At the start of 2024, it was clear that geopolitical disruptions around the globe would heavily influence the global energy market. The ongoing Russia-Ukraine conflict, instability in the Middle East, and escalating US-China relations have disrupted supply chains worldwide, causing energy prices to surge.

Amidst this highly volatile landscape, there is a growing need for Malaysia to be proactive in safeguarding its energy security. Local energy experts and government leaders recently agreed that the nation must accelerate and expand its transition to cleaner and more secure technologies to prepare for a coming period of global geopolitical realignment.

While the nation has made notable progress toward its net-zero emissions targets, more can be done to protect Malaysia from future energy price hikes or supply shortages by focusing on three key strategies: energy diversification, technological innovation, and cross-border power integration.

Impact of geopolitical tensions on energy prices

The worst impacts of these crises are reserved for the poorest in societies, especially in emerging and developing economies.

Geopolitical tensions are notorious for creating energy market volatility, as global supply chains are heavily dependent on stability in key energy-producing regions. Recent geopolitical tensions, like the Iran-Israel conflict, have sent shockwaves through energy markets around the world.

For instance, crude oil and diesel prices surged 14% in the immediate aftermath of Israel’s airstrike in Lebanon – directly and indirectly affecting prices across transportation, food, and other key sectors. What’s more, energy infrastructure is also facing risks from extreme weather events that are becoming an all-too-common aspect of life in developing nations.

Indeed, the International Energy Agency (IEA) warns that today’s geopolitical uncertainty is creating major risks – both for energy security and for the global race towards net-zero. The IEA’s latest World Energy Outlook highlights that the worst impacts of these crises are reserved for the poorest in societies, especially in emerging and developing economies.

The fragility in today’s energy markets is a reminder of the abiding importance of energy security, and the ways that cleaner energy systems can reduce energy security risks. A new global energy system needs to be built to last, one that prioritises security, resilience, and flexibility, while ensuring the benefits remain shared and inclusive.

Mapping Malaysia’s energy transition progress

Throughout the years, Malaysia has managed to offer its residents stable energy prices thanks to its Imbalance Cost Pass-Through (ICPT) mechanism. This mechanism serves as a financial buffer, shielding vulnerable consumers from the volatility of global energy markets, while ensuring electricity prices remain stable for industry.

Yet, behind this stability lies a story of delicate balance. The nation’s electricity tariff has long relied on subsidies supported by the Kumpulan Wang Industri Elektrik (KWIE) fund – a resource carefully stewarded to cushion the people and economy. But as with any finite resources, the KWIE fund is not inexhaustible, and its reserves are steadily depleting.

This challenge, compounded by the growing fragility of the global energy system, continues to place pressure on Malaysia to reduce its reliance on fossil-fuels based energy imports. The nation has now reached a crossroads, at which it may either continue its current trajectory – or relook into its strategy to better protect the nation against external fluctuations and rapidly accelerate its energy transition beyond current renewable energy targets.

The National Energy Transition Roadmap (NETR) represents a key milestone in this regard, outlining flagship projects to accelerate Malaysia’s transition. The Net Energy Metering (NEM) scheme is one notable example, enabling domestic, commercial, and industrial prosumers to self-generate solar power, while selling excess supply back to the grid.

However, there remains a significant gap between Malaysia’s solar panel production and domestic RE adoption due to challenges including high initial costs. This underscores the need for more comprehensive efforts to boost renewables uptake for meeting the nation’s accelerated RE installed capacity target of 70% by 2050 from the current 25%.

Securing the long-term gains to be achieved by implementing clean energy technologies hinges on higher levels of upfront investment today. Malaysia will need RM637 billion in green investments until 2050 to reach net-zero, including investments in RE generation sources, strengthening of grid infrastructure, and energy storage system integration.

To this end, the government has introduced a slew of new initiatives in Budget 2025 to incentivise private sector and consumer participation in decarbonisation. This includes e-rebates of up to RM70 million for the purchase of energy-efficient electrical appliances, and RM1 billion allocations to the Green Technology Financing Scheme (GTFS).

Towards shared energy resilience in ASEAN

Beyond looking within borders to upgrade Malaysia’s national energy infrastructure, fostering deeper cross-border connections can also enhance energy security. As a group, ASEAN has already identified a renewables target of 23% for its primary energy mix by 2025 – which is almost double, if not triple its current share of clean energy.

Experts see the ASEAN Power Grid (APG) – an ambitious project to create an interconnected power network throughout the region – as a potential solution. The APG would empower countries in the region to share excess supply of renewable energy, thus improving grid flexibility while strengthening overall energy security.

Nonetheless, the project comes with its own set of challenges. From an ecosystem perspective, ASEAN still lacks harmonised financial, technical, and market frameworks. Harnessing the full potential of renewables in ASEAN will require new institutional frameworks for the exchange of power and the alignment of regulations across borders.

Among the key components of a harmonised market, such as in the European Union, is transparency in energy tariffs, where participants know exactly what they are paying for. Greater transparency in harmonised markets will in turn support other collaborations, such as cross-border exports of renewable energy from Malaysia to Singapore.

Greater transparency in harmonised markets will in turn support other collaborations, such as cross-border exports of renewable energy from Malaysia to Singapore.

With Malaysia’s upcoming Chairmanship of ASEAN in 2025, the nation is uniquely positioned to lead ASEAN in advancing regional energy cooperation. This goes beyond merely connecting different power grids together to make a regional power system. Ultimately, the strength of interconnection relies on ASEAN’s diversity.

As we look to an uncertain future, one thing that is certain is that there can be no energy transition without transmission. Taking the APG vision forward will require recognising the region’s differences to build a system that empowers all members states to fully capitalise on the shared benefits of increased energy resilience, sustainability, and security.

Embracing opportunities in a global flux

The world is set to enter a new energy market context in the coming decade, marked by continued geopolitical hazards – but also by relatively abundant supply of diverse clean energy sources and green technologies.

As the demand for energy continues to grow, it is imperative to approach this transition with foresight, balancing immediate costs with the enduring benefits of a cleaner, more sustainable energy system. Malaysia needs to embrace a multi-faceted approach to navigate this complex landscape, while accelerating its clean energy transformation in ways that benefit everyone’s lives and future prosperity. In doing so, the nation can inspire the ASEAN region to follow suit – capitalising on each other’s strengths to create a robust, interconnected energy system for shared resilience in the future.