Commentary from the Pacific Energy Summit
Regional Voices from the Pacific Energy Summit
Southeast Asia’s Vision for Energy and Climate Security
The 2022 Pacific Energy Summit was held in Kuala Lumpur under the theme Understanding Southeast Asia’s Vision for Energy and Climate Security in the Indo-Pacific to explore prospects for regional coordination and pathways for successfully navigating the geopolitics of energy transitions. Participants from this gathering of stakeholders from across the Asia-Pacific share their views on challenges for Malaysia, Indonesia, and other ASEAN countries.
Satya Widya Yudha
National Energy Council, Republic of Indonesia
Indonesia is predominantly a fossil fuel–based economy that still relies on this traditional system despite best efforts to transition to renewable energy. Similar challenges exist in many countries around the world. For example, the United Kingdom, having faced renewable intermittency issues, is requesting more gas and coal, and both China and India are attempting to institute more rigorous renewable energy portfolios while still maintaining many domestic coal-based power plants. Ultimately, many countries are suffering from a lack of supply diversification among a range of renewable and fossil fuel resources.
Although Indonesia has large deposits of coal, gas, and oil, it remains intent on following through with the commitments made at the 26th Conference of the Parties (COP26) in Glasgow, where it pledged to achieve net-zero carbon emissions by 2060. Additionally, Indonesia strengthened the nationally determined contribution (NDC) targets that it announced in 2015 as part of the Paris Agreement, which were to reduce emissions by 29% by 2030 as well as to lower emissions by 31.8% independently and by 43.2% with international support. Although Indonesia is not yet ready to phase out fossil fuels due to fear of a potential energy crisis, it remains committed to reducing emissions in the fossil fuel sector and making renewable energy more affordable to mitigate emissions and achieve its NDCs.
The Indonesian government has already been taking steps to create a favorable ecosystem for this energy transition through policies that incentivize renewables and disincentivize new investments in fossil fuels. One potential option is the introduction of carbon pricing through a carbon tax, although recent plans to impose such a tax have been delayed due to the current energy crisis and high costs. A related tactic would be the implementation of carbon capture, utilization, and storage (CCUS) measures to reduce the environmental impact of more carbon-intensive systems. A key priority with CCUS is to make the technology more affordable to be deployed across sectors.
To diversify supply, the Indonesian government is also considering nuclear power plants as a potential source for energy. Although social concerns about nuclear power plants remain and must be acknowledged, the most desired form of nuclear energy generation would be twenty-megawatt small modular reactors (SMRs), given their potential to be more resilient and safer. Currently, Indonesia is working with the International Atomic Energy Agency on its nuclear review and preparation processes and has great interest in U.S. companies, such as ThorCon, that are creating SMRs.
Indonesia’s energy challenges, however, cannot be solved by the energy sector alone. As a result, the National Energy Council was formed to connect the relevant ministries needed to implement energy, investment, and development policies. The council has the mandate to help formulate national energy policy and ensure that approaches and solutions both are cross-sectoral and consider the risk of future disruptions and crises. When confronting the dual needs to diversify supply and lower carbon emissions, a multifaceted approach will maximize positive outcomes.
Satya Widya Yudha is a Member of the National Energy Council of the Republic of Indonesia for 2020–25.
Universiti Teknologi MARA, Shah Alam, Malaysia
Malaysia is known for its diverse culture, wealth of natural resources, and thriving economy. Like many countries, Malaysia has traditionally relied on fossil fuels, particularly natural gas and coal, to meet its energy needs. However, the government has recognized the importance of diversifying the country’s energy mix and increasing the share of renewable energy sources. In recent years, Malaysia has pursued various policies and initiatives to transition toward cleaner and more sustainable energy sources.
According to the International Renewable Energy Agency, climate change and energy security are the key drivers of the energy transition worldwide. Other factors include the rapid growth of energy demand, fluctuations in fossil fuel prices, interruptions in energy imports and exports, and the depletion of fossil fuel reserves. With the global squeeze on energy supply due to Russia’s full-scale invasion of Ukraine and the increase in demand for fuel as many countries continue their economic recovery from the Covid-19 pandemic, the world will likely continue to see high energy prices throughout 2023.
Rising energy prices are anticipated to reduce energy security for most nations. The International Energy Agency defines energy security as “the uninterrupted availability of energy sources at an affordable price.” In other words, it refers to the ability of a country or region to ensure a reliable and affordable supply of energy to meet economic and social needs without being vulnerable to supply disruptions, price shocks, or other energy-related risks.
Modern energy security is more challenging because guaranteeing the supply of energy is only one dimension of an “energy trilemma,” alongside providing equitable access to clean energy and mitigating climate change. Like the oil crises in the 1970s that prompted a boom in nuclear power, the current energy crisis may trigger faster adoption of cleaner energy by governments around the world, thus helping speed up the energy transition.
This commentary will survey the challenges facing Malaysia’s energy sector, as well as the country’s past and current policies for promoting renewable energy sources. It will then conclude by offering potential solutions to address the twin challenges of satisfying growing demand and curbing emissions.
Momentum for Renewable Energy in Malaysia
In response to the accelerating pace of climate change, over 110 countries have pledged to reach net-zero emissions under the Paris Agreement. As part of its nationally determined contribution (NDC), Malaysia has committed to reduce its economy-wide greenhouse gas intensity (against GDP) by 45% from 2005 levels before 2030. To achieve this target, Malaysia has joined many other countries in emphasizing clean energy, renewables, and energy efficiency in its climate change mitigation plan.
In the last decade, the world has focused on replacing fossil fuels with renewable energy, which has grown three times as fast as nuclear energy and fossil fuels over the last five years, according to the International Energy Agency. In line with this global trend, Malaysia has set a target to increase the share of renewable energy in its national power installed capacity mix to 31% by 2025 and to 40% by 2035. This policy is expected to significantly reduce greenhouse gas emissions in the power sector and help Malaysia meet its NDC target.
Malaysia arrived at where it is today with renewable energy through over two decades of trial and error. The Five-Fuel Diversification Policy, adopted in 2000, was the first government initiative to introduce renewable energy into the country’s power generation mix. Unfortunately, after ten years, less than 10% of the targeted capacity had been achieved. Likewise, the Small Renewable Energy Power Program, launched in 2001, sought to install 500 megawatts (MW) of additional renewable energy plants but ended up achieving only 12 MW of capacity by the end of 2005. The program fell short of its goal due to capacity limitations, lengthy approval processes, inadequate monitoring, exclusion of stakeholders, and insufficient preliminary feasibility assessments.
The government subsequently established a feed-in tariff (FIT) in 2011 through the Renewable Energy Act to address the previous shortcomings in achieving the target. This scheme has allowed renewable energy producers to sell electricity to power utilities at a fixed price for a specific duration, effectively subsidizing the producers. The higher price of renewable energy was enabled by a fund established through a 1.6% charge from consumers’ electricity bills.
Malaysia’s geographic location near the equator provides abundant sunlight and thus enormous potential for solar photovoltaic (PV) application. With higher FIT rates, easier installation, and a lower maintenance cost than other renewable technologies, solar PV has attracted many producers due to its high return on investment. According to the Sustainable Energy Development Authority in Malaysia, from 2011 to 2017, the solar PV quota under the FIT scheme was quickly filled, and in 2017 nearly 70% of the FIT commercial operations were from solar PV. To promote grid parity, the government later eliminated the FIT for solar PV at the end of 2017 as the technology matured and the system price declined.
Since 2017, strategies for the development of solar PV in Malaysia have focused on competitive market mechanisms. A bidding program called Large-Scale Solar was introduced to drive down the levelized cost of energy in the country. Under the program, companies are allowed to develop solar PV power plants with an installed capacity of more than 1 MW. The process involves the government inviting bids from qualified companies for the development of solar power projects. The companies submit proposals, and the government selects the winning bidders based on specific criteria, such as project cost, proposed equipment, and financial strength. The winning bidders sign a power purchase agreement with the utility company to sell the electricity generated to the national grid at a fixed long-term price. Since 2017, the Energy Commission of Malaysia has conducted four bidding cycles, offering a total capacity of 2,200 MW.
The Large-Scale Solar program is complemented by a net energy metering scheme, which opens opportunities for electricity consumers to become producers of solar energy. Under the scheme, the energy produced from the solar PV system is consumed first, then any excess energy is sold back to the utility and credited to the consumer’s electricity bill. The latest iteration of the scheme adopts a “one-on-one” offset ratio, where the credit received for energy exported to the grid is equal to the rate charged for energy consumed from the grid. This has made investing in solar PV more financially feasible compared to earlier iterations, which utilized a lower rate based on the prevailing displaced cost. Another fascinating innovation in the most recent version is net offset virtual aggregation, which provides a platform for energy sharing. Under this program, any excess energy produced that cannot be used due to operational constraints or changes in demand may be virtually exported to other designated premises and credited to the consumer’s billing account, giving nondomestic consumers more flexibility in using net metering to offset energy costs.
In August 2022 the Malaysian government announced the Corporate Green Power Programme (CGPP) for solar PV plants. The program aims to promote the adoption of green energy among companies in Malaysia using a virtual power purchase agreement. Under the CGPP, corporate consumers will have a bilateral agreement with a solar power producer for the virtual sale and purchase of renewable energy from the solar PV plant. The contract allows producers and consumers that are not physically connected by the existing grid to still buy and sell renewable electricity from one another. With a quota of 600 MW allocated for the program in 2023, the CGPP allows corporate consumers to meet their environmental, social, and governance requirements, while enabling solar power producers to secure demand for their energy through bilateral energy contracts.
Innovative Solutions for Malaysia’s Renewable Energy Future
Various new technological innovations have been embraced worldwide to facilitate the transition to cleaner energy in a decentralized landscape. Besides solar PV, electric vehicles, and energy storage systems are critical new technologies. A smart microgrid environment can integrate the renewable energy supply in the presence of electric vehicles and energy storage systems through the application of smart charging and demand response. This hybrid system minimizes the supply intermittency from renewable systems and thereby improves grid connectivity.
In Malaysia’s net energy metering program, the use of an energy storage system will become essential for the program’s transition to self-consumption after ten years. Under this scheme, exporting excess energy from the solar PV system to the grid will not be permitted. Therefore, the utilization of an energy storage system will be necessary to store surplus solar energy and provide electricity during times when there is no sunlight available.
Innovative solutions have been emerging not only in respect to new technologies but also in terms of markets and trading schemes. Malaysia has deployed a pilot peer-to-peer energy trading scheme, virtual power plants, and a voluntary carbon-pricing scheme to drive the uptake of clean energy technologies. These innovations are designed to empower consumers to participate actively at the demand level in a decentralized energy ecosystem.
Peer-to-peer trading allows consumers to buy and sell energy from and to the other parties that are also connected to the grid through a secure platform such as blockchain technology. Malaysia conducted an eight-month pilot project in 2019 to assess the financial impact and determine the technical and regulatory requirements. Although the initial results were favorable, further studies are needed to determine the impact on the grid, economic feasibility, and appropriate business models prior to the actual deployment of peer-to-peer trading.
The virtual power plant is a new cloud-based model that aggregates a bundle of dispersed yet connected distributed energy resources, such as solar PV systems, in the electricity power market operations to improve grid flexibility and security, as well as reduce environmental risks. Virtual power plants will improve the integration of renewable energy by utilizing supply-side flexibility to optimize power generation sources, as well as increase demand-side flexibility through the aggregation of demand response. Given the widespread use of renewable energy both on a large scale and in distributed energy resources, Malaysia presents significant potential for the deployment of virtual power plants. A co-pilot project involving energy storage systems and solar technology was initiated by Malaysia’s power utility, Tenaga Nasional Berhad, in partnership with South Korean companies in 2019. The project aimed to provide grid services during periods of peak demand and was scheduled to last for 30 months.
Given the urgent call for action on climate change, in December 2022, Bursa Malaysia Berhad launched Malaysia’s pioneer voluntary carbon market, named Bursa Carbon Exchange (BCX). BCX enables companies to trade voluntary carbon credits from climate-friendly projects to offset their carbon footprint and meet climate goals. To ensure that high-quality carbon credits are offered through BCX, Bursa Malaysia has adopted the Verified Carbon Standard, otherwise known as Verra. BCX aims to support Malaysia in achieving its net-zero emission and renewable energy targets.
In recent years, Malaysia has made significant progress in its transition toward clean energy through deploying various incentives and policy and regulatory frameworks. However, there are still many challenges for the nation to address to achieve its renewable energy targets. Malaysia continues to rely heavily on conventional power to produce electricity at the lowest cost, and the development of renewable energy will require strong political will and extensive investment.
For cutting-edge government programs to be effective in promoting renewable energy use, there must be increased awareness and willingness among electricity consumers to adopt a green lifestyle. Consequently, the collective contributions of various levels of stakeholders, coupled with innovative technological solutions and effective policy frameworks are imperative for Malaysia to fully achieve its energy transformation. In the future, consumers trading excess solar electricity from their rooftops or their electric vehicles with the neighborhood at a competitive price will be the new way of living. Peer-to-peer trading, virtual power plants, and carbon-pricing schemes will be integral platforms to drive the uptake of clean energy technologies for a sustainable electricity industry in Malaysia.
Nofri Dahlan is an Associate Professor in the School of Electrical Engineering at Universiti Teknologi MARA (UiTM) in Shah Alam, Malaysia. She also serves as the Director of the UiTM Solar Research Institute. Her research focuses on power generation investment, energy economics and policy, electricity markets, energy system modelling, renewable energy, and energy savings and efficiency.
Institute of Energy Economics, Japan (IEEJ)
When I visited Malaysia on October 28–31, I participated in the 2022 Pacific Energy Summit sponsored by the National Bureau of Asian Research and had an opportunity to exchange opinions with Malaysian energy industry stakeholders and experts. After the first Pacific Energy Summit took place in Tokyo in 2009, the summit was held in-person annually in major Asia-Pacific cities. The 10th one came in Tokyo in October 2019 before a face-to-face conference failed to be realized in 2020 and 2021 due to the Covid-19 outbreak. The latest Pacific Energy Summit in the Malaysian capital of Kuala Lumpur was the first face-to-face one in three years.
The number of participants in the Summit was limited to some 40 on a registration basis, including government officials, experts, energy industry stakeholders and others from not only Malaysia but also the United States, Japan, South Korea, Indonesia, Singapore, and other countries. Recently, energy security has become unprecedentedly important as the Ukraine crisis has destabilized the international energy situation. Nevertheless, the world has been required to enhance decarbonization initiatives to realize carbon neutrality. Furthermore, global geopolitical tensions have existed and been growing. Given these points, discussions among the Pacific Energy Summit participants were timely.
The timeliness was reflected in the latest Pacific Energy Summit’s subtitle “Understanding Southeast Asia’s Vision for Energy and Climate Security in the Indo-Pacific.” As the Association of Southeast Asian Nations (ASEAN), including Malaysia, is seen as one of the future energy demand growth centers in the world, ASEAN energy security enhancement and decarbonization initiatives are expected to become extremely important for the region and the rest of the world. In this sense, the conference was particularly important. I participated in the conference only on October 31. In the following, I would like to comment on what I learned through the conference and my talks with Malaysian energy stakeholders.
First, I felt that interest in nuclear energy was growing in the ASEAN region. In “A Japanese Perspective on the International Energy Landscape,” I noted that nuclear energy was one of the important issues at my talks with Malaysian energy stakeholders. In my latest visit to Malaysia, there was discussion that Philippine president Bongbong Marcos has indicated an ambition to use nuclear energy, with interest in nuclear energy growing in Indonesia as well. I felt that ASEAN is growing interested in next-generation nuclear reactors such as small modular reactors in consideration of widely distributed electric demand and nuclear safety.
The nuclear energy trend in the world reached a turning point in the second half of last year. As electricity prices have spiked amid fossil fuel price hikes, the tight electricity supply-demand balance has become a global matter of concern. In October 2021, European Commission President Ursula von der Leyen stated that nuclear was required for the European Union as a stable energy source. Later, French president Emmanuel Macron announced a plan for constructing new nuclear power plants, triggering a series of developments toward nuclear power plant construction. Following France, the United Kingdom came up with a nuclear power plant construction plan. East European countries heavily dependent on Russian energy followed suit. Belgium announced a plan to extend the service life of existing nuclear power plants. Germany, plagued with concern about serious energy shortages, revised its plan for the phase-out of nuclear power plants within 2022 and decided to maintain them as a backup power source until next spring. These measures were taken to keep stable electricity supply and reduce electricity costs amid the destabilization of the international energy market. Nuclear energy as a stable baseload electricity source is free from CO2 emissions as well. For European countries with ambitious CO2 emission reduction goals, nuclear has rapidly grown important as an energy source that can meet requirements for both stable electricity supply and climate change countermeasures.
In Japan as well, the nuclear energy trend has dramatically changed. Prime Minister Fumio Kishida has given instructions to promote the restart of idled nuclear reactors, revise the system for extending the service life of nuclear reactors, and consider the construction of next-generation reactors. Nuclear energy has been highlighted as a key means contributing to Japan’s 3E’s—energy security, environmental protection, and economic efficiency. Major countries using nuclear energy in the world are enhancing initiatives to develop next-generation nuclear reactors, including small modular reactors.
This trend has been expected to spread throughout the world. Talks at the Pacific Energy Summit led me to feel that the trend has spread to ASEAN. In ASEAN where energy demand is expected to increase, nuclear energy is emphasized as a key option to promote decarbonization and secure stable electricity supply in response to the energy security challenge symbolized by growing dependence on energy imports. As a matter of course, however, the trend has just been seen as a very early stage in ASEAN, falling short of producing specific policies or initiatives. It may not be easy for ASEAN countries to adopt nuclear energy that could lead to sensitive political and social problems. Political, technological, and industrial infrastructure has not been sufficiently developed for the nuclear energy option in ASEAN. While the nuclear option remains a long-term strategic challenge for ASEAN, some ASEAN countries may enhance initiatives to introduce nuclear energy in consideration of growing interest in the option.
Second, I felt that ASEAN energy policy planners and energy industry decision-makers face an extremely difficult situation, sandwiched between high ideals and the realities. Many ASEAN countries have announced the 2050 carbon neutrality goal, demonstrating their determination to pursue the goal. They will promote initiatives supported by the high ideals to make maximum efforts to serve the global interest of preserving the environment and preventing climate change. At the same time, however, they may have difficulties in deciding whether these initiatives would realize green growth including economic and employment expansion. These initiatives could increase economic and social burdens by boosting energy costs. Given that many people receive energy subsidies in ASEAN countries, it may not be easy to pursue the ideals. ASEAN will have to follow an energy transition path to strike a balance between decarbonization and energy security enhancement while minimizing costs for the transition.
In this respect, key points regarding ASEAN’s transition from coal as its major energy source may include how to use natural gas and LNG effectively while promoting renewable energy, whether to introduce nuclear energy, how to diffuse carbon capture and storage and other CO2 emission reduction technologies, and how to promote hydrogen and ammonia. ASEAN countries’ conditions vary greatly and are far different from those in developed countries. It will become even more important for ASEAN countries to take inclusive and pragmatic approaches on a steady energy transition in consideration of their respective conditions. I felt that it is extremely important for Japan to understand the ASEAN countries’ conditions sufficiently and cooperate with them in realizing energy transition.
Ken Koyama is Chief Economist and Managing Director at the Institute of Energy Economics, Japan (IEEJ).
This commentary was originally published as a Special Bulletin by IEEJ on November 1, 2022, and is republished with permission.