Coal in Malaysia: Balancing Energy Security and Environmental Sustainability

alecasolutions
May 13
4 min read

Updated: May 22

Malaysia gets ~44% of its electrical energy from coal, for only ~$127 a tonne.

Malaysia enjoys a very low electricity cost starting from 0.22 sen / KWh.

Malaysia imports the majority of its coal from Indonesia and Australia, costing the country RM 16.4 billion.

So what’s the risk?

Coal’s role in Malaysia’s energy security vs natural gas

Malaysia's domestic reserves of liquefied natural gas (LNG) and coal are rapidly depleting, yet the nation continues to rely heavily on these sources for energy and electricity generation. As of 2023, Malaysia's electricity generation mix comprises 44% coal, 36% natural gas, and 20% renewable energy (RE) (Climatescope, 2024). Coal remains the most cost-effective and accessible energy source however, its price volatility is increasing due to traditional and non-traditional security threats over maritime routes, geopolitical tensions, carbon emission regulations, and the escalating global demand for energy.

Coal's role in energy generation

In 2023, coal-fired power plants in Malaysia produced approximately 81,400,000 MWh of electricity, accounting for about 44% of the nation's total electricity output, surpassing natural gas, which contributed 69,200,000 MWh. However, this does not reflect the efficiency of energy generation from coal, as only ~40% of the intrinsic coal energy gets converted into electrical energy, while ~60% escapes as heat or other losses. This significant reliance on coal is attributed to its cost-effectiveness and ability to provide a stable base load supply, essential for meeting the country's growing energy demands.

Tenaga Nasional Berhad (TNB), Malaysia's primary electricity utility company, reported that the price of coal decreased from USD 351.53/MT in December 2022 to USD 127.75/MT in December 2023 (TNB, 2023). It is worth noting that the Malaysian government heavily subsidises the electricity tariffs for the Malaysian consumer, starting with tier 1 at 0.22 MYR/KWh. Should the coal price return to 2022 prices, electricity supply from coal will be near 0.50 MYR/KWh.

Procurement and importation mechanisms

Malaysia's domestic coal production is limited, with reserves estimated at ~224 million metric tonnes, primarily located in Sarawak and Sabah. In 2023, the country produced ~3.5 million metric tonnes of coal but imported approximately 31 million metric tonnes to meet its energy requirements (TheGlobalEconomy.com, 2023a; 2023b). The majority of these imports originate from Indonesia's Kalimantan region, leveraging its proximity and abundant coal reserves (Ember, 2024).

Procurement is facilitated through long-term contracts and spot market purchases. For instance, TNB secured a coal import agreement worth USD 3 billion with Indonesian exporters to ensure a steady supply over three years to meet domestic demand (Southeast Asia Infrastructure, 2022). Despite coal's affordability and abundance, this dependence on imports exposes Malaysia to external risks, including geopolitical tensions, supply chain disruptions, and price volatility.

Transportation of coal is done through maritime passage, which means that coal barges will have to pass through the busiest and also riskiest parts of the ocean, such as the Straits of Malacca. Increasing geo-political tensions over these waters have made maritime passage more difficult and unreliable. If Malaysia cannot get enough coal imports, it is a huge blow not just to the Malaysian economy but also other coal trading partners and nations.

Environmental and health implications of coal combustion in Malaysia

The combustion of coal in Malaysia's power plants releases significant quantities of greenhouse gases and pollutants, notably carbon dioxide (CO₂), sulfur dioxide (SO₂), and nitrogen oxides (NOₓ). These emissions contribute to air pollution, environmental degradation, and pose serious health risks to the population.

A study assessing emissions from a coal-fired power plant in Malaysia found that SO₂ is the primary contributor to air pollution, with both chronic and acute health effects more pronounced in children than in adults. The study combined real-time emissions data and simulations to assess the health impact, highlighting the need for cleaner energy alternatives to mitigate these risks (Pertanika Journal of Science & Technology, 2024).

Furthermore, the International Energy Agency (IEA) reported that in 2022, Malaysia's total CO₂ emissions from fuel combustion were 37 million metric tonnes, with coal-fired power plants being a significant contributor (IEA, 2024).

Energy security amidst transition

As Malaysia endeavours to reduce its reliance on coal, concerns about energy security emerge. Transitioning to renewable energy (RE) sources requires significant investment in infrastructure, technology, battery storage, and grid stability. The National Energy Transition Roadmap (NETR) outlines plans to phase out coal-fired power plants by 2044, aiming to achieve net-zero emissions by 2050 (Ministry of Economy Malaysia, 2023).

However, the transition poses challenges, including the need to ensure a reliable energy supply during the shift to renewables. Malaysia plans to reduce its coal power plants by half by 2035 and retire all of them by 2044. This strategy involves increasing the share of renewable energy (RE) in the national electricity mix to 70% by 2050, incorporating sources such as solar, biomass, and waste-to-energy, alongside initiatives like grid modernization and the Malaysia Energy Exchange (Power Line, 2024).

Conclusion

Coal has played a pivotal role in Malaysia's energy sector, offering affordability and reliability. However, the environmental and health costs associated with its use, coupled with the risks of import dependence, necessitate a strategic shift towards sustainable energy sources. Balancing energy security with environmental responsibility will be crucial as Malaysia navigates its energy transition journey.