Malaysia’s Corporate Renewable Energy Supply Scheme (CRESS): A Step Forward but with Challenges

Malaysia’s recent announcement of the Corporate Renewable Energy Supply Scheme (CRESS) marks a significant milestone in the nation’s efforts to transition towards a more sustainable energy future. There are, however, concerns about the scheme that warrant attention.

Launched in September 2024, CRESS will enable large corporate consumers to purchase renewable energy directly from independent power producers (IPPs). This will support Malaysia’s ambitious target of achieving 31 per cent renewable energy capacity by 2025, 40 per cent by 2035 and 70 per cent by 2050.

By targeting corporations with significant energy demands, the scheme aims to leverage their capacity to invest in long-term power purchase agreements (PPAs) and drive the development of renewable energy projects. The criterion ensures that CRESS targets the most significant energy consumers and reinforces the scheme’s focus on large-scale operations.

On the flip side, CRESS will limit the broader participation of small- and medium-sized enterprises (SMEs), which make up over 97 per cent of businesses in Malaysia and employ nearly 70 per cent of the workforce. Large industrial corporate consumers use approximately 60 per cent of total energy consumption in Malaysia. There is a call in the industry for a more inclusive approach that could involve the development of mechanisms that would enable SMEs to participate in the scheme, perhaps through aggregated purchasing models or government-supported incentives.

There are also questions regarding how CRESS will integrate with existing energy policies, such as the Renewable Energy (RE) Act 2011. For CRESS to attract the necessary investment, it is essential that the government provides clear and consistent regulations — such as The Electricity Supply Act (1990) and the National Renewable Energy Policy and Action Plan (NREARP) — that address these concerns. This will help to build investor confidence and ensure that the scheme can achieve its full potential in driving Malaysia’s renewable energy growth. Additionally, transparent monitoring and reporting mechanisms will be critical to ensuring that the scheme delivers on its promises and contributes meaningfully to Malaysia’s carbon reduction goals.

Malaysia’s electricity grid, while robust, has historically been dominated by fossil fuels, with coal and natural gas accounting for nearly 75 per cent of the country’s energy mix. The successful integration of renewable energy under CRESS will require significant upgrades to the grid to manage the variability and decentralisation associated with sources like solar.

A critical aspect of the CRESS framework that warrants closer scrutiny is the system access charge (SAC) imposed on IPPs. Under the current structure, IPPs participating in CRESS will be subject to an SAC that varies depending on the nature of their energy output (constant or intermittent). Specifically, the SAC proposed will be higher for producers that generate electricity intermittently (at 45 sen (10 US cents)/kwH) compared to those capable of supplying firm output (at 25 sen/kwH). This would encourage IPPs to generate a more stable and constant supply of energy into the grid.

While the SAC is essential for covering the costs associated with maintaining and upgrading the grid infrastructure to accommodate the influx of renewable energy, it may also pose a financial burden on IPPs. The Imbalance Cost Pass Through (ICPT) directly reflects changes in generation costs, especially those tied to fossil fuels like coal and gas. When fossil fuel prices increase, the ICPT will rise to account for these higher costs, making electricity more expensive for consumers. Conversely, if fuel prices drop, the ICPT will be reduced. Renewable energy, on the other hand, has lower fuel costs (e.g. wind and solar), and hence would incur lower ICPT costs. However, renewables are still affected by ICPT if fossil fuels dominate the grid mix because consumers pay based on overall system costs, not just the renewables portion.

The SAC, by charging intermittent renewable producers more, discourages renewable energy investment, which could otherwise help reduce reliance on fossil fuels, improve the diversification of Malaysia’s energy mix subsequently, and reduce ICPT costs in the long run.

Moreover, if the difference in SAC between firm and intermittent output is significant, it may force IPPs that are unable to provide firm supply to invest in costly energy storage facilities to mitigate their grid impact. Such investments could help producers lower their SACs as they switch to firm output. They would also enhance grid stability by balancing the intermittent nature of renewables. But the additional cost of energy storage is likely to be passed on to customers through higher tariffs. Given the current cost of energy storage technologies, there are legitimate concerns that the SAC  under CRESS might not be as competitive compared to other renewable energy schemes available in Malaysia.

To address these concerns, the government could consider revisiting the SAC structure, perhaps by offering tiered pricing or subsidies for IPPs that produce intermittent energy. In the base tier, IPPs without energy storage can be charged 100 per cent of the SAC. In the intermediate tier, IPPs with energy storage can be levied 40-50 per cent of the SAC. In the innovative tier, IPPs developing new energy storage systems could be levied 20-30 per cent of the SAC. Such measures would help ensure that CRESS remains attractive and financially viable for a diverse range of renewable energy producers, fostering a more inclusive and dynamic renewable energy market.

Another important consideration is the readiness of Malaysia’s grid infrastructure to accommodate the increased penetration of renewable energy. Malaysia’s electricity grid, while robust, has historically been dominated by fossil fuels, with coal and natural gas accounting for nearly 75 per cent of the country’s energy mix. The successful integration of renewable energy under CRESS will require significant upgrades to the grid to manage the variability and decentralisation associated with sources like solar. The RM22 billion in investments (between 2022-2024) for grid modernisation is a positive step, but further efforts will be needed to ensure that the grid can handle the influx of renewable energy generated by CRESS projects. Addressing these infrastructure challenges will be key to the long-term success of the scheme and the overall resilience of Malaysia’s energy system.

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