Greener energy solutions for a sustainable future: issues and challenges for Malaysia

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  • Energy Policy 31 (2003) 10611072


    Greener energy solutions for a sustainable future: issues andchallenges for Malaysia

    Mohd. Zamzam Jaafar, Wong Hwee Kheng*, Norhayati Kamaruddin

    Pusat Tenaga Malaysia (Malaysia Energy Centre), Block C3, Kompleks PETRONAS Research & Scientific Services (PRSS), Lot 3288 & 3289,

    Off Jalan Ayer Itam, Kawasan Institusi Bangi, 43000 Kajang, Selangor Darul Ehsan, Malaysia


    This paper examines the intricacy of energy policies, issues and challenges woven into the development of the energy sector in

    Malaysia. As highlighted in the Third Outline Perspective Plan (OPP3) and the Eighth Malaysia Plan (8MP) unveiled in April 2001,

    efforts will be intensied to moderate the growth of energy demand and to develop renewable energy as the fth fuel in electricity

    generation. Whilst the general energy policy thrust for the next ten years remains unchanged, concerted efforts will be made to usher

    the energy sector development on a greener path. With a projected average economic growth rate of 7.5% per year in the 20012005

    period, resource rich Malaysia would have to cater for the 7.8% yearly increase in nal energy demand. Total primary energy supply

    is projected to grow at an average of 7.2% per year in the same period. Against the backdrop of a growing need for coal and piped

    natural gas imports and Malaysia becoming a net crude oil importer in 2008, greater challenges lie ahead for the energy sector. This

    implies that Peninsular Malaysia may become a net importer of fossil fuels (oil, gas and coal) sooner than expected. Higher

    utilization rate of natural gas as the green fuel will be encouraged in electricity and non-electricity sectors. Furthermore, scal

    incentives in Budget 2001 to promote renewable energy and energy efciency provide a timely boost for implementation of the new

    fth fuel strategy. Although the overall approach in addressing energy issues and challenges hinges on the precautionary principle,

    the main thrust of energy sector development in Malaysia will continue to focus on adequacy, quality and security of energy supply

    and the promotion of its efcient utilization with minimum negative impacts on the environment.

    r 2003 Elsevier Science Ltd. All rights reserved.

    Keywords: Renewable energy; Fuel mix; Pricing

    1. Introduction

    Malaysia is made up of Peninsular Malaysia and thestates of Sabah and Sarawak on the island of Borneo.Today about 80% of the total 23.3 million people live inPeninsular Malaysia, the hub of the countrys economicactivities. Like many other developing countries, energyhas been the prime contributor towards the rapidgrowth of Malaysias economy. Ruralurban migration,higher living standards and increased income per capitahave also spurred an ever-increasing demand for energy.Stable and abundant supply of energy resources in

    Malaysia epitomizes how blessed Malaysia is with thesenatural assets. In terms of energy equivalent, Malaysiahas gas reserves, which are four times the size of itscrude oil reserves. Natural gas reserves off the east coast

    of Peninsular Malaysia are dedicated for domesticconsumption while those in Sarawak are allocated asrevenue earner in the form of liqueed natural gas(LNG) exports. The locked-in demand created throughthe construction of gas-red power plants and theconversion of oil-red thermal power stations to gasring also created the necessary scale to justify theincrease of natural gas production and development ofthe Trans-Peninsular gas pipeline.Based on past energy patterns, growth in energy

    demand concentrated in Peninsular Malaysia, implyinguneven demand trends between Peninsular Malaysia onone hand and Sabah and Sarawak on the other. Sales ofelectricity in Peninsular Malaysia recorded a double-digit average annual growth rate for the past ten years,in tandem with the rapid rate of industrialization.Over the last two decades, pragmatic energy policies

    have facilitated a more environment-friendly energydevelopment path. For instance, the four-fuel strategyadopted has accelerated the transition of oil substitution.

    *Corresponding author.

    E-mail address: (W.H. Kheng).


    0301-4215/03/$ - see front matter r 2003 Elsevier Science Ltd. All rights reserved.

    PII: S 0 3 0 1 - 4 2 1 5 ( 0 2 ) 0 0 2 1 6 - 1

  • As a result natural gas has made dramatic inroads as thepreferred fuel in the electricity industry, rising from1.2% of the total fuel mix in 1980 to 71.1% in 1999.While the general energy policy thrust for the next tenyears remains unchanged, concerted efforts will be madeto usher the energy sector development on a greenerpath. The Government has set a target that 5% ofelectricity generated should be from renewable energyby 2005. The challenge here would be to give renewableenergy the necessary lift to greater heights in the nextve years. Efforts to promote energy efciency, which isconsidered a unique domestic energy resource, will alsobe intensied. Although opportunities for the applica-tion of sustainable energy options abound, the energysector must also rise to the challenge of ensuringadequate, reliable and cost-effective supply of energywhilst contributing towards socio-economic welfare,industrialization and export earnings.

    2. An overview of the Malaysia energy sector

    2.1. Supply

    With a projected average economic growth rate of7.5% per year in the 20012005 period, resource-richMalaysia would have to cater for the 7.8% yearlyincrease in nal energy demand. Total primary energysupply is projected to grow at an average of 7.2% peryear in the same period (Economic Planning Unit,2001a). The main sources of commercial energy supplyin 1999 amounting to 37.2 million tonnes oil equivalent(Mtoe) were derived from crude oil and petroleumproducts (48.5%) followed by natural gas (41.8%), coaland coke (5.2%) and hydro (4.5%). In the 19901999period, the share of crude oil and petroleum products in

    the total primary energy supply declined while that ofnatural gas increased indicating a successful reductionfrom the overall dependence on crude oil and petroleumproducts (Ministry of Energy, Communications andMultimedia, Malaysia, 1999, 2000) (see Fig. 1).Total oil reserves stood at 3.42 billion barrels in 1999.

    With sustained domestic production of oil and maturityof existing elds, domestic crude oil reserves areexpected to last at least another ten years. Malaysia isexpected to be a net crude oil importer by 2008(Economic Planning Unit, 2001b) unless efforts indomestic oil exploration result in discoveries of sub-stantial new oil reserves.Natural gas can be classied into two types viz.

    associated and non-associated gas. As at 1999, totalnatural reserves amounted to 84.4 trillion standard cubicfeet of which 16% was associated gas and the remaining84% was non-associated gas (Ministry of Energy,Communications and Multimedia, Malaysia, 2000). Toensure adequate gas supply, the country will supplementdomestic gas supply with gas from the MalaysiaThaiJoint Development Area (MTJDA), West Natuna andSouth Sumatra. The gas pipeline interconnections willform part of the Trans-ASEAN gas pipeline network.The countrys known coal reserves in 2000, mainly in

    Sarawak and Sabah, were estimated at 1050 milliontonnes. Although coal quality ranges from lignite toanthracite, bituminous and sub-bituminous coal formthe main share of the total coal reserves. Based on theforecast coal production at 0.75 million tonnes per year,a recent report highlighted that 95% of the total coalrequirement by the year 2005 still needs to be imported(Ambun, 2000). The lack of economies of scale andcompetition from bigger coal producing countries arereasons why development of domestic coal resources hasnot been aggressively pursued.

    Fig. 1. Share of energy input in commercial energy supply (19901999). Source: National Energy Balance 1998 and 1999.

    M. Zamzam Jaafar et al. / Energy Policy 31 (2003) 106110721062

  • 2.2. Demand

    The expansion of industrial and transport sectorswere main contributors to the increase of nal demandfor commercial energy, which collectively grew at anaverage annual growth rate of 7.5%, from 11.3 Mtoe in1990 to 21.7 Mtoe in 1999. Fig. 2 shows that theindustrial and transport sectors were the largest energyconsumers in the 19901999 period. In 1999, share oftransport and industrial sectors in the total nal energyuse were 42% and 38%, respectively.The decrease in the share of oil and petroleum

    products in energy mix reects the success of the FourFuel Diversication Strategy and the National Deple-tion Policy introduced in the early 1980s. The share ofpetroleum products in nal commercial energy con-sumption declined from 75% in 1990 to 69% in 1999(see Fig. 3). Although the electricity sector has success-fully decoupled from oil dependency, the transportsector still relies heavily on petroleum products. Theincrease in private and commercial vehicles and the

    expansion of road networks have contributed to thehigh energy demand growth in the transport sector. Thetrend toward greater urbanization accelerated thetransition to electricity where higher income per capitamade desirable electrical goods more affordable. Successof the rural electrication programme introduced by theGovernment also contributed to an increase in electri-city demand. As of 2000, 93% of rural households inMalaysia were served with electricity. As shown inFig. 3, share of electricity in nal energy consumptionincreased from 13% to 18% in 1990 and 1999respectively.

    3. Energy prospects in Malaysia

    Malaysia in the 21st century faces many challenges asit sails through the uncharted path of globalization.Although the 19971998 economic downturn wascushioned by the adoption of strategic measures,another bout of economic slowdown is expected to

    Fig. 2. Final energy use by sectors (19901999). Note: Non-energy use refers to the transformation process for non-energy purpose (e.g. bitumen/

    lubricant) and use of energy products (e.g. natural gas) as industrial feedstock. Source: National Energy Balance 1999.




    Natural Gas8%



    Total: 13.2 Mtoe







    Total: 27.2 Mtoe

    Final Use of Commercial Energy by Fuel Type

    Fig. 3. Final use of commercial energy by fuel type. Source: National Energy Balance 1998 and 1999. Note: Natural gas share does not include

    natural gas that is utilized by the electricity generation sector.

    M. Zamzam Jaafar et al. / Energy Policy 31 (2003) 10611072 1063

  • bring about a certain degree of uncertainty to the energysector. In the quest to achieve Developed Nation statusas embodied in its Vision 2020 goal, sustainabledevelopment of the energy sector will become thepivotal factor for economic competitiveness and pro-gress.

    3.1. Natural gas

    The energy industry is a multi-billion dollar industrywhere huge capital investments are required to supportthe rapid growth of energy demand. In the next veyears, a total of RM 53 billion (1US$=RM 3.80) hasbeen allocated by the Government on the developmentof this industry (Economic Planning Unit, 2001a). Alarge share of the total investment will be set aside forexploration and production of crude oil and natural gas.This includes the development of resources domesticallyand overseas, through joint venture projects. Utilizationof environment-friendly natural gas will continue to beencouraged by sourcing additional supply of natural gasfrom the MTJDA, West Natuna and South Sumatra.The availability of domestic gas resources has alsospurred socio-economic development from foreign ex-change earnings of piped natural gas to Singapore andLNG exports. Furthermore, domestic gas used asfeedstock in petrochemical plants adds value to thedevelopment of petrochemical industries in Malaysia,which serve as a catalyst for further downstreaminvestments.

    3.2. Renewable energy potential

    The energy mix will continue to be predominantlybased on domestic resources in the next ve years. Sincedomestic fossil fuel resources (oil, gas and coal) aredepletable, efforts to promote renewable energy as afth fuel, especially for electricity generation will beintensied during the Eighth Malaysia Plan period(20012005). The Government has identied oil palmresidues as the biggest resource that can be easilydeveloped, thus having the greatest potential for bringingrenewable energy into the mainstream energy supply. Arecent study undertaken by the Government revealed thatbesides biomass and its residues, there are other renew-able energy options in Malaysia such as biogas,municipal wastes, solar and mini hydro (see Table 1).

    3.3. Energy efficiency

    Electricity peak demand in Peninsular Malaysia alonehas grown from 3447MW in 1990 to 9948MW in July2001. Peak demand is projected to increase by almost55% to 15,380MW by 2005 (Economic Planning Unit,2001a). Based on recent reports, a huge capitalinvestment of approximately RM 30 billion will be

    allocated for new power plants in the next ten years.Savings accrued from energy efciency are viewed as aunique domestic energy resource. It is hoped that energyefciency programs will also reduce the need to allocatehuge power plant capital investments. Energy efciencyefforts facilitated by the Government not only reducethe overall requirements for energy but are also expectedto improve the prot margins of organizations, generatenew businesses and decrease foreign exchange loss byreducing the need to build new power plants andrecurring fuel imports.

    4. The challenge

    The Government fully subscribes to the concept ofsustainable development. As energy is the lifeblood foreconomic growth, overall national sustainable develop-ment efforts in this context can never decouple fromsustainable development of the energy sector. TheNational Energy Policy introduced in 1979 covers thefollowing three objectives:

    (i) Supply: To ensure adequate, secure and cost-effective energy supply through developing andutilizing competing energy resources, both renew-able and non-renewable.

    (ii) Utilization: To promote efcient utilization ofenergy and to discourage wasteful and non-productive patterns of energy consumption.

    (iii) Environment: To minimize the negative environ-mental impacts of the energy supply chain (energyproduction, transportation, conversion and utiliza-tion).

    The challenges and issues for the energy sector will bediscussed in the framework of the prevailing energypolicy objectives.

    4.1. Meeting the supply objective

    In order to meet the supply objective, the Governmentadvocates the promotion of renewable energy and

    Table 1

    Renewable energy resource potential in Malaysia

    Renewable energy Energy value (RM million per annum)

    Forest residues 11,984

    Oil palm biomass 6,379

    Solar thermal 3,023

    Mill residues 836

    Hydro 506

    Solar PV 378

    Municipal waste 190

    Rice Husk 77

    Landll gas 4

    Source: Ministry of Energy, Communications and Multimedia, 2001.

    M. Zamzam Jaafar et al. / Energy Policy 31 (2003) 106110721064

  • increased utilization of natural gas and hydropo...


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