Market Overview
Environmental protection expenditure by type in Malaysia in 2019 (based on latest figures available):
- Population management: US$ 481 million
- Waste management: US$ 179 million (MYR 751.7 million)
- Environment assessment and charges: US$ 15.4 million
- Protection of wildlife and habitat: US$ 1.5 million
- Other expenditure: US$ 9.8 million
Market Opportunities
Malaysia is one of the most rapidly urbanizing countries in Asia, with more than 70% of the population living in urban areas. The country’s Greenhouse Gas (GHG) emissions levels are high compared with other countries that are in comparable stages of development. Over half of Malaysia’s emission sources are directly related to urban settings and originate from the energy (76%), waste (12%), and the industrial processes (6%) sectors. Specifically, electricity and transportation are the biggest contributors to emissions from the energy sector.
In July 2021, the government of Malaysia launched the National Low Carbon Cities Master Plan, which provides guidelines for state governments and local authorities in developing low-carbon cities. This Plan also initiated the Low Carbon Cities Catalyst Grant to help local authorities implement their high-impact low-carbon cities initiative.
Malaysia mandates that Nationally Determined Contributions must reduce the intensity of unconditional GHG emissions by 45% based on GDP by 2030 as a part of its goals for addressing climate change.
Malaysia aims to be an inclusive and sustainable nation. The nation has identified Environmental Technology (or Green Technology) as one of the country’s green growth drivers. Under the Green Technology Masterplan Malaysia 2017-2030, the following sectors are a priority to Malaysia:
- Renewable energy (RE)
- Water purification
- Air purification
- Sewage treatment
- Environmental remediation
- Solid waste management (SWM)
- Energy conservation
Although these sectors provide opportunities for U.S. partnerships, renewable energy and solid waste management are the best platforms for U.S. business involvement.
Renewable Energy
Traditionally, Malaysia depends on conventional power generation, including natural gas, coal, and hydro. Yet, Malaysia’s industrial success in recent years decades identified concerns regarding energy security and waste management. Malaysia’s current consumption of high amounts of energy is not sustainable for the long-term with its recent focus on manufacturing.
To address these concerns, the government is looking for solutions, which:
- Increase efficiency of existing plants (both power and incinerators),
- Explore renewable fuel sources, and
- Encourage the construction of new plants (more waste-to-energy (WTE) and RE).
Renewable energy constitutes 18% of Malaysia’s energy composition. However, hydropower technologies dominate this area and account for 86% of renewable capacity. Malaysia has an ambitious target to increase renewable energy generation by 20% by 2025, not including its current hydropower initiatives.
Overall, Malaysia is expected to more than double renewable capacity from 6 to 14 gigawatts. While the overarching non-hydropower renewable ambition of reaching 20% of the energy mix by 2025 may be overly optimistic, large-scale solar (LSS) investment remains a major technical and financial opportunity for Malaysia.
To attain sustainability in energy supply, Malaysia aims to use the RE resources that are readily accessible to them. The following prioritized list of RE options includes:
Solar
Malaysia has excellent potential for solar generation uptake due to its location along the equator with monthly solar irradiation. Since 2016, the Energy Commission of Malaysia successfully initiated and carried out four bid processes to interested parties for the operation of LSS in Malaysia. Each round significantly increased the megawatts in the bidding from the previous round. The latest bidding round for LSS reveals that the market is competitive and fragmented. Close behind Japan and Indonesia, Malaysia also has one of the most expensive solar markets in the region. The third round of LSS tenders saw 99% of bids below the reference tariff price. The LSS has a transparent mechanism to award projects to achieve the government’s RE target.
Solar photovoltaic technology has by far the highest technical potential in Malaysia and is supported by several initiatives to promote affordability. Malaysia allows installation of solar technology for individual consumption. Its Net Energy Metering program provides a pathway to self-generation with excess energy sold back into the grid. The nation’s LSS projects offer a successful pathway to utility-scale solar adoption.
Malaysia’s end-to-end solar photovoltaic technology value chain still reflects some important opportunities for investors and operators, including a well-established solar PV manufacturing industry. Manufacturing, project development, installation and construction, ownership, operation, service, and maintenance all offer areas of potential to prospective industry players.
Waste to Energy
The waste to energy process involves any waste treatment process to convert non-recyclable waste materials into useable energy through a variety of methods, including combustion, gasification, pyrolysis anaerobic digestion, and landfill gas (LFG) recovery. Due to the considerable amount of municipal solid waste (MSW) produced daily in urban areas, attention is focused on MSW processing as the feedstock to such technologies. The most common and widely used MSW-to-energy technologies are incineration in a combined heat and power plant and controlled landfill to capture methane from LFG waste.
Biogas
Biogas is typically produced by the anaerobic digestion of organic municipal waste, food waste, and sewage, and it has the potential to decrease the use of fossil fuels for waste to energy power generation. Food waste is one of the highest potential sources for biogas production. It is estimated that more than 40% of Malaysian MSW is food waste. High organic content in the food waste means that this source has a high potential to be tapped; however, Malaysia lacks aggressive policies to expedite the implementation and improper management of waste, particularly at the source. The location of biogas plants also impact viability, as plants farther from the nearest connection point to export generated power will be less economical.
Biomass
Malaysia produces approximately 168 million tons of biomass annually. Palm oil waste, rice husks, coconut waste, sugar cane waste, municipal waste, and forestry waste are all sources contributed to the biomass production. By leveraging the nation’s palm oil industry as a fuel source, biomass power generation offers another potential area of opportunity. Grid access and connectivity, however, remain issues in this diverse and rural industry.
The advantage of biomass is that it can be easily pelletized and has attractive potential for co-firing in conventional power plants, which traditionally use coal or natural gas. Co-firing has lower emission of carbon dioxide, sulfur, and nitrogen oxides, thus reducing the greenhouse gas level. The drawback of using biomass is the reduction in the boiler’s efficiency due to scaling and corrosion from the fly ash.
Small Hydro
Malaysia’s geographic location places the country in a high rainfall area. This factor gives it potential in hydropower. “Mini” hydro plants (under 30 MW) and “micro” hydro plants (5-500 KW) have untapped potential as they are clean and sustainable and do not contribute to greenhouse gas. These power plants have a lower environmental impact on the surrounding areas due to their smaller footprint. However, most of these types of plants are in rural or secluded areas and cater to a small population, making it challenging to derive substantial profit from the venture. With project cost uncertainty, these small hydro plants are carried out by electricity providers more as CSR projects rather than as business ventures.
Wind
Malaysia is considered to be a low-wind speed area with a monthly wind-speed mean range between 1.5 and 4.5 meters per second (m/s). There is a small pocket of areas on the east coast of Peninsular Malaysia, such as Mersing, Johor, Kuala Terengganu, and Terengganu, and in east Malaysia at Kudat and Sabah, which are a potential for wind power. These areas average a wind speed of 3 m/s at a 60-meter height. However, viable wind speed typically occurs during the November to February monsoon season.
Solid Waste Management
With increasing disposable incomes, Malaysians are consuming more, leading to higher waste generation. At the current rate, household, municipal, and commercial solid waste will overrun all available landfills.
In 2015, Malaysia generated 19,000 tons of waste daily at a 5% recycling rate compared to 38,000 tons with a recycling rate of 17.5% in 2019. This figure should grow to over 40,000 tons per day after 2020, despite a targeted recycling rate of 22.0%. With limited space for landfills and rising costs of disposal, there is increased pressure and urgent need to tackle the waste management issue and reduce the impact on the environment and the general well-being of the population.
Aside from consumer and household waste, manufacturing produced commercial waste is another source of concern. The government is encouraging companies to undertake environmental management activities, such as collection, storage, composting, disposal, recycling of toxic and non-toxic waste, and waste to energy processes.
Competitive Landscape
Most businesses in Malaysia consist of small and medium-sized enterprises (SME). Like other SMEs globally, cash-flow and the bottom-line determine the longevity of the company. To succeed in this market, the provider must first provide evidence of profitability while being environmentally friendly. Malaysian SMEs are risk-averse and are very conscious of their returns on investments. A quick return to a positive cash-flow will incentivize the deployment of these technologies.
The government encourages the use of environmental technology; thus, the private sector expects the public sector to lead in the implementation procedures. The government must revisit and support the sectors with incentives and proper alignment in terms of policies and enforcement.
Inconsistent policies and lack of clarity in the demarcation of regulatory oversight are possible challenges that environment technology providers must face. Various ministries and agencies oversaw the growth of environmental technologies, resulting in lack of comprehensive policies for the industry players and other stakeholders.
Although there is a national goal to limit carbon emissions, major obstacles continue to limit the full adoption of low carbon integrated development for cities in Malaysia. These challenges include:
- Incomplete policy and regulatory framework for low carbon development especially at the sub-national levels
- Lack of awareness and institutional capacity for evidence-based low carbon planning at the sub-national levels
- Lack of capacity of cities to mobilize finance and incentives in promoting low carbon investments
While national regulatory structures support market growth for environment technologies, weak regulatory enforcement reduces demand, therefore impeding market growth and export opportunities. The country has made some efforts to promote environmental technologies, but the fresh market features a lack of enforcement for regulations. Large firms and state-owned enterprises may regularly engage in relevant environmental initiatives for their public relations strategies, but the scope of these activities does not attempt to address emissions at an effective scale.
Malaysia is not a party to the World Trade Organization (WTO) Government Procurement Agreement. As a result, foreign companies do not have the same opportunity as some local companies to compete for contracts, and in most cases, they are required to take on local partners before their bids are considered. In domestic tenders, preferences go to Bumiputra (Ethnic Malay) suppliers over other domestic suppliers. In most procurement, foreign companies must take on local partners before their tenders are considered. Procurement often goes through intermediaries rather than being conducted directly by the government. The procurement can also be negotiated rather than tendered. International tenders are generally invited only where domestic goods and services are not available.
Finance
Many banks offer loan programs specifically for commercial, industrial, and residential clients that want to install renewable energy systems on their premises in Malaysia. They are also financing LSS and other RE projects, such as biogas and waste-to-energy ventures.
Financial incentives from the government and bank financing opportunities with declining material costs are accelerating the adoption of renewable energy technologies.
To encourage the buying and selling of green technologies, the government provides an Investment Tax Allowance for green technology equipment purchases and an Income Tax Exemption for green technology services providers. Under the Green Technology Tax Incentive program, there is a Green Investment Tax Allowance (GITA) for assets and projects as well as a service provider called Green Income Tax Exemption (GITE). The GITA and GITE incentives will be extended to 2023, according to the government’s 2020 budget notice. Presently, applications are open for Malaysian-incorporated companies that are registered with the Companies Commission of Malaysia. For GITE leasing eligibility, Malaysians must hold at least 60% of the company equity. Click here for more information about the GITA and GITE.
Following the 2021 government budget announcement, the Green Technology Financing Scheme (GTFS) 3.0 was launched to support Malaysia’s Sustainable and Responsible Investment as well as to drive green and sustainable standards. The program guarantees funding raised, via the capital market or loan financing, from financial institutions for qualifying GTFS 3.0 projects for registered Malaysian companies with at least 51% of local shareholding for the following sectors.
- Energy (RE and energy efficiency)
- Building (green building)
- Transportation (clean)
- Natural resources (sustainable water and wastewater management; terrestrial/aquatic conservation; management of living natural resources and land use; and pollution prevention)
- Others (eco-efficient/circular economy adapted products and climate change adaptation)
Contact Us
Siau Wei Pung is the Senior Commercial Specialist at the U.S. Commercial Service in Kuala Lumpur, Malaysia. She covers, on a country-wide basis, Environment Technology, Energy, Defense & Aerospace, and Safety & Security. Prior to joining the U.S. Commercial Service, Ms. Pung was the Trade Advisor at the Embassy of Switzerland in Kuala Lumpur and also worked for several trade promotion agencies of the Government of the Republic of Korea. Her professional career has continually focused on business development, market entry advice, business matching, advocacy, and facilitation engagement with both the Government of Malaysia and local businesses.
Email Siau Wei Pung.
