Renewable Energy

The Malaysian government plays a proactive role in advancing the renewable energy sector through programmes and legislative frameworks that promote investment and sustainability and ensure the integration of renewable sources into the national energy grid, aligning with national energy and sustainability goals. A significant milestone in this effort is the National Energy Transition Roadmap, in line with the 12th Malaysia Plan, targeting net-zero carbon emissions by 2050. Recognising the potential of solar energy, the Energy Commission introduced the fifth large-scale solar (LSS) programme, with a total capacity of 2,000 megawatts (MW), in 2024; followed by an additional 2,000 MW under LSS PETRA 5+ in January 2025. The LSS6 programme is scheduled to be launched in the second quarter of 2025, targeting a further 2,000 MW. To further encourage renewable projects, the Malaysian government has introduced various tax and financial incentives, including:

• the Green Technology Financing Scheme;
• the Green Investment Tax Allowance; and
• the Green Income Tax Exemption.

Key legislative and regulatory provisions in Malaysia’s renewables industry include the following:

• Renewable Energy Act 2011: Establishes and implements a special tariff system to increase electricity generation from renewable sources.
• Electricity Supply Act 1990: Governs electricity generation, licensing and transmission, including from renewable sources.
• Energy Commission Act 2001: Establishes the Energy Commission, overseeing the electricity and gas sectors, including renewable energy integration.
• Sustainable Energy Development Authority Act 2011: Establishes the Sustainable Energy Development Authority to:
• • implement sustainable energy laws; and
  • promote the use of sustainable energy.

Malaysia is a party to several bilateral or multilateral instruments that support the development of the renewables industry. Key multilateral agreements include the Paris Agreement, under which Malaysia has committed to reducing greenhouse gas emissions and promoting renewables through its nationally determined contributions.

As a party to the United Nations Framework Convention on Climate Change, Malaysia has also committed to sustainable development and emission reductions.

Additionally, Malaysia participates in the Association of South East Asian Nations (ASEAN) Plan of Action for Energy Cooperation 2016–2025, which aims to increase the share of renewables in the ASEAN energy mix to 23% by 2025.

Other multilateral agreements – such as the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – further facilitate trade and investment in renewable energy technologies.

Bilaterally, Malaysia collaborates with jurisdictions such as Singapore, China and the European Union. Malaysia and Singapore have signed agreements to cooperate on renewable energy initiatives, including:

• cross-border green electricity trading; and
• mutual recognition of renewable energy certificates.

The Malaysia-European Union Partnership and Cooperation Agreement, signed in December 2022, provides a framework for energy cooperation and lays the groundwork for potential renewable energy collaboration. Similarly, the Malaysia-China Bilateral Agreements encourage joint projects in solar, hydropower and biomass energy. These bilateral efforts enhance technology transfer, investment and innovation in Malaysia’s renewable sector, aligning with its domestic and international sustainability goals.

In Malaysia, several regulatory bodies are responsible for enforcing laws and regulations related to renewable industry. The Energy Commission is the key regulator, overseeing electricity supply and renewable energy. It:

• issues licences;
• sets tariffs;
• enforces compliance; and
• promotes renewable through initiatives including:
• • the feed-in tariff (FiT);
  • net energy metering (NEM);
  • self-consumption (SELCO);
  • LSS; and
  • the Corporate Green Power Programme.

The Ministry of Energy Transition and Water Transformation (PETRA):

• formulates national energy policies; and
• coordinates efforts to achieve Malaysia’s renewable targets.

PETRA is leading Malaysia’s energy transition and water transformation agenda, which is guided by four key pillars:

• security;
• safety;
• sustainability; and
• the wellbeing of the people.

The Sustainable Energy Development Authority (SEDA), established under the Sustainable Energy Development Authority Act 2011, administers renewable programmes, including FiT and NEM. SEDA:

• facilitates project approvals;
• provides incentives; and
• raises public awareness about sustainable energy.

The Malaysian Investment Development Authority promotes investments in renewables by offering tax incentives, grants and facilitation services, attracting both domestic and foreign investors.

Additionally, the Department of Environment ensures that renewable projects comply with environmental laws under the Environmental Quality Act 1974, conducting environmental impact assessments to balance development with sustainability.

State governments play a significant role in:

• managing land allocation and project approvals; and
• ensuring that renewable projects, especially large-scale ones such as solar and hydro, adhere to local policies and regulations.

Tenaga Nasional Berhad (TNB) is the largest electricity utility company in Malaysia, responsible for power generation, transmission and distribution in peninsular Malaysia and the federal territory of Labuan. It plays a key role in integrating renewables into Malaysia’s national grid and supports initiatives such as NEM and the Supply Agreement for Renewable Energy, which allow consumers to generate and sell renewable energy. In addition, state-owned utilities such as Sabah Electricity Sdn Bhd (SESB) and Sarawak Energy Berhad (SEB) are responsible for managing the development and distribution of renewables within their respective regions.

Local authorities are crucial in approving building plans, managing infrastructure development and regulating land use and zoning, to ensure that renewable projects comply with local development plans and environmental guidelines. They work closely with national grid operators such as TNB, SEB and SESB to facilitate the connection of renewable projects to the national and regional electricity grids.

In Malaysia, solar photovoltaic (PV), hydropower and biomass/biogas are the most mature renewable technologies, supported by favourable policies and regulatory frameworks. With abundant sunlight throughout the year, Malaysia has seen significant growth in solar energy, particularly through large-scale solar projects and residential solar installations supported by programmes such as net energy metering. Hydropower remains a key contributor, particularly in Sarawak through the Sarawak Corridor of Renewable Energy. Biomass and biogas technologies are well established, leveraging Malaysia’s palm oil industry to convert agricultural waste into energy.

Emerging technologies include wind energy, which is still in its infancy. The Sustainable Energy Development Authority has initiated onshore wind mapping, while offshore wind shows potential along the east coast of peninsular Malaysia. Energy storage systems – particularly battery energy storage systems – are gaining traction as a solution for grid stability and renewable intermittency, supported by government and utility-led grid integration initiatives.

Hydrogen and fuel cell technologies are in the exploratory phase. The National Energy Transition Roadmap identifies green hydrogen as a clean energy carrier. Sarawak, in particular, is at the forefront of scaling up green hydrogen production, leveraging its abundant hydropower resources. The Sarawak Hydrogen Hub in Bintulu is a joint venture between SEDC Energy Sdn Bhd and Gentari Sdn Bhd to standardise and expand hydrogen production. In addition, Sarawak has established strategic partnerships with Japan, South Korea and China to develop hydrogen energy supply chain for both domestic use and export. Subject to final project approvals, large-scale hydrogen projects such as H2ornbill and H2biscus are projected to produce up to 240,000 metric tons of green hydrogen annually.

With respect to the regulatory bodies, please see question 1.3.

As the primary electricity utility in peninsular Malaysia, Tenaga Nasional Berhad (TNB) dominates power generation, transmission and distribution. TNB also operates as a purchaser of renewable energy through its subsidiary, TNB Renewables Sdn Bhd.

Sime Darby Group – a diversified multinational corporation engaged in solar power, biomass and biogas projects – is a multinational conglomerate which is actively involved in renewable energy, particularly in solar power, biomass and biogas projects. Similarly, Solarvest Holdings Berhad is a leading provider of solar energy solutions in Malaysia, specialising in the engineering, procurement, construction and commissioning (EPCC) of solar PV systems and participating actively in large-scale solar projects. Samaiden Group Berhad is a leading provider of renewable energy solutions in Malaysia, specialising in the EPCC of solar PV systems and actively participating in large-scale solar projects. Founder Energy Sdn Bhd is a key player in the renewable energy ecosystem, offering comprehensive solutions for solar and renewable energy infrastructure.

In the wind energy segment, CS Wind Malaysia is a key player, specialising in manufacturing wind turbine towers that cater to both the domestic and international markets. Additionally, Sarawak Energy Berhad is a dominant force in the hydropower sector, utilising the state’s extensive water resources to significantly contribute to Malaysia’s renewable energy output. These players collectively enhance Malaysia’s renewable energy infrastructure and contribute to its energy sustainability goals.

As of 2023, Malaysia’s energy mix remains heavily reliant on fossil fuels, which account for approximately 81.5% of total energy generation. Renewable energy sources make up the remaining 18.5%, with hydropower being the predominant contributor at 6.3%. Solar energy accounts for approximately 0.53%, while other renewable sources – including biomass and biogas – collectively contribute around 0.27%. In terms of overall energy consumption, renewables constitute approximately 8% of Malaysia’s total energy mix, marking an increase from less than 3% in the early 2000s.

Looking ahead, Malaysia has set ambitious targets to enhance the role of renewables in its energy mix. The Malaysia Renewable Energy Roadmap outlines goals of achieving 31% renewable energy capacity by 2025 and 40% by 2035. Further extending its vision, the National Energy Transition Roadmap aims for 70% renewable energy by 2050, with projections of:

• 58% from solar;
• 11% from hydro; and
• 1% from bioenergy.

The Malaysian government continues to expand its solar capacity through the large-scale solar (LSS) programme. LSS1 (2016) and LSS2 (2017) allocated 450 megawatts (MW) and 563 MW respectively, jumpstarting Malaysia’s large-scale solar industry. Both phases are fully operational, contributing directly to the national grid. LSS3 (2019) added 500 MW, with projects now supplying power to Tenaga Nasional Berhad’s (TNB) grid. LSS4 (2021), aimed at 823 MW, faced delays, with some projects missing their December 2023 completion deadline. The Energy Commission further launched an open tender for 2 gigawatts (GW) of large-scale solar projects (LSS Petra 5+) in January 2025, scheduled to commence operations in 2027. This follows a similar tender in April 2024, also targeting 2 GW of solar capacity, with projects expected to be operational by 2026. LSS Petra 5+ is structured into two distinct packages:

• land-based solar power plants; and
• floating or water-based solar power plants.

The Bakun Hydroelectric Plant has been operational since 2011 with a capacity of 2,400 MW, supporting the Sarawak Corridor of Renewable Energy; while the Murum Hydroelectric Plant, operational since 2014, generates 944 MW.

Future renewable projects include:

• the LSS6 programme, as mentioned in question 1.1; and
• the Baleh Hydroelectric Dam, which is currently under construction in Sarawak and is expected to add 1,285 MW to the grid upon its anticipated completion in 2027.

Furthermore, Malaysia is developing its first utility-scale battery energy storage system with a planned capacity of 400 megawatt-hours. This project aims to:

• enhance grid stability; and
• support the integration of renewable energy sources.

In Malaysia, to operate a utility-scale renewable project, a licence is required under the Electricity Supply Act 1990 for the generation and supply of utility-scale electricity. For projects of up to 30 MW under the feed-in tariff (FiT) or net energy metering scheme, approval from the Sustainable Energy Development Authority (SEDA) is required. A generation licence from the Energy Commission is mandatory for renewable projects exceeding 30 MW. An environmental impact assessment (EIA) approval from the Department of Environment (DOE) is required for projects classified as prescribed activities under the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 2015). Additionally, developers must obtain a development order from local authorities for land use and construction approval. Utility-scale projects also require the conclusion of a power purchase agreement (PPA) with entities such as TNB or Sabah Electricity Sdn Bhd (SESB).

Furthermore, grid connection approval is necessary to connect the renewable energy facility to the national grid. Depending on the project’s specifics, additional permits may be required, such as:

• land use permits;
• fire safety approval from the Fire and Rescue Department;
• a water diversity licence; and
• approvals from local councils or state authorities.

Authorisations vary depending on:

• the type of renewable energy project (eg, solar, hydropower, biomass, wind); and
• its location (the various states in peninsular Malaysia, Sabah or Sarawak).

Notably, land is a state matter in Malaysia under the federal Constitution, meaning that land-related approvals and regulatory requirements may vary across different states.

Hydropower projects require additional approvals, such as:

• consent from the state economic planning unit;
• local authority approval; and
• a water right agreement (related to the payable water royalty and the environment/land use protection obligation of the state).

Solar and wind energy projects may face specific zoning restrictions and additional land-use approvals depending on whether they are located on state-owned, private or agricultural land.

Malaysia’s electricity supply and regulatory framework differ across regions. In peninsular Malaysia, electricity is generated and distributed by TNB; while in Sabah and Sarawak, the grid systems are operated by SESB and Sarawak Energy Berhad, respectively. Local energy policies and state regulations govern project approvals, requiring compliance with regional licensing and operational requirements.

Foreign entities are generally permitted to invest in renewable projects; however, ownership and management structures must comply with foreign equity restrictions. For instance, under the FiT system, foreign equity shareholding is limited to 49%, ensuring that local entities maintain a controlling interest. The government may impose a minimum local ownership percentage and projects with foreign direct investment may require approval from the Malaysian Investment Development Authority, particularly if incentives or tax exemptions are sought.

The application for a generation licence can be submitted online via the Energy Commission website. The processing time for a complete application varies depending on the installed capacity (MW):

• Private licence (< 30 MW): 60 working days.
• Public licence (< 5 MW): 30 working days.

For projects of up to 30 MW, a feed-in approval from SEDA may be needed, which can take three to six months. Projects with significant environmental impact must obtain an EIA approval from the DOE, which generally takes six to 12 months due to mandatory environmental review procedures.

A development order from local authorities is also required for land use and construction approval. The processing timeline varies based on local regulatory requirements, project complexity and administrative workload, typically ranging from several months to up to a year.

Additionally, developers must negotiate and execute a PPA with the relevant utility provider, such TNB or SESB. The PPA execution process is relatively efficient as standardised templates are used. For grid connection approval, applicants must adhere to the checklist issued by SEDA, with the timeline depending on the fulfilment of the checklist requirements.

A generation licence allows the holder to generate and supply electricity. This licence is a crucial regulatory instrument which ensures that only qualified entities can generate electricity for public use while maintaining technical, environmental and safety standards. The term of a generation licence is determined by the Energy Commission, but no licence shall be valid for more than 21 years without the express approval of the Minister of Energy Transition and Water Transformation. Any renewal requires submission of an application to the Energy Commission, subject to continued compliance with licensing conditions.

A feed-in approval permits projects of up to 30 MW to sell electricity under the FiT scheme, issued under the Renewable Energy Act 2011. It is valid for 21 years, provided that the holder meets performance, operational and reporting obligations. Renewal applications must be submitted to the SEDA before expiration.

EIA approval grants permission to proceed with the project subject to environmental conditions, includes mitigation measures and monitoring requirements. EIA approval is typically project specific and does not require renewal unless the project scope changes significantly. A grid connection approval:

• allows the project to connect to the national grid; and
• specifies technical requirements and connection points.

The grid connection approval is typically aligned with the PPA.

In Malaysia, the transfer of authorisations for utility-scale renewable energy projects is subject to prior written approval from the relevant authorities and must comply with the conditions imposed by the relevant authorities.

While the Electricity Supply Act 1990 does not explicitly detail decommissioning provisions, it provides a regulatory framework that empowers the Energy Commission to impose conditions related to decommissioning as part of the licensing process. The Corporate Renewable Energy Supply Scheme (CRESS) Guidelines, issued by the Energy Commission in September 2024, outline the requirements for decommissioning green energy plants. According to the CRESS Guidelines, a plant must be decommissioned if it:

• has not been operational for 12 consecutive months; or
• has ceased operations.

In such cases, the renewable developer is responsible for removing the plant from the grid:

• within 12 months; or
• within the period specified in the decommissioning plan.

As part of the application process for participation in CRESS, developers must submit a comprehensive decommissioning plan. This plan must address several key aspects, including:

• identification of the entity responsible for implementing the decommissioning plan;
• a statement outlining the conditions that will trigger the implementation of the decommissioning plan;
• detailed identification of all components of the plant;
• a timeline and estimated cost for the removal of all plant components; and
• a strategy for the recycling or reuse of plant components, to the extent practicable.

While the government has made strides to reduce the barriers for development of utility-scale renewable projects, developers are still faced with:

• lengthy approval processes;
• restricted access to transmission networks; and
• policy uncertainties.

The approval process for utility-scale renewable projects can be complex and lengthy, as it involves multiple government agencies and state authorities.

Renewables producers do not have open access to transmission networks and cannot freely sell power to consumers except through participation in schemes such as CRESS. In the CRESS scheme, a system access charge is imposed, making the overall cost of renewables under this scheme less competitive.

While Malaysia has introduced initiatives such as the Corporate Green Power Programme and LSS bidding rounds, changing and evolving policies and regulatory frameworks can create uncertainty for investors and developers.

Land acquisition challenges can also pose difficulties, particularly for LSS and hydropower projects. The conversion of an agricultural land for renewable use requires approvals under applicable land laws. Additional restrictions apply to land designated as Malay reserved land or permanent forest reserves.

(a) What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?

During the pre-development phase, projects with potential significant environmental impact must undergo an EIA under the Environmental Quality Act (EQA) 1974. Approval from the DOE is mandatory before construction.

The EQA 1974 serves as the primary legislation governing environmental protection. Throughout the development and operational phases, operators must comply with environmental quality standards, including:

• air and water pollution limits;
• noise control; and
• waste management.

Compliance with these standards is enforced through subsidiary regulations tailored to specific pollution sources and activities.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

Under the EQA 1974, violations such as the following can result in fines, imprisonment or both:

• discharging pollutants without approval;
• failing to conduct an EIA; or
• breaching pollution limits.

For corporates, Section 43 of the EQA 1974 imposes personal liability on directors, managers and officers if an offence is committed:

• with their consent or connivance; or
• due to their negligence.

Additionally, the DOE has the authority to suspend or revoke licences and permits if a renewable energy generator fails to comply with environmental regulations.

(c) Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

The DOE, under the Ministry of Natural Resources, Environment and Climate Change, is the primary authority responsible for enforcing environmental obligations under the EQA 1974. The DOE oversees:

• EIA;
• pollution control; and
• the issuance of licences for emissions, discharges and waste disposal.

It plays a critical role in ensuring compliance with environmental regulations by conducting inspections, audits and enforcement actions against non-compliance. The DOE:

• adopts preventive measures, such as requiring EIAs for large-scale renewable energy projects; and
• enforces strict compliance with environmental standards through inspections and penalties for non-compliance.

(a) What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?

The primary legislation governing occupational safety and health in Malaysia that applies to renewables projects is the Occupational Safety and Health Act (OSHA) 1994. Employers must:

• ensure a safe working environment, free from risks to health and safety;
• conduct risk assessments and implement control measures to mitigate hazards;
• provide adequate training, safety equipment and personal protective equipment (PPE) to workers; and
• report workplace accidents, dangerous occurrences and occupational diseases to the Department of Occupational Safety and Health.

Under Section 29(3) of the OSHA, an employer must:

• employ a competent and qualified person to act as a safety and health officer at the place of work; and
• if there are more than 40 employees, establish a safety and health committee at the place of work.

Best practices for health and safety include:

• conducting detailed risk assessments during the planning and design phases to identify potential hazards;
• providing regular safety training to workers, contractors and supervisors on:
• • hazard identification;
  • emergency response; and
  • safe work practices; and
• ensuring that all workers are equipped with appropriate PPE.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

Under the OSHA, non-compliance may result in fines of up to MYR 500,000 and/or imprisonment, depending on the nature and severity of the breach. For a continuing offence, an additional fine of MYR 2,000 per day or part of a day during which the offence persists after conviction may be imposed.

If a company commits an offence under OSHA 1994 or its subsidiary legislation, liability extends beyond the corporate entity to include individuals responsible for management and oversight. Specifically, the following individuals may be held jointly and severally liable for the company’s offences:

• a director, compliance officer, partner, manager or secretary, or anyone who holds a similar executive role within the company;
• anyone who purports to act in such a capacity or is in any way responsible for the management of the company’s affairs; and
• anyone who assists in the management of the company,

The key differences between small-scale distributed generation projects and utility-scale projects in Malaysia with regard to the regime discussed in question 3 are as follows:

• Utility-scale projects (eg, large-scale solar, Corporate Renewable Energy Supply Scheme) require licensing under the Electricity Supply Act 1990 and compliance with Energy Commission regulations, including generation licences and grid interconnection approvals. They are subject to more extensive regulatory requirements, including environmental impact assessments and potential land use conversion approvals.
• Small-scale projects (eg, net energy metering, feed-in tariff) require registration with the Sustainable Energy Development Authority under a relatively simplified regulatory process. Small-scale projects typically have shorter approval timelines and do not require power purchase agreements, as they operate under net metering or self-consumption models, with excess energy credited or purchased at pre-determined rates.

Small-scale distributed generation projects in Malaysia are primarily connected to the distribution network.

The Malaysian government offers a variety of subsidies and tax incentives to facilitate the deployment of renewables projects. These include:

• Green Investment Tax Allowance (GITA): GITA is applicable to companies that acquire qualifying green technology assets. To qualify, the assets must be:
• • listed under the MyHijau directory; and
  • used for business purposes or consumption.
• The allowance provides significant tax relief, enhancing the financial viability of green technology investments.
• Green Investment Tax Exemption (GITE): GITE applies to qualifying green technology service provider companies that are listed under the MyHijau directory. It offers a tax break on income derived from green technology services, encouraging service providers to expand their offerings and invest in sustainable technologies.
• Green Income Tax Exemption: Similar to GITE, this exemption applies to qualifying green technology service provider companies listed in the Registered Solar Photovoltaic (PV) Investor Directory. It incentivises companies to engage in solar PV investments by offering tax relief on income generated from solar energy projects.
• Green Technology Financing Scheme 2.0: This government-backed financing scheme offers:
• • a 2% per annum interest/profit rate subsidy for the first seven years to investors; and
  • a 60% government guarantee of green component cost to financial institutions.
• Solar for Rakyat Incentive Scheme (SolaRIS): Launched to encourage the residential adoption of solar PV systems, SolaRIS offers a cash rebate of up to MYR 4,000 to residential customers who:
• • apply for the net energy metering programme through the Sustainable Energy Development Authority; and
  • successfully commission their solar PV installations with Tenaga Nasional Berhad.

See question 5.1.

None in particular.

In addition to the incentives mentioned in question 5.1, the Malaysian government offers several additional fiscal and financial incentives to encourage investment in the renewable sector:

• Investment tax allowance: Provides a 60% tax allowance on qualifying capital expenditures incurred for renewable energy projects, which can be offset against up to 70% of statutory income.
• Pioneer status: Grants a 70% income tax exemption for up to 10 years to companies engaged in renewable energy production or related activities, reducing the overall tax burden.
• Import duty and sales tax exemptions: Exempts eligible companies from import duty and sales tax on imported equipment and machinery used in renewable energy projects, reducing upfront costs.
• Accelerated capital allowance: Allows companies to claim capital allowances on renewable energy assets within two to three years, expediting tax deductions and improving investment returns.

Yes, debt financing is commonly used for renewable projects in Malaysia – particularly for large-scale projects such as:

• solar farms;
• biomass plants; and
• hydropower facilities.

The common structures for renewable projects in Malaysia are as follows:

• Project finance: This structure involves creating a special purpose vehicle (SPV) to isolate the project risks. The SPV operates as a separate legal entity with its own assets, liabilities and accounting and audit requirements.
• Bank loans: Traditional bank loans remain a common financing avenue, with local and international banks providing debt facilities for renewable energy initiatives. These loans can be structured with fixed or variable interest rates and are often tailored to align with the project’s cash flow projections.
• Green bonds and sukuk: Malaysia has been at the forefront of issuing green bonds and green sukuk (Islamic bonds) to fund environmentally friendly projects. These instruments attract investors seeking sustainable investment opportunities and offer issuers access to capital with potentially favourable terms.
• Green Technology Financing Scheme 2.0: See question 5.1.

Project finance limits financial risk to the project, enabling large-scale funding through long-term power purchase agreements while distributing risk among multiple investors. However, it involves complex and costly due diligence, with higher financing costs due to reliance on project cash flows.

Green bonds and green sukuk offer long-term, lower-cost financing, attracting environment, social and governance-focused investors while enhancing corporate reputation and providing access to tax incentives. However, they require strict sustainability reporting and have higher issuance costs than traditional bonds.

Bank loans and syndicated loans are readily available and suitable for both small and large-scale projects, offering flexible repayment structures. However, they often come with higher interest rates, collateral requirements and restrictive covenants that can limit financial flexibility.

When selecting a financing structure for a renewable energy project in Malaysia, several key factors must be considered to ensure financial viability and long-term sustainability. One major consideration is the project risk. Renewable energy projects face numerous risks, such as:

• technical failures;
• operational inefficiencies; and
• regulatory changes.

For example, unforeseen technical issues with equipment such as solar panels can lead to delays and cost overruns. Regulatory changes, such as new tariffs or shifts in government policies, can affect the project’s financial viability, making it harder to predict revenue. If risks are poorly allocated, parties could bear a disproportionate amount of financial strain, leading to difficult financing terms or even project cancellation. The financier may also impose higher interest rates or stricter conditions if it perceives too much risk, further increasing the financial burden on the project.

Parties should also consider the flexibility and exit strategy of a renewable project. Renewable projects typically span 20-30 years and market conditions, technological advancements and regulatory changes can disrupt expected cash flows. Without a flexible financing structure, these changes could lead to financial strain or reduced profitability. Additionally, if the project does not meet financial targets or market conditions worsen, the lack of a clear exit strategy – such as a project sale or refinancing option – can trap investors in an unprofitable venture, complicating the ability to secure future financing or exit the project.

In Malaysia, financing is typically provided by local financial institutions, primarily banks.

Besides local financing markets, Malaysian developers also turn to regional financial hubs such as Singapore through the Association of South East Asian Nations’ green bonds structures. Development finance institutions such as the Asian Development Bank and the Islamic Development Bank provide concessional loans and climate financing, particularly for renewable energy and clean energy transition projects.

Connecting renewable energy projects to Malaysia’s transmission, distribution and export networks requires regulatory approvals and compliance with technical standards set by:

• the Energy Commission; and
• Tenaga Nasional Berhad (TNB), Sabah Electricity Sdn Bhd (SESB) or Sarawak Energy Berhad (SEB).

Exporting renewable energy requires:

• approval from the Energy Commission;
• compliance with cross-border grid agreements; and
• regulatory clearance from neighbouring countries.

Non-renewable projects require similar approvals but have stricter environmental impact assessments.

In Malaysia, the export of renewable onto the grid is regulated to ensure:

• grid stability;
• safety; and
• compliance with regulatory and technical standards.

Project developers must conduct a grid interconnection study (GIS) to assess the technical feasibility and impact of the proposed connection. Additionally, the project must adhere to the Grid Code issued by the Energy Commission or Electricity (State Grid Code) Rules 2003, as applicable, which sets out requirements for:

• voltage levels;
• frequency; and
• power quality.

Utilities enforce interconnection guidelines, requiring approved inverters, transformers and protection systems to maintain stable operations.

Export capacity is subject to grid constraints, particularly in areas with high renewable penetration. Utilities may impose export limits or curtail power during periods of low demand or grid congestion to maintain network reliability.

Malaysia’s grid is managed by TNB (peninsular), SEB (Sarawak) and SESB (Sabah). Grid impact assessments are required for large renewable projects (eg, large-scale solar) to assess transmission stability, leading to long approval times. Developers can also face delays for grid connection due to limited transmission capacity and reinforcement needs.

The Malaysian electricity market operates under a single-buyer model, where:

• TNB is the primary offtaker in peninsular Malaysia;
• SESB performs a similar role in Sabah; and
• SEB performs a similar role in Sarawak.

This structure restricts direct participation of renewable producers in wholesale trading. Nonetheless, initiatives such as the Corporate Renewable Energy Supply Scheme (CRESS) have been introduced, enabling corporate entities to procure renewable directly from producers through the national grid. However, a system access charge is imposed.

Private sector involvement in constructing transmission infrastructure is currently restricted, requiring TNB, SESB or SEB approval.

The restriction on solar energy exports was lifted in May 2023, allowing cross-border renewable sales to Singapore and Thailand, subject to regulatory and technical compliance. These exports operate through an electricity exchange system between the single buyer and licensed renewable participants. The Energy Commission has developed a Guide for Cross-Border Electricity Power Sales, which sets out the regulatory framework, licensing requirements and technical conditions for such exports.

Malaysia is actively pursuing initiatives and reforms to enhance the integration of renewable into its power grid. One significant development is CRESS, introduced in September 2024. CRESS enables renewable producers to negotiate electricity tariffs directly with corporate consumers, promoting an open grid access system. This framework allows third parties to supply or purchase electricity via the grid network, subject to a pre-determined system access charge.

In Malaysia, the development and operation of energy storage projects – including battery energy storage systems (BESS), hydrogen storage and hydro storage – are governed by regulatory frameworks and competitive bidding processes. The Energy Commission oversees energy storage projects, following a process similar to the large-scale solar programme, where:

• interested parties submit a request for qualification; and
• shortlisted candidates proceed to the request for proposal stage to negotiate terms with the Energy Commission.

The legal framework for energy storage is primarily regulated by:

• the Electricity Supply Act 1990; and
• the Renewable Energy Act 2011.

However, there is no specific regulatory framework solely for BESS. In the absence of detailed regulations, approvals for BESS projects are assessed on a case-by-case basis, considering:

• grid stability;
• safety; and
• technical feasibility.

For hydrogen storage, relevant regulations fall under the Occupational Safety and Health Act (OSHA) 1994, with oversight by the Department of Occupational Safety and Health. The Guidelines on Storage of Hazardous Chemicals outline requirements for safe storage locations, ventilation and fire protection in warehouses handling hydrogen. Additionally, industry-specific codes apply, such as the Technical Code for Hydrogen Storage and Safety with Fuel Cells as Power Generators for ICT Infrastructure, which prescribes requirements for the handling, labelling and storage of hydrogen in ICT applications utilising hydrogen-powered fuel cells.

While Malaysia has made progress in renewable energy policies, the regulatory framework for energy storage is still underdeveloped. There is no specific policy dedicated to energy storage creates uncertainty for investors and developers. Integrating energy storage solutions into the existing grid infrastructure involves complex technical considerations. Issues such as grid stability, energy density and the efficiency of storage technologies need to be addressed to ensure reliable operation. Global supply chain issues – including shortages of critical materials such as lithium and semiconductors – can lead to delays and increased costs for energy storage projects. These challenges are exacerbated by rising global demand for battery technologies.

When developing energy storage projects in Malaysia, several regulatory, technical and commercial factors must be considered. Land acquisition can be a challenge, particularly for large-scale BESS and pumped hydro storage, as suitable locations must meet grid proximity, environmental and zoning regulations. Community engagement is also crucial, as local stakeholders may raise concerns over land use, safety risks and environmental impact – particularly for hydrogen storage facilities due to chemical handling risks.

Refer to question 2.2.

Malaysia has introduced pro-competition measures to encourage greater participation in the renewable sector. One key initiative is the competitive bidding process for large-scale solar projects under the large-scale solar programme, managed by the Energy Commission. The programme follows a request for proposal mechanism, selecting developers based on the bid tariff and technical, financial and operational capabilities, to ensure cost efficiency and market competitiveness.

The introduction of the Corporate Green Power Programme and the Corporate Renewable Energy Support Scheme has further enhanced competition by allowing corporate buyers to procure renewable energy directly from solar power producers.

Additionally, the net energy metering scheme encourages distributed generation by allowing commercial, industrial and residential consumers to install solar photovoltaic systems and export excess energy to the grid. This expands market participation by enabling smaller players to compete.

In Malaysia, the choice between arbitration and litigation largely depends on:

• the nature of the dispute;
• contractual agreements; and
• industry practices.

Arbitration is preferred for commercial disputes, particularly in the renewable energy sector, as it offers confidentiality, flexibility and international enforceability under the Arbitration Act 2005. Arbitration is typically conducted through the Asian International Arbitration Centre. Litigation is slower and more formal, but allows for judicial review and enforcement of statutory obligations.

Apart from litigation and arbitration, for construction-related disputes, adjudication provides a fast-track dispute resolution mechanism for:

• unpaid progress claims;
• delays in certification; and
• disputes over additional costs.

Adjudication decisions are binding unless challenged in arbitration or court, making this a widely used remedy for contractors and subcontractors in the renewable sector.

Common disputes in the renewable energy sector include:

• breaches of power purchase agreements;
• engineering, procurement, construction and commissioning contract disputes;
• regulatory compliance issues;
• grid connection disagreements; and
• land acquisition conflicts.

While arbitration is favoured for contractual matters, litigation remains necessary for public law and regulatory disputes, ensuring legal certainty and enforceability in Malaysia’s evolving energy market.

In the fourth round of Malaysia’s large-scale solar programme (LSS4), significant challenges arose due to fluctuations in solar panel prices. The unforeseen cost escalation caused delays, prompting the government to extend project deadlines. The commercial operation date for all LSS4 plants was pushed to 31 December 2023 and the power purchase agreement tenure was extended from 21 to 25 years to alleviate financial pressures on developers. While there was no direct legal dispute with the government, industry concerns were actively voiced, prompting regulatory adjustments for future LSS programmes. Learning from LSS4, the fifth round (LSS5) was launched with adjustments to mitigate similar issues.

Malaysia is actively advancing its renewable energy sector, focusing on sustainability and energy security. The nation has set ambitious targets, aiming for:

• 31% renewable energy capacity by 2025; and
• 40% by 2035.

According to GlobalData’s Malaysia Power Market Size, Trends, Regulations, Competitive Landscape and Forecast, 2024-2035 report, green energy currently accounts for 13.3% of Malaysia’s total capacity.

Due to its equatorial location, Malaysia benefits from abundant sunlight, making solar photovoltaic systems a primary focus. Regions such as Sarawak are leveraging their extensive river networks to develop hydropower projects, contributing significantly to the renewable energy mix.

Malaysia’s net-zero commitments are significantly influencing the development of its renewables industry, driving policy shifts, investment and technological innovation. Malaysia government has introduced key policies such as the National Energy Transition Roadmap and the Malaysia Renewable Energy Roadmap to accelerate the growth of renewables.

Aligned with its net-zero ambitions, Malaysia aims to increase its renewable energy capacity to:

• 31% by 2025; and
• 40% by 2035.

The focus is primarily on expanding solar power installations, given the country’s favourable climatic conditions. Schemes such as the large-scale solar (LSS) programme have been instrumental in driving this growth.

The 2025 budget has introduced measures to promote eco-conscious practices, including:

• taxes on single-use plastics and high-emission industries;
• incentives for renewable energy projects and energy-efficient technologies; and
• enhanced tax reliefs for individuals investing in green technologies such as electric vehicles and solar panels.

In addition, the Ministry of Energy Transition and Water Transformation will:

• further enhance the LSS6 programme, as mentioned in question 1.1; and
• introduce the Community Renewable Aggregation Mechanism to facilitate the aggregation of residential rooftop spaces for green energy generation.

This initiative aims to encourage broader community participation in the renewable sector by allowing multiple households to collectively generate and supply solar energy. Implementation will be facilitated through an open-grid access model, adopting the Corporate Renewable Energy Supply Scheme launched in September 2024.

Before committing to a renewable project, thorough legal, regulatory and land due diligence is crucial. Land approvals are state matters and land conversion for renewable projects may require additional approvals. Title searches, zoning compliance and encumbrance checks should be done early to avoid legal obstacles. Additionally, securing rights of way for grid connection infrastructure is essential to prevent delays. State land regulations vary, requiring careful due diligence before acquisition. Leasehold land, customary land or land with existing encumbrances can complicate approvals.

Renewables generators should leverage government incentives such as the Green Investment Tax Allowance to reduce the capital costs and enhance project viability.

A thorough understanding of the regulatory framework is important. Ensuring regulatory compliance with the Energy Commission, the legislation and environmental impact assessment requirements is crucial to avoid delays in:

• grid connection; and
• land use permits; and
• licensing approvals.

Conducting feasibility studies – including site assessments, environmental impact evaluations and financial modelling – is essential to identify risks early and optimise project planning.

Malaysia offers schemes such as:

• large-scale solar;
• net energy metering;
• self-consumption; and
• the Corporate Renewable Energy Supply Scheme.

Each has different financial, contractual and regulatory implications. Poorly structured power purchase agreements, engineering, procurement, construction and commissioning agreements and financing documents can expose renewable generators to financial and operational liabilities.