Can Malaysia Balance Renewable Energy Growth With Tariff Stability?

The challenge, however, lies in expanding clean energy while still keeping electricity tariffs stable and affordable for consumers.

Malaysia’s National Energy Transition Roadmap (NETR) has set a target of achieving 70 percent of its electricity generation from renewable energy (RE) by 2050. 

For years, electricity tariff calculations under mechanisms such as the Imbalance Cost Pass-Through and Auto Fuel Adjustment introduced by the Energy Commission (ST) and Tenaga Nasional Bhd (TNB) in Peninsular Malaysia have shaped household bills, often without much public attention. 

Currently, electricity demand is surging, driven by industrial growth, digitalisation and the rapid expansion of energy-hungry data centres, a development that is worrying many stakeholders. 

The big question now is: can Malaysia truly decarbonise without placing a heavier burden on households through higher electricity bills?

 

According to global energy think-tank Ember, Malaysia relied on fossil fuels for 81 percent of its electricity generation in 2024, with its largest source of clean electricity being hydro (16 percent). Its share of electricity generated from wind and solar sources stood at two percent, which is below the global average (15 percent). 

Malaysia aims for approximately 24 percent renewable electricity by 2030, which is below the global share of 60 percent as set out in the International Energy Association’s net zero emissions scenario. (Net zero essentially means reaching a state in which pollution going into the atmosphere due to human activities is balanced by removal out of the atmosphere.)

Energy expert and Rosergy Consulting managing director Rosman Hamzah said Malaysia must strike a careful balance among (the energy “trilemma” comprising) energy security, environmental sustainability and energy affordability as it progresses toward its net zero ambitions. 

He said Malaysia’s long-standing priority remains securing a reliable and uninterrupted energy supply, followed by ensuring that electricity remains affordable for households and businesses. 

“Environmental sustainability has become increasingly important as the country advances its climate commitments.

“Malaysia’s future energy mix will undergo major structural changes, particularly with a fivefold increase in RE production by 2050, largely from solar and hydro. 

“Solar capacity alone is expected to expand from the current 5.4 GW (gigawatts) to between 56 and 60 GW,” he said at a climate change conference, AlterCOP30, here recently, organised by Universiti Kebangsaan Malaysia-Yayasan Sime Darby Chair for Sustainability and MyIklim.

However, added Rosman, despite the higher share of RE, electricity generation from natural gas will continue to rise, with more gas-fired power plants needed even as natural gas’ share of installed capacity declines from about 40 percent currently to the low 20 percent range.

“Although natural gas will make up a smaller percentage of installed capacity, we will still be building more gas turbine plants by 2050. This means more natural gas will be imported to support the power demand, potentially increasing power generation costs,” he said.

Rosman also noted that several developments since the NETR’s launch may require updates to its roadmap, including growing power demand from data centres, new cross-border electricity trade initiatives, and the inclusion of nuclear energy considerations under the 13th Malaysia Plan. 

 

Meanwhile, a report by international climate analytics firm TransitionZero, published on Oct 16, estimates that Malaysia could save more than US$700 million (RM3.3 billion) annually and cut 1.8 million tonnes of carbon emissions by shifting to real-time clean electricity from solar and hydro sources or battery storage.

TransitionZero Southeast Asia lead analyst Isabella Suarez described Malaysia as a “corporate decarbonisation hotspot” for global technology and manufacturing firms seeking reliable clean power.

She said achieving 80 percent hourly clean electricity in Peninsular Malaysia by 2030 could save US$600 million a year in LNG (liquefied natural gas) imports, while Sarawak could reach 90 percent hourly clean power.

“Hourly matching is a no-regrets strategy. It lowers costs, strengthens system reliability and positions Malaysia as a leader in Southeast Asia’s clean energy transition,” said TransitionZero co-founder and chief executive officer Matt Gray.

 

As Malaysia pushes toward 70 percent RE by 2050, the rapid expansion of data centres driven by global investments has sparked concerns over whether the national grid can sustain both booming industrial demand and the everyday needs of households.

A KPMG report for the Asia Pacific Data Centre Association projects Malaysia’s data centre capacity to double from 1.26 GW to 2.53 GW between 2025 and 2030. 

TNB also expects potential demand from data centres to reach 5,000 MW (megawatts) by 2035, with applications already exceeding 11,000 MW.

Despite this surge, TNB’s Regulatory Period 4 (RP4) tariff, from July 2025 to December 2027, keeps low-voltage residential consumers protected, with an effective tariff drop from 55.95 sen/kWh to 45.4 sen/kWh. 

Around 71 percent of medium-voltage users are also expected to benefit, while high-powered users like data centres will pay higher, cost-reflective tariffs.

The question here is, can data centres take electricity away from residents?

Universiti Tenaga Nasional Institute of Energy Policy and Research director Dr Nora Yusma Mohamed Yusoff said data centres and homes operate on different voltage layers, meaning they do not compete for the same electricity supply.

“Data centres connect at very high voltages, 500 kV and 275 kV, while homes are supplied through lower-voltage substations, with the system designed to ensure both have sufficient supply,” she told Bernama.

She said while data centres increase overall demand for electricity, Malaysia can still reach 70 percent RE capacity without burdening households, as long as data centres pay premium, cost-reflective tariffs and secure long-term RE contracts.

To support the growing electricity demand from data centres, the government introduced the Corporate Renewable Energy Supply Scheme (CRESS) in 2024, which allows large users to directly purchase RE from power producers and pay a system access charge to connect to the grid.

Commenting on CRESS, Evan Ng, energy analyst with energy consulting firm Baringa, said the system access charges can be revised by up to 15 percent every three years, which is the regulatory period. 

“This system access charge is essentially a fee that the power seller (generator) and the large energy user (buyer) need to pay TNB for using its grid to facilitate the transfer of power. 

“However, CRESS is only relevant for large energy users, such as data centres, that choose to enter into a power purchasing agreement (PPA) directly with a renewable power generator. 

“Therefore, while domestic customers will also experience a revision in network costs every three years, the 15 percent cap revision rule on system access charges for CRESS does not apply to them. 

“Domestic customers’ network cost is a function of the total cost needed to invest, maintain, operate and manage the network, and the volume of energy demand sharing this cost,” he told Bernama in an email interview. 

 

Since Malaysia’s push to become a regional data centre hub is expected to significantly increase electricity consumption, it has sparked debate over whether to include nuclear power in the national energy mix. 

Deputy Prime Minister Datuk Seri Fadillah Yusof, who is also Energy Transition and Water Transformation Minister, said recently that the government plans to explore nuclear energy for power generation under the 13th Malaysia Plan as part of its clean energy strategy. 

However, as Malaysia awaits detailed implementation guidelines, debate continues to intensify between supporters – who view nuclear power as vital for decarbonisation – and critics who cite concerns over waste management, safety and cost. 

Nora Yusma agreed that nuclear power is now a credible option within Malaysia’s net-zero pathway, but added, “We do not yet have enough public cost data to promise that it will lower tariffs.” 

She said in the near term, any nuclear project would likely increase system costs during the construction and early repayment period.

“Over the longer term, if projects are delivered on time and within the budget and financed cheaply, nuclear power could help stabilise electricity prices by reducing exposure to volatile imported fuels and by providing firm low-carbon capacity to back up high shares of solar and other renewables.

“It (nuclear power) could be part of the solution and may help with long-run price stability, but it is not a guaranteed ‘cheap electricity’ shortcut… everything depends on project governance and financing rather than the technology alone,” she said. 

This was echoed by Ng, who also suggested that the government establish a good governance framework and regulation to gain public acceptance of nuclear power. 

“Relying solely on renewables and energy storage can be costly and may not provide the stable 24/7 power supply needed.

“Nuclear power can help lower overall power system costs compared to solely relying on renewable power and a significant amount of BESS (battery energy storage systems) due to solar and wind power,” he said. 

 

Malaysia consistently receives an average of four to six hours of effective or peak sunlight daily, making solar power a highly viable and promising source of RE for the nation. 

However, due to the intermittent nature of solar power, Malaysia’s peak electricity demand has shifted to nighttime, a trend that became a key factor in the electricity tariff reform introduced in July to better reflect market dynamics.

To manage this shift, ST is now evaluating the deployment of BESS to narrow the gap between generation and peak demand, aiming to flatten the country’s emerging ‘duck curve’. 

With the revision of TNB electricity costs, increased awareness of RE and the launch of the Solar ATAP (Atas Atap) initiative yesterday, more households are switching to solar to enjoy long-term savings and energy independence.

Solar ATAP (Accelerated Transition Action Programme) replaces the Net Energy Metering scheme, which closed to new applications on June 30. 

Nora Yusma, however, said although TNB’s grid is on the way to being 70 percent RE ready, “it is still not there yet to accommodate RE such as solar”. 

“The next five to 10 years of investment – particularly in transmission corridors connecting renewable-energy-rich regions to areas with growing data-centre demand, as well as in large-scale storage, digital distribution-grid management and regional interconnection – will determine whether the NETR’s 70 percent target can be met without compromising reliability or affordability for the public,” she said.

University Kebangsaan Malaysia Solar Energy Research Institute director Prof Dr Norasikin Ahmad Ludin said the initial RM43 million investment to upgrade the power grid acts as a down payment for long-term price stability, potentially shielding households from future global energy shocks.

“However, costs related to solar infrastructure, battery storage and grid upgrades are substantial and if not managed carefully, these could be passed on to consumers through slightly higher tariffs in the short term. 

“Ultimately, the data centre boom underscores the urgency of this investment. By proactively strengthening our grid for clean energy, we can power new industries without taking capacity away from homes. 

“The goal is a win-win: attracting high-tech investment that benefits our economy while ensuring the electricity that powers our daily lives remains reliable and affordable for everyone,” she said.