Malaysia has steadily advanced its renewable energy (RE) ambitions, anchored by the Feed-in Tarif (FiT) mechanism, a key policy instrument that has underpinned the country’s energy transition. Administered by Sustainable Energy Development Authority (SEDA) Malaysia, the FiT framework guaranteed grid access for renewable energy producers, thus encouraging investment in solar photovoltaic (PV), biomass, biogas and small hydro. The FiT’s evolution ties directly into Malaysia’s broader policy frameworks, including the National Energy Policy 2022-2040, Malaysia Renewable Energy Roadmap (MyRER), and the National Energy Transition Roadmap (NETR), all of which point to a future of higher RE penetration, improved grid reliability and lower carbon emissions. In a dynamic global energy landscape, Malaysia’s continuous refinement of the FiT framework underscores a critical truth—smart, adaptive policymaking is key to unlocking sustainable growth. With the right policies in place, Malaysia is not just participating in the energy transition; it is shaping it.

The FiT mechanism was formally implemented under the RE Act 2011 [Act 725], which came into force on 1 December 2011, alongside the SEDA Act 2011 [Act 726]. This marked a significant milestone, following recommendations from the National Renewable Energy Policy and Action Plan (NREPAP) which highlighted the necessity of dedicated renewable energy legislation for effective FiT implementation.

Under the FiT scheme, renewable generators (using solar PV, biomass, biogas, or small hydro) sell their electricity to the national grid at a guaranteed, fixed premium price. Although the renewable energy power purchase agreement (REPPA) tenure was initially 21 years for solar PV/small hydro and 16 years for biomass/biogas, all newly approved projects now receive a standardized 21-year tenure, with exceptions for certain biogas (approved before January 28, 2019) and biomass (approved before December 23, 2019) projects which maintain the original 16-year term. The payments, specified as a fixed rate per kilowatt-hour (RM/kWh), are made by the distribution licensees (DLs), who subsequently recover these amounts from the RE fund. This fund is primarily financed through contributions from electricity consumers; except for domestic consumers whose monthly usage falls below 300 kWh.

SEDA Malaysia first offered FiT quotas in 2011 on a first-come, first-served basis, and in 2019 expanded the mechanism by introducing an e-bidding system to enhance transparency and market competitiveness. While developers faced new challenges such as rising costs and currency fluctuations after the pandemic, these experiences provided valuable lessons that guided the introduction of FiT 2.0.

Introducing FiT 2.0:

To strengthen the financial viability of RE projects, SEDA Malaysia has rolled out FiT 2.0, a refreshed version of the FiT mechanism. The new system introduces a two-phase tariff structure under REPPA for 21 years aimed at improving project bankability and optimising the use of REPPA.

Under FiT 2.0, SEDA Malaysia sets the fixed rate for the first phase, covering the initial 10 years of a project's operation. For the subsequent 11 years, eligible producers will participate in a bidding process to determine the rate.

This bidding will occur within pre-defined floor and ceiling tariff rates established by SEDA Malaysia, ensuring a balanced approach between market competitiveness and project viability. Currently, FiT 2.0 applications are open to RE projects in Peninsular Malaysia and Labuan, signalling a strategic push to refine Malaysia's energy transition framework and ensure long-term growth of the sector.

The FiT 2.0 quota was opened in January 2025, offering a total of 190 MW allocated for biogas, biomass, and small hydro projects. Out of these, 48 applications amounting to 181.248 MW in net export capacity were approved. With the 2026 budget introducing an additional 300 MW FiT quota, and the next quota opening scheduled from 10 February to 17 March 2026, Malaysia is set to further accelerate its RE transition and strengthen investor confidence in the non-solar renewable energy sector.

The FiT mechanism has delivered substantial positive impacts across various sectors of Malaysia's economy and its environmental goals. As of October 2025, the approved FiT quotas are projected to attract an estimated RM13.76 billion in investment. This investment includes a significant RM922 million designated for the procurement of locally manufactured gas engine and boiler systems, thereby fostering domestic industrial growth. Furthermore, the mechanism is set to create a substantial number of employment opportunities, with an estimated 4,675 direct jobs and 27,658 indirect jobs.

The FiT mechanism has played a meaningful role in driving Malaysia's progress toward its national renewable energy goals. As of October 2025, SEDA Malaysia had approved 9,634 FiT quota projects, aggregating capacity of 1,259.16MW renewable energy capacity.

In short, the revamped FiT, now operating under its 2.0 phase, remains a linchpin of Malaysia's shift to a sustainable, low-carbon energy future. Introduced to spur RE investment, the mechanism has since evolved to reflect changing market dynamics and policy goals.

Its entrenched role is clear, securing investment, creating jobs, diversifying energy supply and reducing greenhouse gas emissions. As Malaysia drives towards its ambitious RE targets, the FiT 2.0 mechanism stands as an enduring pillar in the national energy transition.