Elsevier

Utilities Policy

Volume 72, October 2021, 101266
Utilities Policy

Malaysia’s electricity market structure in transition

https://doi.org/10.1016/j.jup.2021.101266Get rights and content

Abstract

The Malaysian electricity industry evolved from a vertically integrated utility into a single-buyer model, which considered a precursor to deregulation and a competitive market. This study considers electricity sector reform in Malaysia and proposes a market structure for the industry. We focus on the single-buyer model and the pool model for the analysis with the recommendation on reform stages required to ensure a smooth and successful market transition. A smooth transition from regulated market into deregulated market will ensure market stability and sustainability of the energy market. It will also provide enough time for the market participants to adapt and transit from regulated to deregulated energy market.

Introduction

One of the world's first electricity supply industry reform started in Chile in 1987 and followed by the United Kingdom in 1989, where the main drivers for its reform is political ideology favouring market-driven approaches under a third consecutive conservative government (Newbery, 2005). In the early 1990s, many European countries and the United States joined the trend of reforming their electricity supply industry with similar market-driven approaches (Joskow, 2008). United Kingdom market reform has been a reference for point for other countries to pursue electricity industry reform in their respective country. The key strategies taken by some countries to transform their electricity sectors are summarised in Table 1(Sioshansi, 2006a), (Sioshansi, 2006b), (Sioshansi, 2008). Countries transitioned from one strategy to another until targets were realized and goals were achieved. Every country has its unique approach and impact depending on its economic, political, and social conditions.

Section snippets

Malaysian Electricity Industry

The Malaysian electricity industry has gone through many phases of reform to reach the current status. These phases of reform had increased the efficiency of utility operation and improved the quality of supply provided to the end customers. However, more initiatives are needed to optimize the true potential of reform. Malaysia's first step to reform was through privatization. Privatization is an action to move away from the ownership of government and its bureaucracy. Malaysia has also

Privatization in Malaysia

Privatization in Malaysia began in July 1990 when National Electricity Board (NEB) was corporatized and renamed Tenaga Nasional Berhad. In 1992, Tenaga Nasional Berhad (TNB) became fully privatized when it offered its share on the Kuala Lumpur Stock Exchange (KLSE). The success of TNB's privatization is considered a success story of privatization in Malaysia. It paved the way for the government to award licences to build, operate and own (BOO) power plants to the private sector in 1993.

Malaysia electricity supply industry (MESI) reform initiatives

After privatization in November 1998, the Malaysian government stepped up on the reform by forming independent GSO Taskforce, which was assigned to set up an independent grid system operator and market operator. It was a government initiative to advance reform the Malaysian Electricity Industry. One of the main aims was to encourage competitiveness in generation dispatch. The task force had to review, design and draft all related rules, codes, procedures, and agreement necessary to

Energy market structure

A typical high-level market structure is defined through the period it is operating. For example, is it years, month, days, hour, and minutes? Each market mechanism is designed based on this time requirement. Most of the market structure comprises these components (Al-SunaidyGreen, 2006), (Jin, 2018), (Oleinikova, 2015), (Khadam., 2016):

  • Capacity Market. A market mechanism that ensures long term grid reliability by procuring appropriate power supply resources needed to meet the predicted peak

Single-buyer model

At present, the Malaysian Electricity Industry adapts the single-buyer model where there is a single entity within the electricity industry that will buy the total electricity needed by the nation and the grid system operator will manage the distribution of the energy through the transmission network. Both single buyer and grid system operator are ring-fenced entities within TNB (Malaysian electricity utility). Most of the power plant portfolio in Malaysia is either IPP or TNB owned plant. The

Discussion

The single-buyer model, which Malaysia adopted, has been keeping the electricity tariff stable through the implementation of incentive-based regulation (IBR) and the imbalance cost pass-through (ICPT) mechanism, which was introduced via MESI reform initiatives. Reform had taken place since 1992, with the privatization and the latest which is MESI reform initiative which can be seen as a strategy taken by the government of Malaysia to prepare the Malaysian electricity industry for transitioning

Conclusion

From the analysis, we can conclude that establishing a competitive market could improve the cost-effectiveness of the Malaysian electricity industry. The analysis clearly shows 59% system cost reduction for a pool plus fixed-contract structure, compared to a single-buyer structure. Competition between the market players is expected to reduce the market-clearing price. It could also enable the Malaysian government to reduce fuel subsidies and other mechanisms used to maintain the electricity

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

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