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Net Metering Regulations

Challenges to Investment

In the Eleventh Malaysia Plan 2016-2020, the Malaysian government set a goal to increase renewables’ share of the energy mix by increasing solar PV capacity, which amounted to less than 1% of total electricity generation in 2015. Hence, there was a need to conceptualize new long-run policy schemes and to incentivize investments in renewable energy technologies, but Malaysia had been unsuccessful thus far in promoting solar deployment. Additionally, Malaysia lacked measures to promote efficient energy consumption, which could potentially catalyse additional investment by lowering costs.  


Approach

To promote energy efficiency and replace the previous cost-intensive Feed-in Tariff (FiT) mechanism, the government implemented a new instrument termed net energy metering (NEM) in 2016. As part of the Eleventh Malaysia Plan 2016-2020, NEM was executed by Ministry of Energy, Green Technology and Water (KeTTHA) and regulated by the Energy Commission (Suruhanjaya Tenaga). The objective of NEM was to encourage renewable energy generation by allowing consumers to install renewable energy systems and export excess electricity to the grid while receiving credits in return. 

In the original scheme (NEM 1.0), a system could sell an allotted amount of excess energy based on the system’s size (e.g., 12-72 kWp for residential, 1MWp for commercial). The excess would be credited in the next billing period at the displaced cost rate per kWh (i.e., savings on avoided costs). The second scheme (NEM 2.0), introduced in 2019, allowed excess energy exports on a “one-on-one kW-basis”, credited at the retail rate per kWh (i.e., the domestic tariff they would have been paid to generate that electricity).  



Key Enabling Conditions

One crucial factor driving uptake under NEM 2.0 was the government’s decision to change the original NEM policy, where generators sold excess energy at displaced cost rates, to a “one-on-one” policy based on retail rates under NEM 2.0. This change improved cost savings for generators and catalysed solar energy investments for large and medium consumers. The NEM schemes did not cover capital and maintenance costs for solar, and high cost continues to create a barrier to investment. In general, however, the NEM scheme was an appealing and easy-to-understand concept that resonates with private households, as well as commercial and industrial customers.

More recently, in 2023, the National Energy Transition Roadmap (NETR) further increased the ambition of Malaysia in regards to gradually increasing RE shares to, respectively, 31% by 2025, 40% by 2035, and an impressive 70% by 2050. This has acted as yet an additional positive signal and confidence booster for investors in the clean energy space. 


Impact / Outcomes

The original NEM scheme had set a target of achieving 500 MW solar capacity by the end of 2020. However, as of the end of 2018, only 27.8 MW of NEM-designated solar capacity had been approved and actual operational capacity only reached 9.0 MW. With a balance of 472.2 MW to be realized before the end of 2020, the government introduced NEM 2.0 to overcome the unattractive rates of return offered under NEM 1.0. NEM 2.0’s quota of 500 MW was fully subscribed by the end of 2020, motivating the government to introduce the latest NEM 3.0 scheme in December 2020. NEM 3.0 has been in effect since 2021. At the time of this case study publication, its 400 MW quota was to be offered until December 31, 2024, or until all quotas were allocated.


Additional Sources

Locations
ASEAN, Malaysia
Year published
01 January 2016
Policy type
Energy policy
Risk category
Power market risk, Permits risk, Grid/transmission risk, Policy and regulatory risk
Policy lever
Incentives for clean energy

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