National Energy Transition Roadmap.pdf

National Energy Transition Roadmap (NETR) 1 Published by: Ministry of Economy Menara Prisma No. 26, Persiaran Perdana, Precint 3 Federal Government Administrative Centre 62675 Putrajaya, Malaysia 603 8090 2090 | [email protected] | ekonomi.gov.my ©Publisher’s Copyright All rights reserved. No part of this publication may be reproduced, copied, stored in any retrieval system or transmitted in any form or by any means-electronic, mechanical, photocopying, recording or otherwise, without prior permission of the Ministry of Economy, Malaysia. 2 National Energy Transition Roadmap (NETR) Table of Contents Foreword................................................................................................... 4 Foreword by Prime Minister......................................................................................4 Preface by Minister of Economy................................................................................6 Executive Summary..................................................................................... 8 Section 1: Introduction................................................................................ 9 The Domestic Energy Landscape...........................................................................10 Section 2: Case for Malaysia’s Energy Transition........................................... 11 Malaysia’s Carbon Footprint...................................................................................11 The Global Race Towards Net-Zero........................................................................12 The Benefits of Energy Transition...........................................................................13 Malaysia’s Policy Responses...................................................................................13 Section 3: National Energy Transition Roadmap (NETR)................................ 15 Guiding Principles...................................................................................................18 Review of Renewable Energy Policies....................................................................19 Complementary Plans............................................................................................20 Section 4: Energy Transition Ambition And Macro Position............................ 21 Energy System Pathway..........................................................................................23 Socioeconomic Outcomes......................................................................................24 Section 5: Energy Transition Levers and Key Initiatives................................. 28 Energy Efficiency.....................................................................................................29 Renewable Energy..................................................................................................32 Hydrogen.................................................................................................................36 Bioenergy................................................................................................................40 Green Mobility.........................................................................................................42 Carbon Capture, Utilisation and Storage...............................................................49 Section 6: NETR Flagship Catalyst Projects And Initiatives............................. 52 Section 7: Cross-Cutting Enablers............................................................... 56 Financing and Investments....................................................................................57 Policy and Regulations............................................................................................60 Human Capital and Just Transition........................................................................61 Technology and Infrastructure...............................................................................63 Governance and Implementation..........................................................................64 Section 8: Conclusion................................................................................ 65 Abbreviation............................................................................................. 66 National Energy Transition Roadmap (NETR) 3 Foreword by Prime Minister As we embark on the journey to build a better Malaysia, the progress that we pursue goes beyond strong institutions, leading technology and world-class infrastructure. The main objective is focused on empowering the rakyat, so Malaysians will emerge as a cohesive society with high integrity, mutual respect and unity. One of the key principles of Malaysia MADANI is ‘sustainability’, which broadly relates to growing responsibly in the realm of energy transition and sustainable development. Ergo, the National Energy Transition Roadmap (NETR) is pivotal to accelerating our green and sustainable growth agenda. The NETR is a significant milestone for Malaysia, which comprehensively charts our nation’s trajectory towards a brighter, cleaner, and more resilient future. In line with the Ekonomi MADANI framework, it is a declaration of the country’s commitment to future generations and a testament to our resolve in addressing the pressing challenges of our times. The Twelfth Malaysia Plan, spanning the years 2021 to 2025, and the National Energy Policy 2022-2040, have laid the groundwork while the NETR will ensure Malaysia forges ahead in this transformative journey. Against the backdrop of a dynamic global energy landscape mired with the energy trilemma of security, affordability, and sustainability at its core, the world is racing for solutions. Malaysia too is resolute in overcoming these challenges and the NETR demonstrates our unwavering determination in this regard. Reducing Malaysia’s carbon footprint is one of the catalysts to transforming the economy on a more sustainable path. It is also an agenda to generate new sources of growth, creating business and trade opportunities, and consequently, knowledge workers. 4 National Energy Transition Roadmap (NETR) In the pursuit of a net-zero future, the journey requires not just technological innovation, but a comprehensive shift in our mindset, strategies, and policies. The NETR encapsulates the aspirations of all stakeholders, from industry leaders, to ordinary Malaysians who envisions a harmonious coexistence with our planet. It reiterates Malaysia’s commitment to social justice, inclusivity, and balanced progress. On this momentous journey, it is important to remember that the transition to a low-carbon future is not merely a policy objective but a moral imperative. It is a commitment to the well- being of our children and the generations to come. It is an investment in the sustainability of our communities, our industries, and our environment. Through NETR, the government aspires to trailblaze a development path that is not solely hinged on energy, but a larger collective resolve of stewardship and responsibility. In all sincerity, I trust that NETR will inspire us to take bold steps, to forge collaborations, and to harness our collective strength in the pursuit of a sustainable and prosperous future. It affirms that progress and sustainability are not mutually exclusive and requires critical decisions and changes to be made. I urge each and every Malaysian, to be united and resolute as envisioned in the Malaysia MADANI, to march forward and lead towards a more sustainable and resilient future. ANWAR BIN IBRAHIM 29 August 2023 National Energy Transition Roadmap (NETR) 5 Preface by Minister of Economy The Twelfth Malaysia Plan, spanning 2021-2025 (Twelfth Plan), articulates our commitment to achieve net-zero GHG emissions by 2050. Concurrently, the National Energy Policy 2022-2040 (DTN) lays the foundation for an equitable energy transition that is fair and inclusive for everyone. Globally, the energy sector faces a rapid transformation while balancing the energy trilemma of security, affordability, and sustainability. Energy transition is also gaining momentum both domestically and internationally. To accelerate our energy transition efforts, we have developed the National Energy Transition Roadmap (NETR). This roadmap is vital for steering Malaysia’s shift from traditional fossil fuels- based economy to a high-value green economy. The NETR requires a whole-of-nation approach, encompassing federal and state governments, industry, general public, and international community. Ten flagship catalyst projects of the NETR, which cover six energy transition levers namely, energy efficiency (EE), renewable energy (RE), hydrogen, bioenergy, green mobility, and carbon capture, utilisation and storage (CCUS) was launched on July 27th 2023. These flagship projects are 6 National Energy Transition Roadmap (NETR) expected to attract investment of more than RM25 billion, create 23,000 job opportunities and reduce GHG emissions by more than 10,000 Gg CO2eq per year. Additionally, the NETR establishes the pathway for national energy mix, GHG emission reduction and energy transition initiatives. This reinforces Malaysia’s commitment to net-zero emissions as early as 2050 despite contributing only 0.8% to global GHG. By 2050, NETR initiatives are expected to deliver 32% reduction in GHG emissions for the energy sector compared to the 2019 baseline – reaching 4.3 MtCo2eq emission per capita. The Ministry has undertaken an extensive consultative approach involving policymakers, industry stakeholders, technology experts, and businesses to analyse and appraise best practices, lessons learned, and both existing and proposed initiatives. As we move ahead, the NETR will serve as a guiding beacon, offering clarity and coherence in formulating policies and executing strategies for the energy sector’s transition into a low-carbon future. RAFIZI RAMLI 29 August 2023 National Energy Transition Roadmap (NETR) 7 Executive Summary Malaysia is blessed with a strategic location, vast amounts of natural resources, potential renewable energy and a growing pool of talents who are appreciative of a green economy. One of the tenets of Ekonomi MADANI is spurring Malaysia’s green growth for climate resilience. Malaysia has been recognised as the best country in Southeast Asia in the Energy Transition Index 2023 by the World Economic Forum. The feat shows that Malaysia is on the right track to drive our strategic shift and economic restructuring into new growth areas. Malaysia is committed to low-carbon development aimed at restructuring the economic landscape to a more sustainable one. In this context, the National Energy Transition Roadmap (NETR) sets the goal to accelerate energy transition and change the way energy is generated to improve climate resilience. NETR has developed the Responsible Transition (RT) Pathway 2050 to shift Malaysia’s energy systems from fossil fuel-based to greener and low-carbon systems. The Total Primary Energy Source (TPES) modelling indicated that our energy demand will increase marginally at 0.2% annually from 95 Mtoe in 2023 to 102 Mtoe in 2050. The RT Pathway 2050 has also shown promising decarbonisation results as evidenced by the phasing out of coal and the reduction of fossil-fuel reliance from 96% in 2023 to 77% in 2050. Natural gas is set to be not only a transitional fuel, but also the primary contributor of TPES at 57 Mtoe (56%) followed by renewables that include solar, hydro and bioenergy, which collectively contribute 23% of TPES in 2050 from a mere 4% in 2023. NETR outlines 50 initiatives under the six energy transition levers and five enablers, in addition to the 10 flagship projects and initiatives announced in July 2023. The energy transition financing will be undertaken through a combination of grants, loans, rebates, incentives, and other investments to support the whole-of-nation approach. NETR aims to power our future by unlocking potentials in new growth areas and delivering progress and prosperity to Malaysian households and businesses. The successful implementation of NETR will uplift GDP value from RM25 billion in 2023 to RM220 billion and generate 310,000 jobs in 2050. NETR is not just a document about measures to meet Net-Zero GHG emissions target. NETR represents a new way of thinking to fundamentally transform Malaysia’s economy and livelihoods for a stronger and more resilient future. 8 National Energy Transition Roadmap (NETR) Section 1 : Introduction Malaysia is a small open economy with gross domestic product (GDP) of RM1.79 trillion and gross national income (GNI) per capita of USD11,780 in 2022. Its population stood at 32.7 million people in 2022 and is expected to reach 40 million by 2050. Meanwhile, the urbanisation rate was 75% in 2020, and is expected to reach 85% by 2040. Economic and population growth, as well as rapid urbanisation, will drive a rise in energy demand, which is expected to increase by 2% annually until 2050. The economy transitioned from an agricultural and commodity-based to manufacturing and services in the 1980s. It continues to be a producer of finite quantities of oil and gas, which contributed approximately 13% to GDP in 2021. Availability of indigenous gas resources have ensured secure energy supply at affordable prices. As the nation evolves and lifestyles change, environmental sustainability gains more focus in business and policy decisions, and this has implications on people’s livelihoods. Rapid urbanisation and climate change require a timely adjustment of the way we live, commute and interact with our surroundings, including the way in which we consume and produce energy. National Energy Transition Roadmap (NETR) 9 The Domestic Energy Landscape Based on the National Energy Policy, 2022-2040 (DTN), the energy sector contributed approximately 28% Defining Energy Transition - of GDP and employed 25% of the total workforce in energy transition is a structural shift Malaysia. In addition, it is a key source of national in energy systems, characterised by income, with petroleum-related products contributing a transition towards cleaner sources 31% of fiscal income, and energy exports constituting of energy, increased use of RE, and 13% of total export value. The energy sector also a significant reduction in carbon benefits more than 10 million customers by providing emissions. The energy transition is daily access to electricity supply and enabling mobility expected to occur at an accelerated through reliable supply of fuels. Jobs and business opportunities created in the energy sector, as well pace, driven by rapid technological as economic multipliers in energy-related supply advances and robust climate change chains, also contribute positive to the socioeconomic policies. development of the nation. Fossil fuels continue to contribute the largest share of Malaysia’s energy supply, and have a significant influence in shaping the country’s energy landscape. As of 2020, four energy sources dominated the national total primary energy supply (TPES) mix. Natural gas constituted the largest portion at 42.4%, followed by crude oil and petroleum products at 27.3% and coal at 26.4%. Renewables, comprising hydropower, solar and bioenergy, constituted just a mere 3.9%. Historically, the power sector in Malaysia has been operated as a vertically integrated monopoly system. Over time, it has undergone various stages of liberalisation. The power sector was privatised with the aim of attracting investments as well as enhancing efficiency and productivity to ensure a sufficient supply. Additionally, the government has encouraged the involvement of independent power producers (IPPs) to improve the reliability of the electricity supply and address the shortage of generation capacity in meeting the demand. Natural gas plays an important role as a transitional fuel in energy transition. The government has implemented Third Party Access (TPA) in 2017 to provide healthy competition among industry players, including the IPPs. This will facilitate the shift towards market-based pricing for power and non-power sectors, thus ensuring reliable gas supply at competitive prices. Similarly, the government intends to reform the power sector further by establishing a TPA framework to supply fuel sources, and access to the grid infrastructure and the retail market. In addition, the government will embark on electricity tariff restructuring initiative. These measures will ensure cost reflective prices, enable higher penetration of RE and enhance Malaysia’s competitive advantage. Malaysia has been recognised as the best country in the Southeast Asia in the Energy Transition Index 2023 by the World Economic Forum. The index considers system performance and the country’s readiness to switch to a more environmentally friendly energy sources. The recognition shows that Malaysia is on the right track to drive our strategic shift and economic restructuring into new growth areas. This is further supported by Malaysia’s various advantages such as a strategic location, diverse RE sources and a high level of skills to become a regional leader in energy transition. 10 National Energy Transition Roadmap (NETR) Section 2: Case for Malaysia Energy Transition Malaysia’s Carbon Footprint The energy sector has long contributed to Malaysia’s development and growth. Yet emissions have also increased in tandem with this progress, necessitating an urgent need to transition towards a low carbon economy. This will involve meeting the country’s climate commitment to cut 45% carbon intensity against GDP by 2030 compared to the 2005 baseline. Growth in the energy sector drives development in various related industries, creating spin-offs through employment, capital inflows and investments, besides supporting the energy service companies’ ecosystem. However, the energy sector has been the country’s largest contributor of greenhouse gas (GHG) emissions. A summary of Malaysia’s GHG inventory in 2019, based on the Fourth Edition of the Biennial Update Report (BUR4) submitted to the United Nations Framework Convention on Climate Change (UNFCCC), is as shown in Exhibit 2.1. National Energy Transition Roadmap (NETR) 11 In 2019, the energy sector emitted Exhibit 2.1: Malaysia’s GHG Inventory in 2019 259,326.11 Gigagram CO2 equivalent (GgCO2eq), or 78.5% of total emissions. This was followed by industrial processes and product use (IPPU) at 10%, waste at 9% and agriculture at 3%. The BUR4 report also listed climate mitigation actions undertaken in the energy sector, such as the use of EE measures, energy- efficient vehicles, RE, biodiesel and switching from coal to natural gas for power generation. The Global Race Towards Net-Zero There is a palpable shift in the worldwide stance on sustainability. By 2022, approximately 140 countries had pledged net-zero commitments. Of these countries, 86 have formulated policy documents and frameworks to achieve the respective net-zero pledges. Increasing adoption of cleaner energy alternatives will be vital to steer this transition. In 2022, the adoption of solar and wind energies and electric vehicles (EVs), as well as conservation efforts limited the emissions growth to below 1%. Despite these mitigation efforts, the overall emissions trajectory continues to rise, emphasising the need for nations to deepen their commitment and enhance adoption of low- carbon solutions in addressing the climate challenges. Exhibit 2.2: Number of countries with net-zero policies 12 National Energy Transition Roadmap (NETR) On 29 March 2023, the United Nations General Assembly (UNGA) passed a significant resolution requesting the International Court of Justice (ICJ) to outline the legal responsibilities of states concerning climate mitigation and adaptation. The current trajectory of climate change poses a threat to the global economy, trade and financial system, with potential losses amounting to nearly 10% of GDP by 2050. A critical factor in addressing climate change is the energy sector, which according to the International Energy Agency (IEA), is responsible for 73.2% of GHG emissions worldwide. In limiting the global warming to 1.5°C above pre-industrial level as outlined in the Paris Agreement, IEA’s Net Zero by 2050 pathway suggests that the world economy should consume 7% less energy in 2050 than at present. In 2022, the European Union (EU) introduced the Carbon Border Adjustment Mechanism (CBAM), aimed at preventing carbon leakages in the trade value chain. The current scope of CBAM covers industries that are important to Malaysia, such as iron, steel, aluminium, fertiliser, electricity and hydrogen. It is estimated that 57% of Malaysia’s total exports will be affected by the implementation of CBAM. Further, the United States (US) introduced the Inflation Reduction Act (IRA) in 2022, which prioritises the production of and demand for domestically produced clean energy goods and services over foreign imports. The Benefits of Energy Transition The urgency for Malaysia’s shift to sustainable energy is fuelled by global commitments, particularly the Paris Agreement and the need to fortify economic diversification and energy security. In addition, industry related to the energy transition has the potential to be a new source of growth that can benefit from the global market. The IEA reports that investment in the development of the clean energy industry is expected to reach USD1.7 trillion in 2023. The focus of global investment is on the development of the RE, EE and strengthening the grid and energy storage. Moreover, corporations and enterprises confront a rapidly changing market landscape where carbon costs will reshape business dynamics and potentially strain competitiveness. Meanwhile, the imminent realities of climate change, exemplified by rising sea levels, extreme weather events, and escalating heatwaves highlight the direct and tangible impacts on rakyat’s daily lives. Beyond mitigating risks, the energy transition presents Malaysia with the opportunity to restructure its economy and maximise the potential for green growth that balances sustainability, enhances GDP, creates jobs and meet the needs of rakyat and businesses. Malaysia’s Policy Responses The five-year development plan covers socioeconomic policy planning that sets out the country’s direction and growth targets as well as the allocation of the development expenditure. The Twelfth Plan, outlines the aspiration for the nation to achieve net-zero GHG emissions as early as 2050. The plan emphasises Malaysia’s approach to effectively manage its energy transition. It recognises the complex and interconnected nature of energy systems and acknowledges the need to balance the energy trilemma. The approach not only ensures that energy policies and programmes are environmentally responsible but also takes into consideration the socioeconomic implications. The DTN lays the groundwork for a transformation in the energy landscape. The energy transition is expected to occur at an accelerated pace, driven by rapid technological advancement and robust climate change policies. The DTN’s Low Carbon Nation Aspiration 2040 (LCNA 2040) seeks to transform National Energy Transition Roadmap (NETR) 13 the primary energy supply, moving to cleaner, RE sources. LCNA 2040 emphasises low-carbon policies, including: What is the Energy Trilemma? Restricting the development of new coal power The energy trilemma refers to the plants while the renewables share is being interconnectedness of energy security, increased affordability and environmental sustainability. Driving EE practices Encouraging the adoption of EVs These three objectives are often in conflict with Increasing public transport’s modal share each other. Addressing the energy trilemma Improving carbon footprint accounting and requires a delicate balancing act and often sustainability reporting involves making trade-offs. Solutions to the energy trilemma also commonly include a mix These progressive aspirations will ensure the of policies, innovations, and investments that energy sector is resilient to future challenges and aim to harmonise these three objectives to the in a good position to seize the opportunities arising greatest extent possible while acknowledging from the energy transition. The DTN is supported their inherent trade-offs. by four strategic pillars, 12 strategies, 31 action plans and five enablers, as shown in Exhibit 2.3. Exhibit 2.3: The DTN Framework 14 National Energy Transition Roadmap (NETR) Section 3: National Energy Transition Roadmap (NETR) The Ministry of Economy leads the development of the NETR with invaluable support from the Steering Committee and the Technical Committee. These committees comprise representatives from ministries, agencies and private sector, as shown in Exhibit 3.1 to help ensure a collaborative and comprehensive approach to the development process. In addition, the Project Team includes representatives from the Energy Commission (ST), Sustainable Energy Development Authority (SEDA), Malaysian Green Technology and Climate Change Corporation (MGTC), PETRONAS and Tenaga Nasional Berhad (TNB) to leverage the diverse expertise in ensuring NETR’s strategies and plans meet the needs of the wider stakeholders. To ensure inclusive participation in the development of NETR, the Ministry of Economy organised a workshop on 17 April 2023 as a platform for discussions and information exchange between ministries, agencies, the private sector and industry associations, including those from Sabah and Sarawak. National Energy Transition Roadmap (NETR) 15 Exhibit 3.1: The NETR Steering Committee and Technical Committee members The ministry has also undertaken more than 100 engagements and consultations to gather feedback and ensure the accuracy and validity of the NETR data and initiatives. This feedback has played a crucial role in shaping the scope of the roadmap and in fine-tuning the catalyst projects, initiatives, and enablers of the NETR. The Project Team undertook a comprehensive scoping and stocktaking process of macro and sectoral policies, including the Twelfth Malaysia Plan, the DTN, BUR4, the National Energy Efficiency Action Plan (NEEAP), Malaysia Renewable Energy Roadmap (MyRER), Malaysia Energy Transition Outlook (METO), National Low Carbon Cities Masterplan, Green Technology Master Plan Malaysia 2017-2030, Low Carbon Mobility Blueprint, and GHG emissions reduction plans from the state governments and private sector. The team also collaborated with the Ministry of Finance (MOF), Bank Negara Malaysia (BNM) and Securities Commission (SC) to explore suitable energy transition financing. The development of the NETR is divided into two parts as shown in Exhibit 3.2. Part 1 outlines the 10 flagship catalyst projects and impact initiatives based on six energy transition levers, namely EE; RE; hydrogen; bioenergy; green mobility; and carbon capture, utilisation and storage (CCUS). The six levers are further supported by five enablers: financing and investment; policy and regulation; human capital and just transition; technology and infrastructure; and governance and implementation. Part 2 focuses on establishing the energy mix, GHG emissions reduction pathway, selected targets and initiatives. Targeted investments, people strategies and international cooperation planning, as well as policy and regulatory frameworks, will be strengthened to develop the talent, technology and infrastructure needed to scale-up and sustain decarbonisation efforts. 16 National Energy Transition Roadmap (NETR) Exhibit 3.2: Parts 1 and 2 of the NETR National Energy Transition Roadmap (NETR) 17 Guiding Principles There are four guiding principles of the NETR, as shown in Exhibit 3.3. The first principle highlights the importance of aligning the energy sector based on national aspirations and commitments to sustainable development. The second principle emphasises that the energy transition must be just, inclusive and cost-effective. It acknowledges the challenges that exist for low-income and vulnerable populations. The NETR aims to ensure that the benefits and opportunities from the energy transition trickle down to every segment of society, leaving no one behind. The third principle stresses the need for effective governance and a whole-of-nation approach. Collaboration among all stakeholders is crucial to create a vibrant energy industry ecosystem that supports sustainability and facilitates the transition to a low-carbon economy. The fourth principle highlights the significance of creating high-impact job opportunities and enhancing small and medium enterprises (SMEs) involvement in the ecosystem. Exhibit 3.3: The four guiding principles of NETR In terms of project evaluation, the NETR subscribes to the Climate Change and Principle-Based Taxonomy defined by Bank Negara Malaysia (BNM). In addition, the proposals are further assessed in accordance with the themes of the Twelfth Plan, namely: resetting the economy; strengthening security, wellbeing and inclusivity; and advancing sustainability. Projects and initiatives are also evaluated based on their potentials to reduce GHG emissions, provide economic opportunities, promote cost-effective solutions and deliver benefits to the rakyat. The six energy transition levers and project prioritisation criteria are as shown in Exhibit 3.4. 18 National Energy Transition Roadmap (NETR) Exhibit and 3.4: Energy transition levers project prioritisation criteria Review of Renewable Energy Policies In line with the development of the NETR, the Ministry of Economy has also collaborated with NRECC to review and update existing policies on RE, leading to the following decisions: Increase the target for installed RE capacity from 40% in 2040 to 70% by 2050. The higher target is expected to generate new economic opportunities by attracting multinational companies, especially RE 100 companies, to operate in Malaysia Expand RE development based on the concept of a self-contained system to encourage investment in the RE value chain and diversify RE programmes according to the principle of willing buyer, willing seller Scale-up the installation of solar systems in government buildings Allow cross-border RE trade through the establishment of an electricity exchange system. The establishment of RE exchange system will position Malaysia as a regional hub for RE while giving added impetus to, and building on, the ASEAN Power Grid (APG) initiative. Malaysia is currently one of the key members participating in the Lao PDR-Thailand-Malaysia-Singapore Power Integration Project (LTMS- PIP), the pathfinder to advance cross-border power trade among ASEAN Member States under the APG. The government is also cognisant of the need to bolster the national power grid to accommodate higher RE uptake. This may come in the form of future-proofing Malaysia Electricity Supply Industry (MESI) elements, including introducing smart grid features and enabling the grid for third party access. National Energy Transition Roadmap (NETR) 19 Complementary Plans Within the whole-of-nation approach, there has been a steady development of new policies and strategies to complement NETR in strengthening Malaysia’s low-carbon transition. Among others include: the Nationally Determined Contribution (NDC) Roadmap, Long-Term Low Emissions Development Strategies (LT-LEDS) and Future Proofing MESI by the NRECC the Carbon Pricing Instrument developed by the Ministry of Finance (MOF) the National ESG Industry Framework, the New Industrial Master Plan (NIMP) and the Chemical Industry Roadmap (CIR) by the Ministry of Investment, Trade and Industry (MITI) the Hydrogen Economy and Technology Roadmap (HETR) by the Ministry of Science, Technology and Innovation (MOSTI) the National Biomass Action Plan by the Ministry of Plantation and Commodities (KPK). Natural gas will continue to play a pivotal role in Malaysia’s energy landscape as the nation moves towards a low carbon economy. To this end, the Ministry of Economy is in the midst of developing the Natural Gas Roadmap (NGR) to optimise the value of indigenous natural gas resources, increase the domestic natural gas use, enhance the security of supply and access to cost-competitive natural gas, and position natural gas to support Malaysia’s energy transition. 20 National Energy Transition Roadmap (NETR) Section 4 : Energy Transition Ambition and Macro Position The NETR is rooted in Malaysia’s overarching aspirations, charting a course for the energy system that is aligned with decarbonisation targets. It strikes the right balance between environmental mitigation and the need to bolster net socioeconomic values such as GDP and job creation. NETR’s Responsible Transition (RT) scenario will support Malaysia’s pursuit of achieving net-zero as early as 2050. RT scenario represents the best-fit ambition for the nation, considering current technology developments, global trends and local context. The NETR’s RT aims to accelerate the pace of energy transition, with improved ambition across all six levers, as outlined in Exhibit 4.1. Moving forward, the government will re-calibrate ambition levels to capitalise on new and emerging technologies, potentially reviewing targets where possible. This approach follows the Paris Accord’s Global Stocktake process, which evaluates progress on meeting Paris Agreement goals and identifies any remaining gaps and opportunities for increased action. National Energy Transition Roadmap (NETR) 21 Exhibit 4.1: Targets across NETR’s six energy transition levers 22 National Energy Transition Roadmap (NETR) The stated ambition will generate significant investment opportunities across all six levers, as outlined in Exhibit 4.2. The realisation of these investments will create tangible impact for rakyat and businesses. Exhibit 4.2: Potential investment opportunities and impact of NETR’s RT Energy Eﬃciency Renewable energy Hydrogen Bioenergy Green Mobility CCUS Energy System Pathway NETR’s RT pathway is designed to accelerate Malaysia’s energy transition journey while balancing the energy trilemma. Towards this, the RT pathway will achieve the following by 2050: Increased use of RE in the power generation mix Close to fully phased-out coal from the power generation mix Broad based energy efficiency initiatives pursued, particularly from the demand side management that include optimising energy consumption across key sectors, namely residential, commercial, industrial, and transport to prevent wastage and indirectly prolong the lifespan of indigenous resources The shift to electrification and biofuels expedited in the transport sector. This RT will help Malaysia to shift from traditional, fossil fuel-based energy systems to a greener, low- carbon energy framework, as shown in Exhibit 4.3. With this transition, coal will be close to fully phased- out, while RE will increase from 4% in 2023 to 22% in 2050. Natural gas is set to play a significant role, accounting for 56% of TPES by 2050. National Energy Transition Roadmap (NETR) 23 Exhibit 4.3: Malaysia’s projected TPES by 2050 Given the importance of energy in sustaining economic growth and socioeconomic development, the NETR recognises the need to ensure progressive scaling up of RE in meeting the 70% installed capacity target in the power mix by 2050. The potential risks of over-reliance on natural gas will be mitigated by ensuring RE capacity readiness as well as developing energy storage to address RE intermittency issues. As an additional measure, Malaysia will continue to explore other non-carbon energy sources that include RE imports through regional interconnectors. Socioeconomic Outcomes The NETR’s RT pathway has been evaluated along the energy trilemma. Overall, this pathway is set to ensure eenergy security, energy equity and economic development as well as improve Malaysia’s environmental sustainability, as shown in Exhibit 4.4. Exhibit 4.4: RT impact across the Energy Trilemma 24 National Energy Transition Roadmap (NETR) Energy Security The RT aims to achieve a notable 70% RE installed capacity mix for power sector. Despite this, Malaysia will continue to maintain diversification of its power generation mix, with the power system Herfindahl- Hirschman Index (HHI) remaining stable throughout projected period to 2050. However, there are concerns about Malaysia’s growing dependence on fuel import particularly natural gas imports. Given the anticipated rise in reliance on natural gas and crude oil by 2050, there is a heightened need to focus on ensuring energy security. Moving forward, Malaysia will look to reduce this dependence on natural gas by scaling up of RE capacity and exploring potential non-carbon energy sources. In the meantime, proactive initiatives are being undertaken to secure natural gas, such as necessary infrastructure and commercial arrangements for importation, including long-term agreements to stabilise fuel imports. At the same time, it is crucial to ensure that natural gas prices for domestic consumers reflects market parity. This will enhance the attractiveness of Malaysia as an investment destination for upstream sector as well as incentivise third party suppliers to enter the domestic gas supply market, spurring the operationalisation of TPA for gas market. Energy Equity and Economic Development By 2050, Malaysia is expected to face higher system costs due to the investments required to rapidly increase RE’s installed capacity within the country’s power generation mix. Though this trajectory might see an uptick in system costs, such an increase is inevitable given the potential scenarios of higher reliance on natural gas import in the power generation mix following the projected diminishing of Malaysia’s gas reserves by 2050. Although there will be higher system costs, the RT is poised to significantly bolster Malaysia’s economic development. The energy transition will catalyse growth in nascent areas such as green mobility ecosystems, RE, energy storage, and alternative new energy ecosystems. Taking a pioneering role in these emerging areas will enhance Malaysia’s competitive edge, which will yield positive outcomes for both GDP and job creation. The RT is estimated to generate investment opportunities totalling between RM1.2 trillion and RM1.3 trillion by 2050. These investments will contribute additional GDP of RM220 billion and create approximately 310,000 green growth job opportunities in 2050. Economic benefits will be felt across the social spectrum, with medium- and low-income households expected to be the biggest beneficiaries of income gains, as shown in Exhibit 4.5. National Energy Transition Roadmap (NETR) 25 Exhibit 4.5: Socioeconomic outcomes for Malaysia The government recognises the need to carefully manage the energy transition, given the varying impact on jobs nationwide. While the energy transition will foster job creation particularly in new green growth areas, other non-green areas may experience a decline. This further underscores the importance of greening the economy in a way that is as fair and inclusive as possible for everyone, especially for communities affected by energy transition. Environmental Sustainability The RT will significantly improve Malaysia’s performance on environmental sustainability. Not accounting for the use of carbon capture in the energy sector, Malaysia will achieve 32% reduction in energy sector’s GHG emissions compared to the 2019 baseline, as shown in Exhibit 4.6. This translates to emissions reduction to 4.3 MtCO2eq per capita, from 7.9 MtCO2eq per capita in 2019. 26 National Energy Transition Roadmap (NETR) Exhibit 4.6: Projected GHG emissions reduction Utilising carbon capture and storage (CCS) in the energy sector will further bolster Malaysia’s journey towards attaining net-zero to deliver an additional 5% reduction in GHG emissions, which translates to 4.1 MtCO2eq per capita. Scale-up of CCS in the energy sector will also drive the technology to become more economically feasible in other sectors such as industrial processes and product use (IPPU). Other sectors, such as IPPU, agriculture, waste as well as land-use, land-use change and forestry (LULUCF) will play a critical role towards achieving net-zero target. Greater focus will be placed on adopting abatement levers across IPPU, waste and agriculture, while protecting natural assets in LULUCF, which functions as a natural carbon offsetting mechanism. Summary of Benefits RT’s accelerated ambition aims to not only propel Malaysia’s energy shift towards achieving the net-zero ambition, but also to generate meaningful socioeconomic outcomes for the nation through GDP growth, jobs creation and income generation in future proof green industries, as shown in Exhibit 4.7. Exhibit 4.7: Benefits of NETR National Energy Transition Roadmap (NETR) 27 Section 5: Energy Transition Levers and Key Initiatives NETR emphasises on six energy transition levers that will unlock economic opportunities and reduce impact to the environment. Of the six, EE stands out as the most important lever as it is cost effective and promotes resource optimisation. RE offers diversification from traditional fossil fuels through adoption of sustainable energy sources. The focus on hydrogen recognises its potential as a clean and emerging energy carrier that can be utilised, particularly by the transportation sector. Given that energy transition pathway is country specific, bioenergy lever leverages Malaysia’s abundant biomass resources, particularly from agriculture, offering both economic value and a cleaner energy source. Meanwhile, from demand perspective, green mobility lever addresses the significant emissions from the transportation sector and aligns with urbanisation trends, advocating for cleaner urban transportation. Lastly, CCUS offers a solution for hard-to-abate industrial emissions, with potential repurposing of Malaysia’s existing petroleum facilities. 28 National Energy Transition Roadmap (NETR) Energy Efficiency Overview EE offers effective long-term solutions to lower energy intensity and reduce CO2 emissions. It meaningfully improves all dimensions of the energy trilemma, by reducing demand to improve energy security, lowering costs for users to enhance energy equity and minimising emissions from energy production to elevate environment sustainability. EE is not a new concept for Malaysia. In 2015, the Government unveiled the NEEAP, detailing a 10- year strategy to improve EE in power consumption for residential, commercial and industrial sectors. Currently, the Plan is on track to achieve its target of reducing electricity demand by 8% by 2025. Malaysia must broaden its focus beyond just electricity and incorporate a wider range of energy outputs, such as thermal energy. The forthcoming Energy Efficiency and Conservation Act (EECA) bill, expected to be tabled in Parliament by the end of this year, marks a significant step in this direction. NETR will drive the attainment of RT Pathway 2050 that is both sustainable and able to propel economic growth through the efficient use of energy. Key Targets NETR proposes the following targets: By 2040, achieve energy savings of 21% compared to business-as-usual scenario, specifically: o Residential: 15% o Industrial and commercial: 22% By 2050, achieve energy savings of 22% compared to business-as-usual scenario, specifically: o Residential: 20% o Industrial and commercial: 23% The targets mark a significant leap from the goals previously declared in the DTN at 10% for residential and 11% for industrial and commercial by 2040. Challenges In Malaysia, the adoption of energy-efficient appliances is hindered by a lack of awareness regarding their benefits and availability, which led to scarcity of demand and supply for these products. Moreover, there is a disconnect between building owners and tenants, as owners are burdened with investing in energy- efficient upgrades while tenants benefit from the resulting cost savings. Additionally, the scope of the Minimum Energy Performance Standards (MEPS) encompasses only a narrow range of appliances. This constrains the potential for comprehensive energy savings across residential, commercial and industrial. Meanwhile, the nascent market of energy service companies (ESCOs) faces obstacles such as limited returns on investment as well as lack of demand and viable funding opportunities. National Energy Transition Roadmap (NETR) 29 Key Initiatives Energy Transition Lever: Energy Efficiency Code Initiatives Champions EE1 Improve EE awareness NRECC o Promote awareness for energy-efficient appliances and equipment ST through public awareness programmes o Redesign the 5-star labelling standards to emphasise monetary savings in addition to the technical energy savings EE2 Improve existing Minimum Energy Performance Standards (MEPS) and ST 5-star rating bands o Increase the number of MEPS-covered equipment o Establish an accelerated MEPS progression timeline for key critical appliances align with ASEAN Plan of Action for Energy Cooperation (APAEC) standards o Revise the bands for appliances with high 5-Star ratings penetration through periodic reviews EE3 Enforce mandatory audits for large commercial and industrial ST buildings o Implement mandatory investment-grade audits focusing on high- energy-consuming commercial and industrial sector o Establish reporting protocol as well as a strict monitoring mechanism EE4 Establish green building codes for energy-intensive residential and ST commercial buildings SEDA o Establish a mandatory national standard that outlines EE parameters for both new residential and commercial buildings as well as retrofit for existing building to meet a minimum Building Energy Intensity (BEI) level o Mandate disclosure of building energy performance for commercial buildings EE5 Establish an ESCO platform ST o Establish a public ESCO platform to coordinate public building retrofits with private ESCOs o streamline funding and create a single financial mechanism in the form of a revolving fund through ESCO platform EE6 Launch a major EE retrofit initiative amongst government buildings KKR o Identify energy inefficient public buildings (e.g., offices with BEI >200 JKR = ~60-70%8 of existing building) o Develop medium to long-term EE government building retrofit program and implement project via ESCO platform 30 National Energy Transition Roadmap (NETR) ESCO Platform The ESCO platform is an integrated platform for government building retrofits which connects private ESCOs with government projects, as shown in Exhibit 5.1. The central role of this platform would be to serve as an intermediary that enables amalgamation of government building retrofitting projects and comprehensive public-private coordination in domestic ESCO market, and simplifies the engagement for private ESCOs. A thriving ESCO ecosystem not only drives retrofit adoption for buildings, but further maximises energy savings potential to reduce GHG emissions. Exhibit 5.1: Proposed structure of ESCO platform and its complementary measures 1Malaysia Renewable Energy Roadmap National Energy Transition Roadmap (NETR) 31 Renewable Energy Overview Fossil fuel sources still dominate the national power landscape, and contributed 33% of Malaysia’s GHG emissions in 2019. Transitioning to low-emission RE is vital to decarbonise the national power system. It is equally crucial that Malaysia strikes the right balance between sustainability, security, and affordability as it navigates the energy trilemma towards a more resilient, low-carbon power ecosystem. Malaysia is blessed with substantial RE resources, with almost 290 GW1 of technical potential estimated across the country. Solar photovoltaic (PV) technical potential alone is estimated to reach 269 GW. Just a small fraction of this RE potential has yet been realised, with just over 9 GW of installed capacity, and greater than 95% untapped technical potential. Over the last decade, the Government of Malaysia has established long-standing programmes and supporting policies to catalyse rollout of RE technologies. These programmes have helped stimulate significant RE growth over the past decade. Since 2011, solar PV remains the most encouraging segment of the national RE landscape with an installed capacity compound annual growth rate (CAGR) of 48%, expanding from 0.1 GW to 2.6 GW. Malaysia has also successfully established itself as a major international hub for PV components manufacturing, building a globally recognised green energy industry. Six out of 10 of the world’s largest solar PV companies operate in Malaysia, listing Malaysia as one of the top exporters in the global solar PV industry. Key targets In May 2023, the Government reaffirmed its commitment to unlock economic opportunities through a low-carbon transition, setting out the ambitious target to achieve 70% RE installed capacity in the power mix by 2050. NETR aims to reinforce this ambition and inform an accelerated RE rollout by affirming two essential targets: Target 1: 70% RE installed capacity share by 2050 Target 2: No new coal power plant In alignment with these strong RE ambitions, an accelerated pathway is needed to scale RE uptake in Malaysia over the next three decades. 32 National Energy Transition Roadmap (NETR) Exhibit 5.2: Projected power system installed capacity mix 2050 NETR outlines several key observations for the dynamics of Malaysia’s power mix as the nation progresses along this pathway: Renewables will constitute the majority share of installed capacity by 2050. However, the contribution of RE to the total generation mix will be comparatively lower than fossil fuels, particularly natural gas. This reflects the inherent low-capacity factor associated with solar, compared against the high-capacity factor of gas. The share of coal-fired power generation is expected to ramp down over time, driven by natural retirement timelines of existing coal-fired power plants. No new coal-fired power generation will be developed, leading to almost complete phase out by 2045. Gas is expected to act as a lower-carbon transition fuel away from baseload coal, and will be the dominant source of fuel for baseload power. The ambition to achieve 70% RE share of installed capacity by 2050 is expected to be achieved, predominantly driven by solar PV installation. Significant solar capacity growth is required in the next three decades, with 59 GW of installed capacity by 2050. Challenges The current challenges faced by large-scale-solar (LSS) development have hindered its scalability and efficiency. The scattered development approach and lengthy permitting processes lead to higher fixed development costs, limiting the potential of LSS projects to significantly contribute to RE efforts. Regulatory barriers and a technology-agnostic LSS bidding mechanism further impedes the growth of innovative solar technologies like floating solar and agrivoltaic. These limitations highlight the need for more streamlined and supportive frameworks to encourage broader adoption of RE solutions. Additionally, issues such as prolonged land acquisition processes and the exclusivity of the Net Offset Virtual Aggregation (NOVA) programme to commercial and industrial customers limit the adoption of RE. The lack of common alignment on timing, quantification and funding mechanism of grid investment presents challenges in meeting RE targets. Overcoming grid limitations to accommodate higher RE penetration is essential, so is the development of a TPA regulatory framework to address supply-demand mismatches for corporate green power. Furthermore, the absence of RE exchange platform inhibits the potential to capitalise on price premiums associated with exporting RE and sharing of reserves. Transparent price discovery mechanisms for willing buyer-willing seller are also lacking. Addressing these multiple challenges is crucial in fostering the growth of RE on a larger scale. National Energy Transition Roadmap (NETR) 33 Key Initiatives Energy Transition Lever: Renewable Energy Code Initiatives Champions RE1 Establish solar parks for accelerated deployment of utility-scale solar NRECC o Identify suitable plots of land for development of solar parks through ST close collaboration among federal government, state governments MEESty and utility companies to enable decarbonisation of hard-to-abate ECoS industries SEDA o Enhance current LSS mechanism to improve financial sustainability for developers RE2 Promote floating solar and agrivoltaic technology o Remove existing regulatory barrier inhibiting floating solar and agrivoltaic (e.g. to amend existing hydropower power purchase agreements) o Roll out clear guidelines for floating solar and agrivoltaic o Adopt distinct bidding categories in future LSS auction to ensure fair competition RE3 Expand virtual aggregation model for rooftop solar o Expand virtual aggregation mechanism (e.g. NOVA program) to government and residential buildings for leasing and aggregation of rooftop space and sale to offtakers o Scale-up corporate and industrial solar rooftop programme RE4 Develop plan for accelerated investments of transmission and NRECC, distribution ST & TNB o Establish amount, timing and mode of funding for grid infrastructure MEESty & SEB investment to reduce grid constraints while balancing energy ECoS & SESB trilemma (Exhibit 5.3) o Provide incentives for RE development and power storage facilities to improve system flexibility and address RE intermittency RE5 Develop TPA framework for sourcing of RE NRECC o Develop TPA framework with transparent mechanism for wheeling fee ST & TNB calculation to bridge demand-supply gap for green electricity o Allow solar developers amongst Corporate Green Power Programme (CGPP) to sell excess power to the Single Buyer - unlocking additional sources of revenue and boosting investor interest RE6 Set up RE exchange hub to enable cross-border RE trading NRECC o Establish physical enabler (e.g. special purpose vehicle) to act as the ST market aggregator o Develop regulations for implementation o

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