Malaysia’s Clean Energy Impasse: When Good Intentions Meet Market Reality

• CRESS, launched in September 2024, shows slow uptake despite policy innovation
• Clear corporate demand for virtual PPAs, yet authorities remain muted on plans to expand the successful 800 MW initiative

From an outside observer’s perspective, the latest research from the Asia Clean Energy Coalition and Clean Energy Buyers Association presents a sobering paradox in Malaysia’s clean energy landscape. While the nation displays ambitious targets and implements ostensibly progressive policies, the devil lies firmly in the execution—creating a textbook case of how well-intentioned frameworks can stumble on fundamental design flaws.

The situation in Malaysia illuminates broader challenges facing Southeast Asian economies attempting to balance energy security with corporate sustainability demands. As Suji Kang [pic], Program Director at the Asia Clean Energy Coalition, aptly noted: “Corporate demand for clean energy in Asia is skyrocketing, yet many companies are held back by opaque market rules and limited access to proven procurement tools.” Malaysia’s experience provides a particularly stark illustration of this disconnect.

The Malaysian Experience: Progress Hampered by Structural Barriers

Malaysia’s renewable energy trajectory shows promise on paper. The country has achieved approximately 25% renewable energy capacity in its national energy mix as of 2023, positioning itself toward its targets of 31% by 2025 and 40% by 2035. Current projections suggest the nation could reach 36.4% renewable capacity by 2035, driven primarily by its substantial hydropower base (69.9% of renewable capacity) and growing solar installations.

However, the CEBA report reveals that Malaysia’s Corporate Renewable Energy Supply Scheme (CRESS), launched in September 2024, has experienced slow uptake (1.3GW in commitments as of mid-2025, per reports). This underwhelming market response contradicts the apparent policy innovation and suggests deeper structural issues at play.

The more telling indicator of market dysfunction emerges from Malaysia’s Corporate Green Power Program (CGPP) experience. The virtual PPA program achieved full subscription of its 800 MW allocation by November 2023 with 32 successful applicants, demonstrating clear corporate appetite for clean energy procurement. Yet instead of expanding this successful initiative to meet obvious demand, Malaysian authorities have offered no public plans for continuation or expansion.

System Access Charges: The $104 Per MWh Elephant in the Room

The most illuminating aspect of the CEBA analysis concerns Malaysia’s System Access Charges (SACs), which represent perhaps the most significant barrier to corporate clean energy adoption in the region. Current SAC rates stand at 25 sen per kWh (58 USD per MWh) for firm output projects and 45 sen per kWh (104 USD per MWh) for solar installations.

[1 MYR = 0.238 USD]

These charges alone can represent a substantial premium over typical wholesale electricity costs, but the real concern lies in their unpredictability. SACs can be revised every three years by up to 15%, creating a scenario where these fees could more than double over a typical 21-year PPA contract term. For corporate buyers seeking long-term cost certainty—the primary value proposition of PPAs—this volatility undermines the entire business case.

The lack of transparency in SAC calculation methodology compounds the challenge. Unlike best-practice jurisdictions such as Australia, the Philippines, and Taiwan, where grid access costs follow transparent cost-plus models with public disclosure of underlying components, Malaysia’s SAC structure remains opaque. Corporate energy managers cannot adequately forecast total energy costs, making informed procurement decisions virtually impossible.

The Surplus Energy Conundrum

Malaysia’s treatment of surplus renewable energy under CRESS reveals another fundamental design flaw that illustrates the gap between policy intention and market reality. Under the current framework, surplus energy production can only be sold back to the grid at a nominal rate of 8 sen per kWh (8.48 USD per MWh) when actively withdrawn by buyers. In all other instances, this surplus energy is deemed free to the system—essentially a forced donation to the grid operator.

This mechanism not only reduces project bankability but forces companies to undersize their renewable installations to match exact load requirements, limiting both flexibility and renewable energy deployment. The CEBA report suggests that Malaysia could learn from the Philippines’ net billing scheme, which provides transparent avoided-cost pricing for surplus energy. Such reforms would align Malaysia with regional best practices and improve project economics significantly.

Regional Context: Malaysia’s Standing Among Southeast Asian Peers

Placing Malaysia’s challenges in regional context, the CEBA report highlights varying approaches to corporate clean energy procurement across Southeast Asia. Vietnam has implemented the most comprehensive framework with its Decree 57/2025/N-CP, providing both physical and virtual direct power purchase agreement structures since March 2025. While Vietnam’s framework includes eligibility restrictions that exclude small-to-medium enterprises, it offers clearer market signals than Malaysia’s approach.

Thailand continues piloting PPA implementation, while the Philippines uses zonal pricing to determine transparent clearing prices. These varying approaches highlight the experimental nature of clean energy market development across the region, with each country learning from others’ successes and failures.

Eric Gibbs [pic], the Clean Energy Buyers Association’s senior vice president of global strategy, emphasized this point: “The volume of clean energy procurement by corporate buyers could grow exponentially if APAC policymakers and regulators develop power purchase agreement frameworks that are scalable, accessible, flexible, and transparent.”

The Economic Opportunity Cost

The economic implications of Malaysia’s current approach extend beyond individual corporate procurement decisions. The CEBA report indicates that Indonesia, Japan, Singapore, South Korea, and Vietnam could collectively produce $27 billion in economic output, create 435,000 new jobs, and achieve 176 million tons in carbon emissions reductions by reaching their respective 2030 renewable energy targets.

Malaysia’s substantial renewable energy potential, including 153 GW of solar capacity potential by 2050, positions the nation to capture significant benefits from improved PPA frameworks. Studies suggest that floating photovoltaic systems alone could generate sufficient energy to meet Malaysia’s entire primary energy consumption. However, current policy barriers limit the nation’s ability to translate this potential into economic reality.

Lessons from US Market Development

The CEBA report’s analysis of US market development provides instructive comparisons for Malaysia’s situation. Corporate and industrial customers in the United States surpassed 100 GW of clean energy procurement since 2014, with roughly three-fourths coming from virtual or physical PPAs. This success resulted from market liberalization in the 1990s, transparent wholesale electricity markets, and standardised contract structures.

Critically, common issues identified by corporations in Asia—including high grid usage costs, complex accounting frameworks, and inadequate settlement mechanisms for surplus energy—are not barriers to corporate offtake in the United States. This difference stems from regulations requiring independent, transparent, and efficient management of wholesale electricity markets, fair and nondiscriminatory grid access, and clear accounting rules for PPAs.

Path Forward: Policy Recommendations and Market Realities

The CEBA report’s recommendations for Malaysia appear both practical and necessary from an observer’s perspective. Reducing and stabilizing SACs over CRESS contract terms would provide the cost predictability required by both corporate buyers and project financiers. Greater transparency in SAC methodology, including disclosure of underlying cost components such as capital expenditure, operations and maintenance, power losses, and ancillary services, would align Malaysia with regional best practices.

The introduction of a regulated sell-back mechanism for surplus renewable electricity represents another critical need. The current system where surplus energy is essentially given away reduces project bankability and forces companies to undersize projects, limiting both flexibility and renewable energy deployment.

As Suji Kang concluded: “The Asia-Pacific region has an unparalleled opportunity. Corporate clean energy procurement has already tripled since 2020, reaching nearly 10 gigawatts in 2023. By expanding corporate access to clean energy, governments could unlock $27 billion in new economic output, create more than 435,000 jobs, and cut 176 million tons of carbon emissions by 2030. This is not just about climate commitments, it’s about positioning APAC economies at the forefront of the global clean energy economy.”

Malaysia’s experience demonstrates that good policy intentions are insufficient without careful attention to market design and implementation details. The nation’s clean energy transition success will ultimately depend on addressing these fundamental barriers that currently limit corporate participation in renewable energy procurement. For external observers, Malaysia’s case serves as both a cautionary tale and a potential success story—depending on how quickly and effectively policymakers can adapt their approach to market realities.