: Announced by the Singapore Energy Market Authority in 2021, these plans aim to import up to 4GW of low-carbon electricity by 2035. A notable early success was the agreement between YTL PowerSeraya and TNB Genco for a 100MW supply from Malaysia, seen by many as a precursor to larger transactions with a focus on RE facilitated by platforms like Enegem.

2. SolarNova programme: This initiative targets the installation of 113MW of solar panels across over 1,000 public housing blocks and 100 government sites by Q3 2026, significantly expanding Singapore’s solar footprint. As at Q2 2023, Singapore has an installed capacity of just over 1,000MWp contributed from solar deployment. Singapore is on track to meet its 2GWp target by 2030 which will meet the annual requirements of 350,000 households but as the economy grows, more RE will be required to meet demand from all consumers (that is business and industrial).

3. Expansion of carbon tax: Enhancing its carbon tax framework to incentivise reductions in greenhouse gas emissions and promote corporate responsibility in environmental sustainability. The Singapore carbon tax rate was increased to S$25 (RM85)/tCO2e in 2024 and will be gradually raised to S$50-80/tCO2e by 2030. The increase in carbon tax will undoubtedly also intensify the need for more RE to indirectly offset carbon emissions.

Barriers to bilateral cooperation

While the potential for RE collaboration is immense, several barriers need addressing:

1. Regulatory hurdles: Current regulations, often restrictive and scattered across various legislations, hinder the seamless development of RE projects. A unified legal framework, possibly through an omnibus law, could streamline the investment and operational phases of RE projects. For example, RE projects in Malaysia are subject to foreign equity restrictions which pose a challenge to foreign investors who are willing to invest substantial amounts of capital in Malaysia-based RE projects. This restriction extends to the sale of projects which is a common business model for certain types of investors, for example, private equity funds, which further restricts the type of foreign investors who are willing and able to commit large amounts of capital required for such projects. It should be added that the inflow of foreign investments into Malaysia to invest in RE projects also benefits the Malaysian balance of payments thereby indirectly strengthening the local currency.

2. Land availability: While Malaysia still continues to have ample land to develop RE projects, the availability of prime land (or land that is close enough to the grid in order to make the project economically viable) is reducing. Coupled with the fact that Malaysia is also experiencing a boom in the data centre industry which also requires sizeable land banks, prime land scarcity may also hinder the development of the RE industry.

Investment into new grid connectivity or designating certain areas for RE projects could help to ensure a steady and consistent increase in RE projects and also assist in reducing the cost of land which will ultimately lead to a reduction in the tariff for those RE projects. In fact, one of the flagship projects under the NETR is the establishment of a large scale solar park to be co-developed by TNB. It is hoped that this flagship project will serve as a catalyst for future large scale solar parks which will aid in the development of more streamlined RE projects.

3. Grid stability: As RE projects proliferate, ensuring grid stability amidst fluctuating supply remains a challenge. Commitments like TNB’s RM35 billion investment to upgrade Malaysia’s power grid are vital in supporting the reliable transmission of renewable electricity.

The synergistic potential between Malaysia and Singapore in the RE sector is the cornerstone for regional energy security and sustainable economic growth. By overcoming existing barriers and capitalising on each other’s strengths, both countries can significantly advance their green agendas. This partnership not only promises to enhance regional energy dynamics but also contributes globally by setting a precedent in international energy cooperation and sustainability.

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Mark Lim is managing partner and heads the Finance and Projects practice of Wong & Partners in Malaysia. Faez Abdul Razak is a partner in the same practice. Kim Hock Ang is a principal at Baker McKenzie Wong & Leow (BMWL) in Singapore. Wong & Partners and BMWL are the Malaysia and Singapore member firms of Baker McKenzie International respectively.

Source: https://theedgemalaysia.com/node/721692