Yes. Malaysia has an established and rapidly growing renewable energy (“RE”) industry. As of December 2025, RE accounted for 31% of total installed electricity generation capacity – meeting the government’s target under the Malaysia Renewable Energy Roadmap (MyRER). The government now targets 32% by end-2026, climbing to 35% by 2030 and an ambitious 70% by 2050 under the National Energy Transition Roadmap (NETR).

Malaysia’s renewable energy market is presently dominated by solar PV and hydropower projects, with additional contributions from biomass, biogas and small hydro. Hydropower remains a significant component of Malaysia’s renewable energy portfolio, particularly in East Malaysia (Sabah and Sarawak), where several large hydroelectric projects are operational. Sarawak holds the country’s heavy hydro assets – Bakun (approximately 1700 MW to 2110 MW, among Southeast Asia’s largest), Murum (approximately 944 MW) , and the Baleh Hydroelectric Project (projected at 1,285 MW, under construction by Sarawak Energy Berhad). Together, Sarawak’s operational fleet exceeds 4,339 MW and accounts for the bulk of Malaysia’s hydro generation on a national basis.

Solar photovoltaic (PV) is the fastest-growing technology. Utility-scale solar projects developed under the Large Scale Solar (“LSS”) programme represent the most active segment of the market. Malaysia has also seen strong growth in commercial and industrial rooftop solar installations through programmes such as Net Energy Metering (“NEM”), Corporate Green Power Programme (“CGPP”), and third-party solar leasing structures, including Supply Agreement – Renewable Energy (“SARE”) arrangements. As at the end of 2025, Malaysia’s cumulative installed solar capacity exceeded approximately 5.7 GW reflecting substantial year-on-year growth, driven by successive LSS auction rounds and the NEM and Self-Consumption (SELCO) rooftop programmes.

Bioenergy — comprising biomass, biogas and waste-to-energy projects — contributes approximately 0.9 GW of installed renewable energy capacity, primarily incentivised through the Feed-in Tariff (“FiT”) scheme.

Battery Energy Storage Systems (“BESS”) represent an emerging but strategically significant asset class within Malaysia’s energy transition framework. Malaysia’s inaugural utility-scale BESS initiative under the Malaysia Battery Energy Storage System (“MyBeST”) programme contemplates an aggregate capacity of 400 MW / 1,600 MWh across four proposed 100 MW / 400 MWh projects, with commissioning targeted between 2026 and 2027.

Based on 2025 national data from Ember and the IEA , the overall electricity generation mix in Malaysia remains fossil-fuel dominated. Natural gas and coal together account for approximately 77% of total electricity generation, with renewable sources contributing approximately 22% of Malaysia’s electricity.

Malaysia has adopted a long-term national aspiration to achieve net zero greenhouse gas (“GHG”) emissions as early as 2050. The target was first formally announced by the Malaysian Government in 2021 and has since been reiterated in various national policy instruments, including the Twelfth Malaysia Plan (2021-2025) , the National Energy Policy 2022–2040, the National Energy Transition Roadmap (NETR) and Malaysia’s Long-Term Low Emissions Development Strategy. Malaysia’s principal international climate commitment is contained in its updated Nationally Determined Contribution under the Paris Agreement. Under the revised NDC, Malaysia committed to reducing economy-wide carbon intensity against GDP by 45% by 2030 relative to 2005 levels. Under its third Nationally Determined Contribution (NDC 3.0), submitted to the UNFCCC in October 2025, Malaysia committed to peak greenhouse gas emissions by 2030 and achieve an absolute reduction of 15–30 MtCO₂eq by 2035 from peak levels. This shifts NDC strategy from carbon intensity to absolute emissions reduction.

At present, Malaysia’s net zero target is principally policy-driven and does not exist as a legally binding statutory obligation under a standalone climate change legislation. However, the legal framework is developing rapidly. The National Climate Change Policy 2.0 (NCCP 2.0), launched in September 2024, establishes the master policy framework and signals the direction of forthcoming legislation. A National Climate Change Bill was released for public consultation in October 2024 , which aims to introduce legally binding GHG reduction targets, a national emissions registry, domestic carbon market governance, and an Emissions Trading System (ETS) framework. Critically, the government announced during the tabling of Budget 2026 (October 2025) that a carbon tax will be introduced on the iron, steel, and energy industries from 2026, aligned with the forthcoming National Carbon Market Policy (DPKK). The Energy Efficiency and Conservation Act 2024 (“EECA 2024”), which entered into in force on 1 January 2025, is Malaysia’s first dedicated energy efficiency legislation, introducing mandatory efficiency standards with financial penalties; its scope is limited to energy consumption rather than GHG reduction broadly.

Yes. A statutory definition exists under the Renewable Energy Act 2011 (Act 725) (“REA 2011”), which defines “renewable energy” as electricity generated or produced from renewable resources set out in the Renewable Energy (Criteria for Renewable Resources) Regulations 2011. Those qualifying resources are solar photovoltaic energy, biogas, biomass, small hydropower, and municipal solid waste. The REA provides the legal framework for the FiT scheme and associated feed-in approvals administered by Sustainable Energy Development Authority (“SEDA”).

A broader definition appears in Section 2 of the Energy Commission Act 2001 (Act 610) (“ECA 2001”): “energy which is not depleted when used and includes energy obtained from energy sources such as biomass, hydro power, solar power, geothermal power, wind power, waves and tides.” This definition is descriptive and encompasses technologies beyond those currently commercially deployed in Malaysia.

Sarawak and Sabah operate parallel frameworks. Sarawak regulates electricity supply under the Sarawak Electricity Ordinance, supplemented by the Distribution of Gas (Amendment) Ordinance (in force 1 March 2025) which extends to hydrogen . Sabah enacted the Electricity Supply Enactment 2024 and the Sabah Renewable Energy Enactment 2024 , reflecting the constitutional autonomy of both states in electricity supply matters.

Malaysia’s RE regulatory landscape is principally governed by multiple federal bodies. The Ministry of Energy Transition and Water Transformation (“PETRA”) is the principal federal policy ministry for energy transition, NETR and the GREENS MADANI initiative (such as CRESS and CGPP). The Energy Commission Malaysia (Suruhanjaya Tenaga) (“EC”), established under the Energy Commission Act 2001, is the statutory regulator for electricity generation, transmission, and distribution in Peninsular Malaysia and Sabah. Its functions include issuing generation and supply licenses, administering competitive bidding programmes (including the LSS large-scale solar auctions and the MyBeST battery storage tender), sets technical standards, and regulates tariffs.

SEDA established under the Sustainable Energy Development Authority Act 2011, manages the FiT and NEM programmes, maintains the Malaysian Renewable Energy Certificate (mREC) registry under the I-REC framework, and formulates the MyRER. The Single Buyer – a division of the EC – functions as the wholesale electricity market operator, purchasing electricity under PPAs from all licensed generators. The Ministry of Natural Resources and Environmental Sustainability (“NRES”) leads on NDC compliance and the National Climate Change Bill.

On the private sector side, Tenaga Nasional Berhad (“TNB”) is the national utility with a monopoly distribution and transmission network in Peninsular Malaysia, is simultaneously the dominant grid operator and (through its subsidiary TNB Renewables Sdn Bhd (TRe)) one of Malaysia’s largest RE developers. TNB recently issued a landmark RM1.05 billion ASEAN Green SRI Sukuk Wakalah to finance Malaysia’s largest solar project (500 MWac, Kuala Muda, Kedah). Petroliam Nasional Berhad (PETRONAS), the national oil and gas company, is increasingly pivoting to RE and decarbonisation, including green hydrogen and CCUS, through its joint ventures with TNB. Sarawak Energy Berhad (SEB) is the state-owned utility for Sarawak, primarily developing large hydropower. In the solar development and engineering, procurement, construction and commissioning (“EPCC”) space, key domestic players include Solarvest Holdings Berhad, Samaiden Group Berhad, Cypark Resources Berhad, and YTL Power International, most of which have participated actively across various LSS programme rounds, commercial and industrial rooftop solar projects, and corporate renewable energy procurement initiatives.

Malaysian businesses have access to a growing menu of RE procurement options, broadly divided into on-site (behind-the-meter) and off-site (virtual) mechanisms.

The most operationally straightforward on-site options are the Solar Photovoltaic Installation for Self-Consumption in Peninsular Malaysia (“SELCO”) allows businesses to install solar PV for their own use without exporting to the grid. The 2025 SELCO guidelines removed the 85% capacity limit for non-domestic users, permitting installations up to 100% of maximum demand , and expanded eligible installation types to include ground-mounted and floating solar and the agricultural sector. No contractual counterparty beyond the installer is required, it is the most straightforward option operationally.

Solar Accelerated Transition Action Programme in Peninsular Malaysia (“Solar ATAP”): replaced the Net Energy Metering programme (“NEM”) when NEM concluded in June 2025. Launched January 2026 , it removes the quota cap that constrained NEM and allows non-domestic users to export surplus generation to the grid, credited at the System Marginal Price. Like SELCO, it suits businesses that can generate on their own premises rooftops, carparks, unutilised land without needing to contract directly with a renewable energy developer.

On the off-site side, the Corporate Renewable Energy Supply Scheme (“CRESS”) allows corporate consumers to enter Virtual Power Purchase Agreements (VPPAs) with solar power producers directly via the grid. Prices are bilaterally negotiated. More significant in scale is the CRESS, introduced in September 2024, which allows large consumers to enter Bilateral Energy Supply Contracts (BESCs) directly with TNB for solar-backed RE delivered via the grid. At the simpler end of the spectrum, the Green Electricity Tariff (GET) allows any consumer to purchase Malaysian Renewable Energy Certificates (mRECs) at a premium above their standard tariff, providing a straightforward Scope 2 accounting solution without any bespoke contractual arrangement.

The most significant emerging development is the CRESS off-site corporate PPA model. In June 2025, DayOne Data Centers signed Malaysia’s first BESC under CRESS with TNB, securing up to 500 MW of solar-backed RE over 21 years, marking a structural shift in how large Malaysian businesses procure RE. With over 3,000 MW allocated under CRESS as of 2026, largely by data centre operators and multinationals driven by ESG and Scope 2 reduction obligations, CRESS represents the single most consequential development in Malaysian corporate RE procurement.

Business engagement with renewable energy in Malaysia has shifted materially in the 12 months, driven by a convergence of policy, commercial and cost factors.

The most significant commercial development is the data centre boom. By September 2025, TNB had signed 49 Electricity Supply Agreements with data centre operators representing 7.1 GW of committed future demand . Electricity consumption from data centres reached 3% of total grid demand in the first nine months of 2025 – a threefold year-on-year increase – driving overall commercial electricity demand up 7.7% year-on-year. Large data centre operators are responding by actively pursuing CRESS and CGPP off-site corporate PPAs to meet sustainability commitments and hedge against future tariff increases.

From a policy perspective, the retail electricity tariff increase of 14.2% from 1 July 2025 , reflecting the withdrawal of fuel-cost cross-subsidies – has materially improved on-site solar economics, catalysing a wave of SELCO and NEM applications from commercial and industrial consumers. The announcement of a carbon tax on energy-intensive industries from 2026 , the successful launch of CRESS with its first BESC in June 2025 , the completion of the LSS PETRA 5+ tender (2 GW, June 2025), and the commencement of the Solar ATAP programme have all accelerated market activity. Supply chain pressure from global customers, particularly through CSRD and CBAM obligations, has made Scope 2 RE procurement a business-critical priority for Malaysian manufacturers in the E&E, semiconductor, and palm oil sectors. Combined with mandatory ESG reporting for Bursa Malaysia-listed companies and supply chain pressure from multinational customers operating under RE100 (the global corporate 100% renewable energy commitment initiative) and EU’s Carbon Border Adjustment Mechanism (“EU CBAM”) which prices embedded carbon in goods sold into the EU, these pushed RE procurement from a sustainability communications exercise toward something with a finance team attached to it.

Discussions around carbon reduction have moved from aspirational to operationally mainstream in Malaysia’s corporate sector, though maturity varies significantly by industry and company sizes. At the top of the market – government-linked companies (GLCs), public-listed companies, foreign multinationals, and large manufacturers in export-oriented sectors – sustainability reporting and Scope 1, 2 and 3 disclosure are now standard, driven by Bursa Malaysia’s mandatory climate disclosure requirements (aligned with Task Force on Climate-related Financial Disclosures (TCFD)) and the Securities Commission’s sustainability reporting framework.

Bank Negara Malaysia’s Climate Change and Principle-based Taxonomy shapes how financial institutions assess and price climate-related exposures. For large multinational manufacturers in electronics, semiconductors, and data centre infrastructure, external pressure compounds domestic requirements, RE100 commitments, Science Based Targets initiative (SBTi) frameworks, and EU CBAM exposure have pushed RE procurement and carbon reduction from the sustainability function into commercial and procurement decisions.

Political and regulatory support has intensified markedly in the past two years. The EECA 2024 , introduces mandatory energy audits, energy management systems, and energy efficiency performance standards for designated industrial and commercial consumers. Non-compliance carries enforcement action and financial penalties. The NETR Phase 2 initiatives include new energy transition grants, concessional financing through the National Energy Transition Fund (NETF) and Malaysia Debt Ventures Berhad, and the National Energy Efficiency Action Plan. The Bursa Carbon Exchange (BCX), established in 2022, provides a voluntary carbon trading marketplace, and under the 13th Malaysia Plan (2026–2030) a domestic ETS is planned. The forthcoming National Climate Change Bill is expected to create legally binding GHG targets for the first time, completing the transition from aspirational policy to statutory obligation.

The rights and approvals framework in Malaysia differs principally based on project size, energy type, and geographic location (Peninsular Malaysia, Sabah, or Sarawak).

As a general principle for Peninsular Malaysia, projects above 30 MW require a Generation Licence from the Energy Commission under the Electricity Supply Act 1990. The licence conditions govern technical parameters, grid connection terms, and commercial requirements. A Power Purchase Agreement with the Single Buyer (through TNB) is a condition of the licence. Projects below 30 MW – under the FiT, NEM, or SELCO programmes – do not require a full generation licence but must obtain programme-specific approvals from SEDA (FiT/NEM) or the EC. Grid interconnection is subject to TNB’s Grid Connection Application process in Peninsular Malaysia, governed by the Grid Code and Distribution Code. Sarawak operates under a separate electricity ordinance (Electricity Ordinance, Sarawak Cap. 9) administered by Sarawak Energy Berhad; federal RE programmes are not applicable there.

By energy source – Large-scale solar projects are procured under the LSS competitive tender programme administered by the EC. EIA approval under the Environmental Quality Act 1974 is required, and land use conversion from agricultural to industrial/commercial category requires state authority approval. Mini-hydro projects in Peninsular Malaysia are eligible for FiT; large conventional hydro is developed under separate state-level arrangements (particularly Sarawak). Offshore wind currently has no dedicated regulatory framework in Malaysia; developers must navigate the Exclusive Economic Zone Act 1984 and various maritime approvals. The Electricity Supply (Amendment) Bill 2025 has strengthened the EC’s authority over cross-border electricity trade, which will be relevant to offshore wind interconnection. For hydrogen, no dedicated legislation has been enacted; projects are subject to ad hoc approvals under the Gas Supply Act 1993 and the Petroleum Development Act 1974 as applicable. The Carbon Capture, Utilisation and Storage Act 2025 (CCUS Act), enacted 25 March 2025, establishes a comprehensive licensing framework for CCUS in Peninsular Malaysia and Labuan, requiring approvals from the Malaysia CCUS Agency at each stage of the value chain (capture, transport, storage assessment, and permanent storage). BESS is expressly regulated as a licensed activity under the amended ESA.

The Malaysian government is directly and substantially involved in the RE sector through several mechanisms. The EC conducts competitive LSS auction rounds for utility-scale solar projects. The most recent rounds include LSS PETRA 5+ (2 GW), while LSS 6 is currently underway and is expected to be rolled out in the second quarter of 2026. Successful bidders under the LSS programme are required to entered into long-term Power Purchase Agreements (typically 21 years) with TNB as Single Buyer, being the sole off-taker in Peninsular Malaysia’s wholesale electricity market. In addition, the EC also conducted Malaysia’s inaugural BESS tender (MyBeST), targeting 400 MW/1,600 MWh across four projects for commercial operation by 2026/2027. The Solar ATAP programme is a government-subsidised rooftop solar programme for domestic consumers that succeeds the NEM scheme. CRESS is designed and administered by PETRA and implemented through TNB.

TNB Renewables Sdn Bhd (“TRe”), a wholly owned subsidiary of Tenaga Nasional Berhad (a government-linked company), is Malaysia’s largest RE developer, with significant solar capacity and growing international ambitions. Sarawak Energy Berhad, wholly owned by the Sarawak state government, is the principal developer of hydropower in East Malaysia. PETRONAS, wholly owned by the federal government, is increasingly investing in green hydrogen, CCUS, and offshore energy transition assets, including through joint ventures with TNB on the Kenyir project.

Malaysia’s renewable energy regulatory framework differs between Peninsular Malaysia, Sabah and Sarawak due to constitutional and regulatory decentralisation in the electricity sector.

In Peninsular Malaysia, the foundational statutory framework comprises the Electricity Supply Act 1990 (“ESA 1990”), most recently amended by the Electricity Supply (Amendment) Bill 2025 – which granted the EC authority over cross-border electricity trade and expressly provided for BESS as a regulated activity; the REA 2011 – which provides the legal basis for the FiT scheme and SEDA’s mandate, supplemented by the Renewable Energy (Criteria for Renewable Resources) Regulations 2011 and related subsidiary legislation; the Sustainable Energy Development Authority Act 2011 (SEDA Act); and the ECA 2001.

Two significant new statutes entered into force in 2024–2025. The EECA 2024, which came into force on 1 January 2025, is Malaysia’s first dedicated energy efficiency legislation, introducing mandatory energy audit requirements, energy management systems, and performance standards across industrial, commercial, and residential sectors. The Carbon Capture, Utilisation and Storage Act 2025 (“CCUS Act”), enacted 25 March 2025, establishes a comprehensive regulatory framework for the CCUS value chain in Peninsular Malaysia and Labuan, creating the Malaysia CCUS Agency and providing a post-closure stewardship fund. By 2030, three CCS hubs capable of storing 15 MTPA of CO₂ are expected to be operational.

However, Sabah and Sarawak each maintain distinct electricity regulatory structures and utility arrangements. Sarawak regulates electricity supply under the Sarawak Electricity Ordinance, read together with the Distribution of Gas (Amendment) Ordinance (in force 1 March 2025), which extended the state’s gas licensing regime to hydrogen generation, storage, transportation, and export. Sabah enacted the Electricity Supply Enactment 2024 and the Sabah Renewable Energy Enactment 2024, reflecting both states’ constitutional autonomy over electricity supply matters.

Anticipated legislation includes the National Climate Change Bill (under public consultation), which will introduce legally binding GHG targets, a national emissions registry, and domestic ETS governance. Dedicated offshore wind regulations and hydrogen legislation are anticipated as these sectors develop under NETR Phase 2. Separately, carbon market legislation is anticipated to provide the statutory architecture for the carbon tax announced in Budget 2026 (RM 35–45 per tonne from 2026) and to establish a domestic carbon trading mechanism.

Malaysia operates a multi-layered incentive framework:

Guaranteed Offtake Programmes

FiT, administered by SEDA under the RE Act 2011, provides a guaranteed purchase price for electricity generated from biogas, biomass, and small hydropower projects under 21-year REPPAs. Solar PV was removed from the FiT in 2016. FiT 2.0, revised in 2025, introduced a two-phase tariff: SEDA sets the rate for the first ten years; developers bid competitively for the remaining eleven.

The LSS programme provides 21-year PPAs with the Single Buyer for utility-scale solar awarded through competitive bidding. Six rounds have been completed. The PPA structure effectively transfers demand risk from the developer to a government-linked counterparty.

Corporate Access Incentives

The Renewable Energy Fund (KWTBB) levy of a 1.6% charge on electricity tariffs that funds the RE Fund is waived for consumers participating in CRESS, the Green Electricity Tariff, and Community Renewable Energy Aggregation Mechanism (CREAM). This reduces the effective cost of corporate RE procurement through those channels.

Tax Incentives

The Green Investment Tax Allowance (“GITA”) provides a 100% tax allowance on qualifying capital expenditure covering solar PV, BESS, green buildings, and EV charging infrastructure, offsettable against up to 70% of statutory income. Unused allowances carry forward. It operates in two categories: GITA Asset (for own-consumption assets, applied through MGTC) and GITA Project (for green technology projects for business purposes, applied through MIDA). Eligible CAPEX must be incurred between 1 January 2024 and 31 December 2026.

The Green Income Tax Exemption (“GITE”) for Solar Leasing provides an income tax exemption for qualifying companies engaged in solar leasing under the NEM programme, now extended under Solar ATAP.

Financing Support

The Green Technology Financing Scheme (GTFS 5.0) offers a government guarantee of 60%–80% on the green component of financing from participating financial institutions, with an interest rate rebate of 1.5% per annum. Total allocation is RM 1 billion; the scheme runs to 31 December 2026. It has supported over 29 commercial banks and development finance institutions in extending green project financing.

Capital Market Incentives

The Securities Commission’s SRI Sukuk Grant Scheme covers up to 90% of external review costs for qualifying green or sustainability sukuk issuances, subject to a maximum of RM 300,000 per issuance, with income tax exemptions on issuance costs. Malaysia issued the world’s first green sukuk in 2017 and remains a leading market for sustainable Islamic finance instruments.

Disincentives

Two structural constraints work against RE investment. The 49% cap on foreign equity in RE generation projects limits access to international capital and increases reliance on domestic bank financing, which operates at smaller ticket sizes and shorter tenors than international project finance.

The system access charge under CRESS: 25 sen/kWh for firm supply (solar with battery storage) and 45 sen/kWh for non-firm supply, adds materially to the cost of corporate RE procurement relative to the standard grid tariff for consumers whose demand profile makes battery-backed supply impractical.

Malaysia’s electricity pricing dynamics are significantly influenced by the structure of its natural gas industry, which remains a key input fuel in the power generation mix.

Malaysia’s natural gas sector is highly centralised and dominated by PETRONAS, which acts as the upstream producer and principal gas aggregator. In Peninsular Malaysia, gas is supplied to power producers under a regulated gas pricing framework administered through a combination of government policy and PETRONAS supply arrangements.

Gas-fired generation continues to form a major component of the marginal cost of electricity in Peninsular Malaysia. As a result, electricity tariffs are structurally influenced by:

• domestic regulated gas prices;
• global LNG import parity pricing (increasingly relevant as Malaysia transitions into a net gas importer in certain periods); and
• fuel cost pass-through mechanisms embedded in tariff-setting, such as the Imbalance Cost Pass-Through (“ICPT”) mechanism administered by the Energy Commission.

Accordingly, fluctuations in gas prices, particularly LNG-linked pricing, have a direct impact on electricity tariff adjustments, with gas effectively functioning as the marginal price setter in the system.

At present, there is no complete structural decoupling of renewable electricity pricing from gas prices in Malaysia’s wholesale electricity market, primarily because

• electricity tariffs remain centrally regulated; and
• gas-fired generation continues to set the marginal clearing price in the system.

Unlike liberalised markets operating under a merit-order pricing mechanism (such as certain European electricity markets), Malaysia does not explicitly index renewable energy prices to gas-fired marginal generation costs.Instead, RE projects under LSS, CRESS, and CGPP are typically procured through long-term, fixed or formula-based tariffs, thereby providing price certainty to offtakers and partially insulating renewable procurement from short-term fuel price volatility.

In that context, the “de-linking” debate seen in liberalised markets is less pronounced in Malaysia. However, the broader system remains indirectly exposed to gas price movements, particularly through the financial position of the national utility, TNB, and its ability to fund grid expansion and renewable integration.

With respect to coal, Malaysia’s policy direction under the NETR commits to retiring existing coal-fired plants by 2044 . As coal capacity exits, gas is the most likely interim replacement for dispatchable baseload generation, which reinforces rather than reduces the gas–electricity price relationship in the medium term. The 70% RE installed capacity target by 2050 should, over the longer horizon, reduce fuel cost exposure structurally but that reduction is a function of how much variable RE displaces gas dispatch, not of any deliberate pricing reform.

Grid

Grid capacity constraints and connection delays represent the most significant systemic barrier to renewable energy development in Malaysia. The Peninsular transmission and distribution network was historically designed to support a centralised, dispatchable generation model and has faced increasing pressure from the rapid expansion of intermittent solar PV capacity. As installed solar capacity has increased significantly in recent years (estimated at approximately 2.5 GW in Peninsular Malaysia as of mid-2025), grid congestion and generation curtailment are emerging operational constraints. To address this, TNB is investing RM 42.8 billion in grid upgrades under RP4 (2025–2027). However, market participants continue to note that the pace of renewable energy deployment, particularly solar PV and corporate renewable energy projects, is advancing more quickly than the rate of grid infrastructure expansion.

Permitting

Permitting complexity presents a second major challenge. RE project development requires approvals from multiple agencies (EC for generation licence/LSS award, state authority for land use conversion, Department of Environment for EIA, local authority for building permits, TNB for grid connection) without a unified one-stop permitting process. Coordination between federal and state jurisdictions causes delays, particularly for ground-mounted solar on agricultural land.

Foreign investment restrictions

Malaysia is generally open to foreign investment in renewable energy, and there are no blanket prohibitions on foreign participation. However:

• certain assets (particularly land-intensive or strategic infrastructure) may be subject to state-level restrictions;
• participation in regulated utility activities remains limited; and
• project ownership structures are often influenced by licensing, procurement rules, and local participation expectations.

Accordingly, foreign investors typically invest through joint ventures with local developers or via project-specific SPVs.

Counterparty credit and offtake certainty

Restricted corporate RE access outside government programmes – corporate PPAs are ring-fenced to the NEM, CGPP, and CRESS programmes and are unavailable as a freely negotiated bilateral arrangement – limits market liberalisation. The credit quality and bankability of CRESS and CGPP off-takers is a lender concern for project finance. In Sarawak, the regulatory separation from federal programmes (NEM, LSS, CGPP, CRESS) means businesses operating there must navigate a materially different procurement environment. The absence of dedicated regulatory frameworks for offshore wind and hydrogen remains a significant barrier to investment in those sectors.

• Engineering, Procurement, Construction and Commissioning Contract
• Operations and Maintenance Agreement
• Offtake agreement (such as Power Purchase Agreement or Renewable Energy Power Purchase Agreement; BESC or Supply Agreement – Renewable Energy)
• Project finance agreements (such as facility agreements, security documents etc)
• Leases, easements, land acquisition or site control arrangements
• Grid connection and utility agreements
• Investment agreements (such as consortium agreement, joint venture agreement etc)
• Equipment supply agreements

Malaysia imposes strict licensing requirements and regulated under ESA 1990 and domestic priority obligations on the import and export of RE. Malaysia has in May 2023 lifted its ban on RE exports, originally imposed in 2021 banned the export of RE to attract more development in its renewable sector. In practice, Malaysia has not historically operated as a material importer or exporter of electricity on a commercial scale. Any cross-border electricity exchange is conducted on a limited and controlled basis, primarily through bilateral arrangements at government level. Two active interconnections are in operation, with Thailand to the north and Singapore to the south. Both are used, though neither involves large-scale RE-specific trading volumes. The Electricity Supply (Amendment) Bill 2025 now grants the EC express authority over cross-border electricity trade, formalising the regulatory framework for future interconnection projects, including proposed Peninsular Malaysia–Sumatra and Sabah–Kalimantan links as part of the ASEAN Power Grid initiative . The Bursa Carbon Exchange supports cross-border renewable energy certificate trading through its collaboration with the I-REC Standard Foundation.

The EU Net Zero Industry Act (NZIA) (Regulation 2024/1735) does not apply to Malaysia, but its provisions on strategic technology supply chains and public procurement preferences for domestically manufactured RE components affect Malaysian solar manufacturers seeking to export modules to the EU market. Malaysian-origin panels are generally not subject to the anti-dumping duties applied to Chinese-origin panels, providing a potential competitive advantage; however, NZIA supply chain resilience requirements may lead EU buyers to seek additional due diligence on upstream components.

Similarly, the US “Foreign Entity of Concern” (FEOC) regulations under the IRA and related Treasury guidance have a more direct impact on Malaysian solar manufacturers and exporters. In addition to existing trade measures such as anti-dumping and countervailing duties and reciprocal tariff regimes, Malaysian exporters are exposed to increasingly stringent supply chain compliance requirements in order to access the U.S. market. The OBBBA’s FEOC introduces additional restrictions by disqualifying certain clean electricity projects from U.S. tax credits where specified components are linked to foreign entities of concern, including Chinese-owned or Chinese-licensed entities, regardless of the jurisdiction in which final assembly takes place. This has significantly increased the importance of end-to-end supply chain traceability, particularly in relation to upstream inputs such as polysilicon, wafers, and photovoltaic cells.

RE deployment in Malaysia has been influenced in the past 12–24 months by a combination of global macroeconomic conditions and sector-specific supply chain and financing dynamics, although the impact has been more indirect than in liberalised subsidy-driven markets.

US trade policy on solar

Malaysia is one of the world’s largest solar panel manufacturers, and US anti-dumping and countervailing duty investigations on crystalline silicon photovoltaic products from Southeast Asian countries including Malaysia have created ongoing export uncertainty for domestic manufacturers. The practical consequence has been supply chain restructuring pressure and reduced exposure to the US market for affected exporters.

Panel price reversal

Through 2024 and into early 2025, falling global panel prices driven by Chinese overcapacity materially reduced EPCC costs for Malaysian LSS projects. That dynamic is now reversing. China reduced its solar PV export tax rebate from 13% to 9% in December 2024 and announced complete abolition effective 1 April 2026 . For Malaysian LSS projects currently in procurement or early construction, this represents an upward pressure on EPCC costs that was not present when earlier rounds were priced.

The One Big Beautiful Bill Act

The OBBBA was signed into US law on 4 July 2025. Among its RE-specific provisions, it terminates the investment tax credit and production tax credit for wind and solar projects placed in service after 31 December 2027, subject to a carve-out for projects that began construction before 4 July 2026. It also introduced tighter FEOC restrictions, higher domestic content thresholds for bonus credits, and denied residential solar leasing credits.

For Malaysia, the direct legal effect is nil, Malaysian developers and consumers are not IRA credit eligible. The indirect channels are more significant. The OBBBA creates uncertainty about the pace and scale of US clean energy investment, which affects global capital flows into RE and may redirect some international project finance capital away from markets where US institutional investors had been active. It also accelerates pressure on Malaysian solar manufacturers with Chinese-connected supply chains to demonstrate FEOC compliance if they wish to remain in US-adjacent supply networks.

Data centre hyperscaler investment

North American hyperscalers committed USD 23.3 billion to Malaysia’s data centre and digital infrastructure sector in the first ten months of 2024, partly driven by geopolitical diversification of supply chains away from China. This has been a net positive for Malaysia’s digital economy, but the resulting grid demand pressure of 49 ESAs signed with TNB as of September 2025 representing 7.1 GW of committed future demand creates structural grid constraints that affect RE deployment and access for all consumers, as addressed in Q21.

Middle East conflict

One of the principal impacts has been continued volatility in global solar supply chains arising from geopolitical tensions, including the conflict in the Middle East. In particular, heightened geopolitical instability and disruptions in key shipping corridors (including the Red Sea region) have resulted in increased freight costs, longer lead times, and greater logistical uncertainty in the importation of solar modules and related electrical equipment into Malaysia.

These pressures have been compounded by broader upward movements in key input costs across the solar value chain. Silver, a critical input in photovoltaic cell manufacturing, has experienced significant price increases in 2025, contributing to higher cell production costs. Aluminium prices have also trended upward, increasing costs associated with panel frames, mounting systems, and other balance-of-system components. In addition, China’s removal of the 9% VAT export rebate on photovoltaic products with effect from 1 April 2026 has further contributed to upward pricing pressure on solar modules, with market adjustments already reflected in higher contract pricing since late 2025.

Collectively, these factors have begun to materially impact EPCC pricing and execution. EPCC contractors have generally revised pricing upwards, contingency provisions have widened, and project financial models premised on historically low module prices are being re-evaluated. For projects approaching financial close or still in early development, increased costs for modules, mounting systems, logistics, and other balance-of-system components have compressed project margins and affected bankability assumptions. Developers who secured earlier procurement arrangements at fixed or hedged pricing levels have generally been better insulated from these cost escalations, while others remain exposed to ongoing repricing pressures in the market.

Large-Scale Solar (LSS5, LSS6)

The two most recent LSS rounds represent the largest solar procurement in Malaysia’s history. LSS5 (LSS PETRA) awarded 1,904 MW across 27 projects at an average tariff of RM0.170/kWh; LSS6 (LSS PETRA 5+) awarded 1,975 MW across 13 projects at RM0.152/kWh, per the Energy Commission’s November 2025 programme statement. Projects are in various stages of development and construction, with LSS5 commissioning running through 2026–2027.

Hybrid Hydro Floating Solar and Green Hydrogen Hub (Tasik Kenyir)

In July 2025, PETRONAS, TNB, and Terengganu Inc. launched an integrated Hybrid Hydro Floating Solar and Green Hydrogen Hub initiative at Tasik Kenyir, Terengganu. The programme targets 2.5 GW of floating solar co-located with existing hydropower infrastructure, with associated green hydrogen, methanol, and ammonia production downstream. TNB is targeting commissioning of up to 1 GW of floating solar by end-2026. This is the most ambitious integrated RE and green hydrogen project announced in Peninsular Malaysia to date.

MyBeST: Malaysia Battery Storage Tender

The Energy Commission shortlisted four bidders in December 2025 for the MyBeST programme: four grid-scale battery storage projects in Peninsular Malaysia, each sized at 100 MW/400 MWh, totalling 400 MW/1,600 MWh. Commissioning is targeted for 2027. MyBeST is Malaysia’s first competitive open tender for grid-scale energy storage and is designed to provide grid stabilisation services as variable solar penetration increases.

Baleh Hydroelectric Project: Sarawak

Sarawak Energy Berhad is developing the Baleh Hydroelectric Project (1,285 MW) in Sarawak. On commissioning, it will bring Sarawak’s total hydropower installed capacity to approximately 4,737 MW, reinforcing the state’s position as the centre of Malaysia’s large hydro base.

Sarawak Hydrogen Hub (H2ornbill and H2biscus, Bintulu)

SEDC Energy Sdn Bhd is leading two hydrogen production projects in Bintulu in partnership with Gentari (PETRONAS), Samsung Engineering, Posco, and Lotte Chemical. Together, H2ornbill and H2biscus target a combined output of 240,000 tonnes per year of green hydrogen and derivatives. Both projects are advancing through front-end engineering and design phases, with commissioning targeted for 2027, though offtake commitments at scale remain the critical bankability variable for both.

BESS deployment in Malaysia is at an early but rapidly evolving stage. The dominant current model for utility-scale BESS is standalone (procured under the MyBeST programme as a distinct grid service asset), but co-located solar+BESS structures are gaining traction. The Sarawak 310 MWp + 620 MWh dispatchable RE plant and the floating solar components of LSS PETRA 5+ (which carried BESS requirements) signal a move toward hybrid models. Precise market-wide data on the standalone/co-located split is not publicly available, but industry participants estimate co-located and hybrid structures will represent a growing majority of future BESS deployments as grid firming requirements intensify.

Three primary business models are emerging. For grid-scale standalone BESS, the revenue driver is ancillary services (frequency control, spinning reserve) under the EC’s ancillary services market rules currently under development. For co-located solar+BESS, the model improves the dispatchability of solar and can increase the effective capacity credit awarded in grid planning. For commercial and industrial (C&I) behind-the-meter BESS, rising retail tariffs and time-of-use pricing signals are improving the economics of peak-shaving and demand management.

BESS financing remains more structurally complex than pure solar project finance. Lenders require longer manufacturer warranties (commonly 15–20 years), independent technical assessments of degradation curves and cycle life, and conservative debt service cover ratios. The government-backed revenue stream under MyBeST (analogous to a capacity payment) has been important in enabling BESS project finance. The Sarawak 310 MWp + 620 MWh project will provide a significant precedent for future hybrid financing in Malaysia.

In Malaysia, offshore wind and hydrogen remain at an early stage of commercial development. For offshore wind, Malaysia currently lacks a dedicated regulatory framework. Malaysia’s offshore wind portfolio primarily focuses on cross-border development and research rather than domestic utility-scale generation because average wind speeds in Malaysian waters are generally low. The offshore wind energy project linking Vietnam to Peninsular Malaysia is expected to generate up to 2,000 MW of capacity by 2034, enhancing the country’s renewable energy capabilities. Building investor and lender confidence will require: a dedicated offshore wind legislation or ministerial policy statement providing a clear permitting pathway covering seabed rights, site exclusivity, EIA requirements, and grid connection obligations; a marine spatial planning framework to manage competing uses (fishing, shipping, oil and gas operations) within Malaysia’s Exclusive Economic Zone; development of competitive offshore wind tender rounds analogous to the LSS programme, with government-backed off-take arrangements to underpin project finance; committed grid upgrade investment to connect offshore capacity to onshore load centres; and internationally recognised certification and metocean standards for the South China Sea environment. The EC’s new authority over cross-border electricity trade (Electricity Supply (Amendment) Bill 2025) lays a partial foundation, but primary legislation specific to offshore wind remains the critical gap.

At the federal level, Malaysia does not currently have hydrogen-specific primary legislation. Hydrogen-related activities are instead regulated through a combination of existing energy, petroleum and electricity laws, depending on the nature of the project. In particular, hydrogen production and distribution activities may fall within scope of the Gas Supply Act 1993; upstream and certain midstream hydrogen activities involving petroleum-derived resources remain subject to licensing and regulatory oversight under the Petroleum Development Act 1974, administered through PETRONAS; power-to-X applications (including green hydrogen production via electrolysis) may also intersect with the electricity regulatory framework under the ESA 1990. Strategically, hydrogen has been identified as one of the key pillars under the NETR, which sets out hydrogen as one of the priority energy transition levers and contemplates the development of catalytic hydrogen projects under federal coordination. In addition, the recently enacted CCUS legislation provides an adjacent enabling framework, particularly relevant for blue hydrogen and broader carbon abatement value chains.

In contrast, Sarawak has adopted a more developed and jurisdiction-specific regulatory approach. The state has introduced targeted legislative amendments through the Distribution of Gas (Amendment) Ordinance, which expressly extends Sarawak’s gas regulatory regime to cover hydrogen-related activities, including generation, storage, transportation and export within the state. This amendment expressly extends Sarawak’s gas licensing regime to hydrogen generation, storage, transportation, and export within the state, and enables the state government to set rates, levies, and charges for hydrogen-related activities. This legislative development is supported by the Sarawak Hydrogen Economy Roadmap (SHER, launched May 2025) provides a strategic framework through 2035.

The standard financing structure for utility-scale RE projects in Malaysia is limited-recourse or non-recourse project finance, where the revenue certainty provided by a government-backed PPA (under LSS) or a creditworthy corporate BESC (under CRESS) underpins bankability. Security packages typically include a fixed and floating charge over project assets, assignment of all material project documents (PPA/BESC, EPCC contract, O&M agreement, land lease), a debt service reserve account, and a Direct Agreement between lenders, the project company, and key counterparties providing step-in and substitution rights.

A distinctive feature of Malaysian RE finance is the prominent role of the Islamic capital markets. Malaysia pioneered the global green sukuk market, with the world’s first green sukuk issued by Tadau Energy in 2017 (RM 250 million, for an LSS solar project). Annual green sukuk issuances in Malaysia reached RM 11.9 billion in 2023 — a nearly nine-fold increase from 2017. The most recent landmark transaction is TNB’s RM1.05 billion ASEAN Green SRI Sukuk Wakalah (May 2026) for the Kuala Muda solar plant, structured under the Securities Commission’s SRI Sukuk Framework. TNB has also established the first Transition Finance Framework by a utility in ASEAN, enabling issuance of sustainability-linked instruments for emissions-reduction projects.

For mid-market projects, club financing from domestic commercial banks and development finance institutions is common. Concessional government financing is available through Bank Pembangunan’s Renewable Energy Transition Programme and the National Energy Transition Fund. Larger developers and GLCs deploy balance sheet facilities for smaller projects and during the pre-financial-close development phase. Blended finance structures combining concessional public capital with institutional private investment are being explored for offshore wind and hydrogen.

Malaysia’s data centre sector has grown at a pace that is materially reshaping the country’s electricity demand profile and creating structural grid challenges. As noted above, TNB has signed 49 ESAs with data centre developers representing a total committed future demand of 7.1 GW; 29 projects with a combined demand of 3.8 GW had been completed. Electricity consumption from data centres reached 3% of total demand in the first nine months of 2025, a three-fold year-on-year increase, and drove commercial electricity demand up by 7.7% year-on-year.

Grid capacity implications are acute, particularly in Johor and the Klang Valley. In response, TNB has announced multi-billion ringgit grid modernisation and reinforcement programmes, including digitalisation and system stability enhancements and integration of storage solutions, to accommodate this surge. In the short term, the data centre load surge is primarily being met by gas and coal: by 2029, fossil fuels are projected to account for 88–92% of total generation despite solar capacity nearly tripling, because data centre and industrial demand growth outpaces RE additions. The grid’s emissions intensity is therefore unlikely to fall materially in the near term, creating a tension between investor sustainability commitments and grid reality.

On tariff, the 14.2% retail tariff increase from 1 July 2025 was partly attributable to grid enhancement costs associated with large new industrial loads including data centres. Ongoing data centre growth may create upward pressure on future tariff reviews unless grid investment and RE additions are accelerated. Large data centre operators are responding by pursuing CRESS and CGPP off-site corporate PPAs to meet sustainability commitments and hedge against future tariff increases – with the DayOne BESC and Google’s multiple CRESS agreements being the most prominent examples of this dynamic. Government have responded measures include introducing mandatory RE commitments as conditions of ESA approval and advancing BESS deployment to firm up solar supply. The government is also exploring selectivity criteria for data centre approvals and encouraging phased demand ramp-up rather than simultaneous full activation.