Electricity supply industry reform and design of a competitive electricity market in Malaysia

This paper examines electricity supply industry reform in Malaysia and analyses issues and options in relation to electricity market design, integrating distributed resources and incentivising large scale renewable energy deployment in this country. Since the 1990s, Malaysia has been in the process of restructuring its electricity sector with the aim of improving the efficiency, governance, and administration of the sector, maintaining/enhancing the security of electricity supply, and encouraging the growth of low-carbon technologies. The country has faced a number of challenges in all elements across the electricity supply chain and this led to the creation of the Malaysian Electricity Supply Industry (MESI 1.0) reform initiatives, aimed at awarding tenders to competitive independent power producers (IPPs), incentive-based regulation (IBR) with imbalance cost pass through (ICPT), accounting unbundling, and the gradual rationalization of gas subsidies. In the years following MESI 1.0 a range of new industry megatrends emerged– such as digitalization (smart energy network using digital technologies), decentralization (customer participation and integration of distributed resources), and electrification (increase in electricity demand due to electric vehicles and other appliances) –leading to further reform initiatives (MESI 2.0) to make the power sector more efficient, reliable, and sustainable.

The paper addresses three main research questions:

  1. What is the most suitable reform model for the Malaysian electricity sector which will promote competition, security of supply, and sustainability while at the same time being compatible with the country’s own context and government objectives?
  2. How does decentralization (distributed generation, storage, demand response, and energy efficiency) affect the Malaysian electricity sector?
  3. How do renewable support schemes need to be designed and implemented in order to avoid or minimize distortion in the market?

The paper addresses each question in a separate chapter and makes detailed policy recommendations about electricity market design, integrating distributed resources and incentivising large scale renewable energy in Malaysia.

By: Maragatham Kumar , Rahmat Poudineh , Amanuddin Shamsuddin

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