Just a few days ago on 15 April 2024 (Monday), the Ministry of Energy Transition and Water Transformation of Malaysia (“PETRA”) announced the establishment of ENEGEM^[1] in line with national agendas such as the National Energy Transition Roadmap (“NETR”) and National Energy Policy 2022 – 2040.  ENEGEM will operate as Malaysia’s first cross-border platform to facilitate sales of renewable energy (“RE”) to neighboring ASEAN countries through a bidding mechanism.

The establishment of energy exchanges is a familiar phenomenon globally. Many different jurisdictions have established their own energy exchange as a marketplace for electricity such as the European Energy Exchange (“EEX”)[2] or the European Power Exchange (EPEX SPOT)[3]. A key highlight of EPEX SPOT is its coupling to other European power exchanges, enabling cross-border electricity sales and deliveries. Initially tied to the Dutch (APX) and French (Powernext) power exchanges, subsequent geographical expansions and additions of other European power exchanges broadened its scope and increased its liquidity in the European spot market. Starting with its participation in the Tri-Lateral Market Coupling (“TLC”) in November 2006, which initially linked the French, Belgian, and Dutch Day-Ahead markets, to the integration in 2010 of the Central West Europe (“CWE”) region, followed by the launch in 2014 of price coupling in North-Western Europe (”NWE“), EPEX SPOT has been central in driving market harmonization efforts. EPEX SPOT currently collaborates with 7 other power exchanges on the Price Coupling of Regions (“PCR”) initiative, covering 24 European countries. PCR is used to calculate energy allocation, net positions and electricity prices across Europe.[4]

Further, the concept of cross-border sales to a single buyer via an auction mechanism bears resemblance to the cross-border auctions associated with the Capacity Remuneration Mechanism (“CRM”), as implemented in Belgium. In 2021, Belgium introduced a capacity remuneration mechanism to ensure security of electricity supply after the planned closure of all its nuclear power plants, while supporting energy transition. The CRM aims to compensate electrical capacity holders for the portion of their relevant costs that are not compensated by their revenues, known as “missing money”, through a yearly remuneration for their capacity. That mechanism awards support from 2021 through annual auctions to units that can supply or save electricity from 2025. It is a CRM based on “reliability options”. This means that the mechanism is technology-neutral, market-wide and centralised, as well as avoids excess profits by providing for an obligation to repay the support received in case of high prices.

An annual auction for CRM has been taking place from 2021. Capacity must be available four years later for security of supply and will receive a subsidy in return. From the first “Delivery Period”, 2025-2026 (Auction in 2024), so-called “Indirect Foreign Capacities” are also allowed to participate. Indirect foreign capacity is capacity located in one of the neighbouring countries with which the Belgian electricity grid is interconnected (France, Germany, the Netherlands, and UK) and which has no direct physical connection to the Belgian grid.[5]

It is hence delightful to see that Malaysia is ushered into this global energy market.

The launch of ENEGEM is kickstarted by a pilot auction scheme to export 100 megawatts of RE to Singapore. Interested Singaporean electricity entities may register with PETRA or the “Single Buyer”[6] to participate in this auction from 16 April 2024 (Tuesday) onwards.[7]

The primary regulation governing ENEGEM sales would be the latest “Guide for Cross-Border Electricity Sales (“CBES”)[8] issued by the Malaysian Energy Commission, which emphasizes adherence to the Electricity Supply Act 1990.

The envisioned scheme of RE sales to countries such as Singapore and Thailand is illustrated in the diagram below. This scheme includes, among others, RE Supply Agreements between a Purchaser and Single Buyer as well as Power Purchase Agreements (“PPAs”) between Single Buyer and RE Plants such as those from Tenaga National Berhad (“TNB”) and other independent power producers.

Diagram taken from the Single Buyer website introducing ENEGEM.[9]

It is worth noting that PPAs, as demonstrated in the diagram above, play a significant role in the current global market of energy. In recent years, the energy market has seen a sharp rise in prices for oil, gas, coal, and power due to an acute energy shortage worldwide. In response, the energy market has increasingly shifted towards PPAs as a solution for renewable energy sources to reduce dependence on fossil fuels which contribute to rising energy prices. The predetermined prices found in PPAs have hence gained popularity to reduce unwelcome spikes in energy rates. Additionally, global awareness of environmental responsibility and the necessity for green energy in light of climate change have also incentivized investments in renewable energy projects such as PPAs