RECs provide an incentive for renewable energy development by offering asset owners, such as solar energy users, additional income streams.
AS South-East Asian countries are stepping up their efforts for decarbonisation goals, Malaysia is still in the “work-in-progress” mode when it comes to strengthening its environment, social and governance (ESG) goals in line with national standards.
The government has committed to a net-zero target by 2050, which requires 70% of its installed power capacity to be renewable. To achieve this, the country will need 55 to 65 gigawatts (GW) of clean electricity capacity, translating to the addition of up to 2GW of new capacity each year.
However, achieving this is hard work. Many companies with sustainability objectives struggle to make the shift to 100% renewable energy. So what’s the solution?
Enter Renewable Energy Certificates (RECs)—tradable, market-based instruments that corporations purchase to meet their decarbonisation goals.
In 2024, a total of 689 solar assets in Malaysia were registered with the International Tracking Standard Foundation and Tradable Instruments and Global Renewables Registry. However, more than 1,000 commercial and industrial solar assets remain unregistered, with the number continuing to grow as more rooftop solar panels are installed.
Despite Malaysia producing a total of 30,627GWh of renewable energy in 2022, only 11,602GWh were issued as RECs–meaning just 37% of the total renewable energy was converted into certificates, leaving 63% unissued due to a lack of awareness about RECs.
Why hasn’t it gained traction in Malaysia? The biggest issue with this is that there is a notable lack of awareness about the benefits and mechanisms of RECs.
REC benefits for individuals and corporations
From a supply and demand perspective, the benefits of RECs are clear. When it comes to individual renewable energy asset owners, such as homeowners with solar panels, RECs provide an additional revenue stream beyond selling energy to the grid.
This income is a good return on investment for solar panel installations, which is definitely a factor to consider.
As one of the few players in Malaysia in making it easier for companies to manage and reduce their Scope 2 emissions through innovative solutions and the facilitation of REC purchases, RECs should not be ignored when it comes to green energy transitions.
For commercial and industrial solar panel owners, RECs can be a valuable asset. While many big corporations, especially those in Europe and the United States, require renewable energy for their operations due to customer or regulatory pressure, Malaysian companies don’t have the same obligations. This creates an opportunity to sell excess RECs to those in need, adding a positive income stream to their profit and loss statements.
Word-of-mouth could be a main driver as more businesses realise the financial advantages of REC participation, reducing the demand for grid energy–typically generated from polluting sources.
As more businesses and individuals install solar panels and tap into REC markets, Malaysia could significantly reduce its reliance on dirty energy sources. This will eventually drive down emissions and help Malaysia meet its climate goals.
Looi said the biggest reason why RECs has not gained traction in Malaysia is a notable lack of awareness.
On addressing the awareness issue
It’s important to recognise that RECs are just one part of a broader sustainability strategy; companies are encouraged to prioritise energy efficiency measures and explore options like rooftop solar installations before considering RECs.
The main challenge lies in market liquidity and awareness. Many renewable energy asset owners are unaware about the benefits of REC trading, and in Malaysia, participation in the REC market remains relatively low.
In fact, many individual solar panel owners are sceptical of RECs, fearing they are just a scam. For larger corporate solar panel owners, RECs often fall outside of their core business focus, which makes them unaware of their potential opportunities.
When it comes to the corporate side, the biggest issue is supply constraints. Many companies prefer solar RECs over other forms, such as hydro, biogas, or biomass, leading to difficulties in securing adequate supply. This is particularly common in Malaysia, where REC output remains low compared to demand.
Singapore, on the other hand, has developed a strong REC market where prices have soared due to high demand, further creating room for renewable energy investments without the need for government subsidies like feed-in tariffs (FIT).
How RECs contribute to global climate goals
When it comes to international climate initiatives like the Paris Agreement, RECs have a crucial role to play. The focus is on reducing carbon emissions, a task that depends heavily on transitioning away from fossil fuels.
RECs provide an incentive for renewable energy development by offering asset owners additional income streams, thereby reducing the reliance on conventional power sources. This, in turn, helps lower global carbon emissions.
Singapore is a success story in this regard. The high demand for Singaporean RECs has led to some of the highest REC prices in South-East Asia and the second-highest globally. Now solar developers there factor REC income into their investment calculations, driving renewable energy growth without government subsidies.
If Malaysia can replicate this model, it could significantly boost the adoption of renewable energy and accelerate the country’s progress toward its 2050 net-zero target.
Malaysia is in dire need of innovation
Innovation will be the critical point when it comes to scaling RECs and driving the clean energy transition. There are already new platforms for REC trading in the market. There is a growing trend of 24/7 renewable energy matching, which is being spearheaded in Europe.
The 24/7 clean Power Purchase Agreements ensure that any clean energy paid for is matched by metered electricity used by a large consumer. This model sends a clear signal that corporations are seeking continuous renewable energy supply, pushing the market to innovate in order to meet that demand.
The rise of buy-and-sell REC trading platforms will also help boost the market by providing easier access. However, the market is still in its early stages.
If Malaysia can follow the example of its neighbour Singapore and strengthen its REC market, it has the potential to become a leader in South-East Asia’s renewable energy future. RECs is already recognised as one of the initiatives to accelerate transition towards a low-carbon nation in Malaysia’s Renewable Energy Roadmap 2021- 2035 (MyRER).
Louis Looi Kuan Siong is the head of trader at Asiarecs.
