Since the 1990s, Malaysia has been in the process of restructuring its electricity sector with the aim of improving the efficiency, governance, and administration of the sector, maintaining/enhancing the security of electricity supply, and encouraging the growth of low-carbon technologies.

The country has faced a number of challenges in all elements across the electricity supply chain and this led to the creation of the Malaysian Electricity Supply Industry (MESI 1.0) reform initiatives. This reform aimed at awarding tenders to competive independent power producers (IPPs), incentive based regulation (IBR) with imbalance cost pass through (ICPT), accounting unbundling, and the gradual rationalization of gas subsidies.

In the years following MESI 1.0 a range of new industry megatrends – such as digitalization (examples: smart energy network using digital technologies), decentralization (examples: customer participation and integration of distributed resources), and electrification (examples: increase in electricity demand due to electric vehicles and other appliances) – led to the MESI 2.0 reform initiative (MESTECC, 2019). MESI 2.0 aims to make the power sector more efficient, reliable, and sustainable.

This report examines electricity supply industry reform challenges and analyse market design issues and options in Peninsular Malaysia.