Renewable Energy. Malaysia on the Path to Leadership in Southeast Asia

Malaysia will build a large solar power plant. The government of Kuala Lumpur has projected the increase of the green energy share in the country’s total energy production from 40% to 70% by 2050.

Malaysia has unveiled plans to build the largest solar-hybrid power plant in all of Southeast Asia. The project is a part of a larger program that also includes the widespread use of hydrogen for power generation. All these innovations should allow Malaysia to increase its share of electricity generation from renewable sources to 70% by 2050. As Malaysian Minister of Economy Rafizi Ramli said in Kuala Lumpur, “this represents an ambitious attempt to significantly increase the productivity of renewable energy sources using state-of-the-art technologies and in full respect and protection of the environment.”

The construction of the maxi-power plant will be entrusted to the Malaysian sovereign wealth fund Khazanah Nasional Bhd., which has already attracted investments totaling six billion Malaysian ringgits, which is equivalent to 1.3 billion dollars. According to Minister Rafizi, the maxi power plant will be a part of 10 green projects with an estimated cost of 25 billion ringgits ($5.5 billion) that will comprise Malaysia’s energy transition program.

In addition to the sovereign wealth fund Khazanah, some important companies such as Tenaga Nasional Bhd., Sime Darby Property, Malakoff Corp., and Petronas will participate in the implementation of the NETR program. In May last year, the Malaysian government raised its renewable energy production forecast for year 2050 from 40% to 70% of the country’s total energy production. Reaching this milestone will require an investment of 637 billion ringgits ($140 billion). According to data from Kuala Lumpur government, in the first quarter of 2023, electricity generation from renewable sources accounted for about 25% of Malaysia’s total energy production.

Malaysia wants to become one of the largest producers and exporters of “clean” energy in all of Southeast Asia. The country recently lifted a much-criticized export ban on renewable energy. The move opened up broad prospects for Malaysian companies that are rapidly expanding clean energy production to meet rising domestic and international demand.

On July 28, Bloomberg released some of the highlights of Malaysia’s energy transition agenda, including:

– a bill will be submitted to the Malaysian parliament to regulate the energy consumption for high-consumption users;

– Tenaga company will take part in the construction of solar parks in various states of Malaysia and will also be involved in the construction of some artificial reservoirs;

– Malakoff company will develop a technology to burn biomass together with coal at the Tanjung Bin power plant;

– Sime Darby Property Group will install 4.5 MW solar panels in 450 residential buildings;

– Finally, oil giant Petronas will design a state-of-the-art biofuel processing plant to be built in Johor, West Malaysia’s southmost state.

Economic and Trade Exchanges Between Malaysia and Italy

In recent years, the government of Kuala Lumpur, in order to further limit the impact of oil and gas on GDP, has decided to turn Malaysia into a trading center not only for the ASEAN region, but also for other countries, with which it has signed bilateral free trade agreements (China, India, Pakistan, Korea, Japan, Australia, and New Zealand). This was made possible by a program of liberalization in the services and capital markets and the proposal of tax incentives and relief. On the industrial front, the executive branch seeks to encourage investment that ensures the transfer of significant technology, the use of local labor, and the production of goods for export.

As the Ministry of Foreign Affairs and International Cooperation of Italy  wrote in a recent issue of the Economic Observatory magazine, “in this context, Italy has given new depth to relations with Malaysia that represents one of the most important players in this area and offers a number of advantages that are not easily found in the region.”

The country is perceived by Italian businesses as “an ideal springboard for expansion into Southeast Asia” due to its strategic geographic location, high degree of openness to international trade, a good infrastructural system that keeps upgrading, an advanced manufacturing industry, and companies capable of offering integrated and flexible logistics services, broad access to low-cost skilled labor, and numerous tax incentives (particularly for companies operating in the digital sector).

This is in addition to other important factors, such as the abundance of natural resources, the remarkable dynamism of the service sector, the relatively low cost of the real estate market, the high level of per capita income that guarantees high consumption, the spread of English, Chinese, and Bahasa languages, and excellent quality of life for the money. These advantages make Malaysia an attractive country for the production of high-tech products for regional and international markets.

During the 2020-2022 period, Italian exports to Malaysia amounted to €1.15 billion in 2020, €1.12 billion in 2021, and €1.53 billion in 2022. During the same period, Italy imported goods and services from Malaysia for the amount €1.15 billion in 2020, €1.59 billion in 2021, and €1.92 billion in 2022. While Italy’s exports remained nearly stable during this period, Malaysia’s exports to Italy rose primarily thanks to increased sales of rubber products, palm oil, and electronic products. In terms of Italian exports to Malaysia, we see a great trend in jewelry, food, electronic products, and chemicals. Although, as always, the number one item was industrial equipment. According to the Italian government, “this is still the sector recognized as the biggest opportunity for Italian companies.”

According to the Bank of Italy data for 2021 (latest available data), Italy has accumulated foreign direct investment (FDI) in Malaysia totaling 2.3 billion euros.