Malaysia has embarked on an ambitious transition to reshape its electricity sector by gradually phasing out coal-fired power generation while significantly expanding renewable energy. Under the National Energy Transition Roadmap (NETR), the country has committed to ending coal-based power generation by 2044, supported by a policy of not approving new coal-fired power plants and reducing coal generation by 50 per cent by 2035. In parallel, renewable energy is targeted to account for 70 per cent of installed capacity by 2050. These objectives are driven by the need to reduce carbon emissions, improve energy security, lower dependence on imported fuels and support long-term economic growth. However, replacing coal while maintaining reliable and affordable electricity supply remains one of the country’s most significant policy and technical challenges.
Malaysia’s electricity system continues to rely heavily on fossil fuels. In 2024, the country’s installed generation capacity stood at approximately 40.6 GW, with natural gas accounting for 37.6 per cent, coal for 32.3 per cent, hydropower for 15.6 per cent and solar for 10.3 per cent. At the same time, electricity demand is rising steadily because of economic growth, urbanisation, electrification, increasing cooling requirements and rapid investment in data centres. Electricity consumption in Peninsular Malaysia is projected to increase by around 4.5 per cent annually, while data centres alone could contribute nearly 11 per cent of peak electricity demand by 2035.
A recent report by the World Economic Forum, prepared in collaboration with Malaysia’s Ministry of Energy Transition and Water Transformation and KPMG, outlines a comprehensive road map for achieving this objective. Based on extensive stakeholder consultations conducted over eight months, the report presents nine strategic recommendations organised around three broad priorities: accelerating renewable energy deployment and improving system flexibility, managing the orderly phase-down of coal-fired power plants, and ensuring long-term power system reliability through prudent use of natural gas, evaluation of nuclear power and stronger regional electricity integration. Collectively, these recommendations aim to create a resilient, flexible and affordable power system capable of supporting Malaysia’s climate commitments and future economic development.
Expanding renewable energy capacity
As per the report, renewable energy deployment must accelerate well before coal-fired power plants begin retiring from 2029 onwards. Delays in renewable capacity addition could result in greater dependence on imported liquefied natural gas (LNG), exposing Malaysia to fuel price volatility, supply disruptions and long-term investment in additional fossil fuel infrastructure. The report, therefore, emphasises that renewable energy should replace retiring coal generation rather than allowing natural gas to become the dominant substitute.
Malaysia possesses favourable conditions for expanding variable renewable energy, particularly solar power. According to the International Energy Agency, the country remains at an early stage of renewable integration and has considerable scope to increase renewable penetration before extensive system-wide changes become necessary. Supportive government policies, competitive large-scale solar (LSS) auctions, demand-side initiatives and relatively efficient system operations provide a strong foundation for further renewable growth. Competitive LSS auctions have already awarded around 6 GW of solar capacity, contributing to declining generation costs and expanding utility-scale renewable deployment. Complementing these auctions are several initiatives, including the feed-in tariff programme, net energy metering schemes, self-consumption, the corporate green power programme, the community renewable energy aggregation mechanism and corporate renewable energy supply scheme.
Strengthening grid flexibility
As solar generation increases, maintaining the balance between electricity supply and demand becomes increasingly complex because renewable output varies with weather conditions and time of day. The report identifies grid flexibility as a critical enabler of Malaysia’s energy transition, requiring investments in transmission infrastructure, energy storage, advanced forecasting and ancillary service markets. Malaysia has already initiated significant investments to modernise its transmission network. Tenaga Nasional Berhad (TNB) is upgrading the grid, deploying artificial intelligence-based operational tools and developing a dedicated “transition backbone” capable of transmitting renewable electricity from generation centres to major demand hubs.
Battery energy storage systems (BESSs) have also emerged as an important component of the country’s transition strategy. Battery storage can absorb surplus renewable generation during periods of high output and supply electricity during periods of low generation or peak demand. Malaysia has already initiated several large-scale battery storage projects, including TNB’s 100 MW/400 MWh pilot project, Sarawak Energy’s BESS installation at Sejingkat and the MyBeST battery storage auction programme.
Further, the rapid expansion of data centres is expected to significantly increase electricity demand and place additional pressure on transmission infrastructure. Rather than viewing data centres solely as a source of rising demand, they can also contribute to system flexibility by promoting behind-the-meter battery storage, introducing demand response programmes and establishing market mechanisms that compensate consumers for providing ancillary services such as frequency regulation and voltage support.
Managing the phase-down of coal
The report emphasises that Malaysia’s transition extends beyond retiring coal-fired power plants. Instead, it presents an opportunity to maximise the value of existing infrastructure while supporting the development of a cleaner and more flexible electricity system. Since most coal plants are expected to retire upon the expiry of their power purchase agreements (PPAs), Malaysia has the advantage of implementing a structured and predictable transition. However, simply retiring plants without considering alternative uses would overlook opportunities to retain valuable infrastructure, enhance system flexibility and attract investment into clean energy projects.
Among the available options, repurposing existing coal plant sites is identified as the most practical and scalable approach. Existing coal plants possess significant infrastructure assets, including transmission connections, substations, land, water access and an experienced workforce. Converting these sites into renewable energy and battery storage facilities enables these assets to be retained while replacing coal generation with cleaner alternatives. Compared to developing entirely new projects, repurposed sites can reduce development costs, shorten project timelines and simplify permitting requirements.
The report recommends establishing a National Coal Site Repurposing Framework that provides a standardised process for planning redevelopment before PPAs expire. Plant owners would be encouraged to prepare transition plans well in advance, allowing regulators and the system operator to assess future network requirements and determine the most appropriate redevelopment options. The proposed framework also recommends standardised procedures for environmental approvals, planning permissions, grid connection arrangements and successor PPAs, while encouraging competitive participation from both existing plant owners and third-party developers. The report identifies several potential repurposing pathways. BESSs represent one of the most attractive options because they can provide spinning reserve, frequency regulation, voltage support and other ancillary services while making use of existing transmission infrastructure. Installing solar photovoltaic projects at former coal sites also enables productive utilisation of available land and creates new revenue streams.
Ensuring long-term system reliability
While renewable energy is expected to become the dominant source of electricity over the long term, Malaysia will continue to require reliable sources of firm and flexible generation to balance the variability of solar and other renewable resources. Natural gas is expected to perform this role during the transition period. However, the report cautions against replacing dependence on coal with excessive reliance on imported LNG, particularly as domestic gas reserves decline and global fuel markets remain vulnerable to geopolitical disruptions. It, therefore, recommends treating gas as a transitional fuel by prioritising flexible, hydrogen-ready gas plants, adopting shorter-duration PPAs and periodically reviewing future gas procurement in line with renewable energy deployment.
Beyond the transition period, the report identifies nuclear energy as a potential source of firm, low-carbon electricity capable of complementing renewable generation. However, it also recognises that nuclear deployment requires extensive regulatory preparation, institutional capacity, public engagement and commercially viable financing models. Rather than advocating immediate investment, the report recommends evaluating nuclear power as part of Malaysia’s long-term electricity planning while ensuring transparent communication on safety, environmental performance and the economics of nuclear power.
Regional electricity integration also forms an important element of the proposed transition strategy. The report highlights the ASEAN Power Grid as a means of improving system balancing, facilitating cross-border trade in renewable electricity and reducing reserve capacity requirements. Strengthening transmission interconnections and harmonising regional regulatory frameworks could enable Malaysia to access a broader mix of renewable resources while reducing dependence on domestic gas-fired generation.
Financing remains central to the successful implementation of these measures. Repurposing coal assets, deploying renewable energy, expanding battery storage and modernising transmission infrastructure require substantial long-term investment. The report, therefore, recommends mobilising innovative financing mechanisms, including transition finance, blended capital, transition credits and transition sukuk, alongside stable policy frameworks, transparent procurement processes and predictable revenue mechanisms to attract greater private sector participation.
Overall, the report presents Malaysia’s transition beyond coal as an opportunity to redesign the country’s electricity sector around renewable energy, flexible grids, energy storage and diversified sources of firm low-carbon power. By implementing its strategic recommendations in a coordinated manner, Malaysia can progressively phase out coal while maintaining electricity affordability, strengthening energy security and developing a resilient power system capable of supporting future economic growth and rising electricity demand.
