Malaysia: A Guide to Corporate Green Power Programs for Business Consumers

in a nutshell

Malaysia recently launched a corporate green power program (“CGPP“) is a renewable energy initiative that allows corporate consumers to virtually purchase solar energy from solar developers.VPPA“), or the Corporate Green Power Agreement (“CGPA”). Previous alerts issued by the CGPP can be found here and here.

This alert explains the mechanism of the CGPP and sets out potential investment opportunities and benefits for business consumers, especially those with high energy-intensive plants and factories.

Corporate Green Power Agreement (“CGPA”)

1. A CGPA is a financial transaction that does not involve the physical transfer of electricity between a corporate consumer and a solar developer. CGPA is basically a form of financial hedging that separates the physical flow of electricity from the financial flow as shown below.

Electricity flows and financial transactions under the CGPA
(Source: Information on green power system for corporations (for solar power plants))

2. In particular, the CGPA will not change the retail/supply relationship between solar developers and commercial consumers and the electricity utility company (Tenaga Nasional Berhad).
   • Solar developers will have a new enhanced dispatch agreement (“Neda”) framework and system marginal price, i.e., the energy price of the most expensive thermal generator dispatched to meet the demand for a given 30-minute period (“SMPs”).
   • Corporate consumers, on the other hand, procure power from the local power grid (“home market“) at the approved tariff rate.
3. A CGPA is essentially a contract for difference in which the parties agree to a settlement pricing mechanism for the energy supplied and consumed, which can be either a fixed price or a more complex structure (seeCGPA Price”).
   • If the tariff rate paid by the corporate consumer on the energy consumed is higher than the CGPA price, the corporate consumer will pay the solar developer the positive difference.
   • Conversely, if the SMP received by the solar developer for the energy delivered is higher than the CGPA price, the corporate consumer will receive the difference payment.
   • Usually, in most cases, such differential payments offset price increases or decreases in the domestic market for corporate consumers. However, given that in Malaysia the merchant market may not be similar to that experienced in other jurisdictions in that the SMP is set up by an electricity utility company (Tenaga Nasional Berhad). Business consumers work with market experts to ensure that the agreed CGPA price provides a sufficient buffer to put business consumers in a favorable financial position.

Benefits of participating in the CGPP

1. Corporate consumers can procure renewable energy under the CGPP without having to install or locate solar panels or solar energy storage systems nearby, as there is no physical movement of electricity. increase.
2. Corporate consumers are entitled to obtain renewable energy certificates for energy generated by solar developers under the CGPA. This is particularly relevant for corporate consumers who are interested in:
   • Utilization of renewable energy and promotion of sustainable business operations
   • Achieve environmental, social and governance (ESG) goals
   • Offset your carbon footprint and boost your company’s reputation
3. Corporate consumers can continue to receive stable power supply without being affected by the supply capacity of solar developers.
4. Depending on the agreed CGPA price, the CGPA can guarantee long-term stable energy prices for contracted power, regardless of fluctuations in wholesale power or market prices.

eligibility criteria

To qualify for the CGPP, business consumers must meet the following criteria:

1. A business consumer must be a business operating in, or planning to set up and operate in, a manufacturing or service industry in Peninsular Malaysia within the next two years.
2. Existing corporate consumers must have been in reliable financial standing for the past three years.
3. New corporate consumers need to have attested documents from the authorities (i.e. Ministry of Trade and Industry) and projected annual revenue of RM10 million or more.
4. The energy demand of business consumers must be above 1 MW.
5. Corporate consumers remain consumers of the electricity utility company (Tenaga Nasional Berhad).

Only solar developers who have secured VPPAs with commercial consumers can apply for the CGPP. Therefore, corporate consumers interested in participating in the CGPP should seek out existing or potential solar he developers interested in participating in the CGPP.

It is worth noting that the CGPP only applies to companies engaged in manufacturing and service industries. These cover most of the major businesses, but there is no clear definition of what falls under manufacturing and service industries. As such, some industries may not be eligible to participate in his CGPP.

Apart from becoming a CGPP “off-taker”, companies with excess land in Peninsular Malaysia may consider working with solar energy developers to jointly develop solar energy projects. Alternatively, corporate consumers may consider leasing land to solar developers interested in participating in the CGPP as another source of income.

With ESG considerations a key driver of business operations and the potential implementation of a carbon tax regime, the CGPP provides a good opportunity for companies operating in Malaysia to advance their renewable energy deployment efforts. increase. Eligible companies should consider the above potential opportunities to maximize the environmental and commercial benefits of the CGPP.

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This Client Alert is issued by Wong & Partners, a member firm of Baker McKenzie International, a global law firm with member firms worldwide. In accordance with common terminology used in professional services organizations, references to “partner” mean a partner or equivalent of such law firm. Similarly, references to “offices” mean offices of such law firm. This may be “attorney advertising” which requires notice in some jurisdictions. Previous results are no guarantee of similar results.