Malaysia is Growing Green

Global Green Economy

In the recent years, environmental improvements are driving economic growth in a big way. The advisory firm, Oxford Economics, predicts the green economy will make up 5.2% of global GDP, or US$10.3 trillion in 2050. This prediction is actually an understatement as the projection relates mainly to energy transition efforts. The market size can be several trillion larger if we were to include the potential of the bio-economy and the circular economy with the likeliness that the next era of the industry will combine the physical, digital and biological worlds.

Malaysia’s take on Energy Transition

Malaysia has been on the transition in shifting towards green economy gradually as well. The government is committed in the transition with a five-year development plan called Malaysia Madani (2021-2025) to reduce greenhouse gas emissions based on GDP by 45% in 2030, which is in line with the government’s aim to achieve net zero by 2050. Malaysian Investment Development Authority (MIDA) has also approved green technology projects worth RM4.9 billion in total from January 2021 to September 2022. The fund was invested globally into energy transition with storage, mobility, food and agriculture, and renewables taking up majority of the fund.

The Malaysia government is also proactively encouraging investments which emphasized on sustainable development based on environment, social and governance (ESG) to be in line with the New Investment Policy launched last year. i-ESG framework for manufacturing sector to adapt ESG with four main components i.e. standards, financing and incentives, capacity building and marketing mechanism, including carbon trade and carbon pricing, is expected to complete and ready by next year.

Incentives Towards Green Economy

There are also other initiatives and grants to encourage investor to explore projects that support sustainable development and adopt ESG principles such as Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE). These tax reliefs would do great to encourage companies to undertake green technology projects such as renewable energy, including solar and mini hydro with energy-efficient equipment and solar panel rental service. Other measures under Investment Incentives Act would encourage investments in circular economy or recycling, use of palm oil biomass for added value and production of biodegradable household items, and incentives for automotive sector to produce parts for energy efficient vehicles (EEVs) and electric vehicles (EVs).

The National Energy Transition Roadmap (NETR)

The NETR announced by Malaysia government under Malaysia Madani is envisaged to open up investment opportunities of between RM435 billion – RM1.85 trillion by 2050 from the 10 wide-ranging catalytic initiatives to be introduced along with the NETR Phase 1 official launch recently. This roadmap will help to transform the country’s economy further by opening up profitable ventures that are good for the environment as well as the economy. Renewable Energy (RE) industry is the first to tackle and the ministry is working rapidly to scale up the installed capacity targets from 40% to 70% by 2050. Here are some of the projects in the pipeline under NETR:

• Khazanah Nasional Berhad will be spearheading one of these projects under NETR called integrated RE Zone via a joint venture between UEM Berhad and Itramas Corporation Sdn Bhd. At one gigawatt, this hybrid solar photovoltaic (PV) power plant is the largest of its kind in Southeast Asia. The scale has attracted high-profile global investments from major economic blocs totalling RM6 billion.
• NETR also opens up the hydrogen gateway in Sarawak as it implements rounds of projects to emerge as the hydrogen hub in the country and put in place the framework of CCS (carbon capture and storage) so that catalyst projects could be implemented in these two years.
• Sarawak Energy has recently announced its aims reduce reliance on coal and plans to install at least 400 MW of floating solar power capacity at its dams by 2030 as the Malaysian utility expands to meet rising demand for renewables from neighbouring countries such as Indonesia, Brunei and Singapore. 
• NETR also offering income opportunity to every households with the option to lease out their rooftops for solar panel installation. The government is taking the lead on this by allocation RM80 million for solar panels to be installed on the rooftops of government buildings.
• Malaysians could also contribute used cooking oil and waste as feedstock for biomass and biofuels as energy lever under NETR.
• NETR also aims to install 10,000 charging stations along highways and commercial buildings by 2025 and the first-and-last-mile of public transport will also be electrified so the public can travel with cleaner energy.

The Takeaway

Malaysia is ranked first in Southeast Asia, second in emerging Asia, and 35th in the world on the most recent Energy Transition Index 2023 by the World Economic Forum. With NETR, there is a real opportunity for the country to lead Southeast Asia as the regional powerhouse in RE. Malaysia can continue to take advantage of the declining technology cost in RE and build first-mover advantage in nascent levers, as we move our investments into these high-growth, high-value areas.

Malaysia’s take in the growing shift towards RE is a strong indicating sign to investors to consider the long-term prospects of companies involved within the country’s domestic and international green growth strategy. But as always, investors must remain vigilant in identifying potential market deals in the VC and PE market. As our governments, businesses, and investors continue to shift towards the inevitable change to green economy, we can anticipate further growth and transformative changes in the years to come.