In Malaysia, hydropower holds a prominent position in the electrical grid, standing as one of the country's three main sustainable energy sources, alongside biomass and solar power. As of 2022, hydropower capacity stood at approximately 6.2 thousand megawatts (MW). Since 2013, Malaysia has witnessed a steady increase in hydropower capacity, with notable growth attributed to major projects led by utility companies like Tenaga Nasional Berhad (TNB) in Peninsular Malaysia, Sarawak Energy Berhad (SEB) in Sarawak, and Sabah Electricity Berhad (SESB).

With the abundant water sources and topographical diversity in Malaysia, the country holds great potential for further hydropower development. The Malaysian Investment Development Authority reports that renewable energy constituted 23% of Malaysia’s energy mix as of 2021, with hydropower playing a dominant role at approximately 17% ¹. According to GlobalData, hydropower accounted for 14% of Malaysia’s total power generation in 2021, and that large hydropower is expected to grow at a compound annual growth rate of 2% over the period of 2021-2035 ². Prominent hydropower projects in Sarawak such as the Bakun Dam (one of Southeast Asia’s largest) with an installed capacity of 2,400MW and the Murum Dam with a total capacity of 944MW, exemplify the country's capacity for reliable and sustainable power generation ³. Hydropower's substantial capacity not only optimises energy resource utilisation in the energy sector but also reduces carbon emissions, solidifying its role as one of the drivers accelerating Malaysia's transition toward a more resilient energy system. Aligned with Malaysia's National Energy Transition Roadmap (NETR) aiming for a net zero energy system by 2050, the nation targets a 32% reduction in GHG emissions in the energy sector compared to the 2019 baseline ⁴. Additionally, renewable energy is projected to comprise 70% of installed capacity of the power mix, in conjunction with responsible initiatives such as phasing out coal, increasing reliance on natural gas and adopting other renewable energy sources.

The transition from fossil fuels to renewable sources is not just an environmental necessity but also a strategic move for ensuring long-term business sustainability. While Malaysia aims to generate at least 40% of its energy from renewable sources by 2035, with a projection of 70% by 2050 ⁵, achieving these targets requires a greater commitment to utilising renewable energy. Integrating renewable energy into the current power supply system can enhance energy security. Hydropower projects have garnered increased attention in the energy sector due to their potential. While their development requires substantial initial investments, these costs are mitigated by their long lifespan and minimal operational expenses. This presents opportunities for a more cost-effective, efficient, and reliable energy source.

On 4 December 2023, Bursa Carbon Exchange (BCX) initiated a collaboration with international partners, I-REC Standard Foundation (i-REC) and Hydropower Sustainability Alliance (HSA) as well as domestic partners like SEB, to advance climate action by integrating Renewable Energy Certificates (RECs) into the current portfolio of high-quality carbon attributes ⁶. While this collaboration aims to facilitate cross-border trading of hydropower RECs on BCX, targeted to launch this year, and establish international standards for tracking RECs attributes, it encourages the integration of Hydropower Sustainability Standard into the i-REC's International Attribute Tracking Standard. This is an encouraging decision made to facilitate end-users to identify and purchase premium hydropower RECs from BCX, potentially establishing a central platform for the REC market. Aligned with both national and international ambitions, there is a growing recognition of energy produced from sustainable hydro generation assets and support for the development of high-quality clean electricity products.

In Malaysia, the state of Sarawak stands out for its significant investments in hydropower. The state is home to several large-scale hydroelectric plants, including Batang Ai, Murum, and Bakun, which collectively contribute 3,452MW to the national grid. Additionally, the Baleh Hydroelectric Project, currently under construction, is set to add another 1,285MW to Sarawak's energy capacity by 2026 ⁷. The proliferation of both large and small hydropower projects in Sarawak underscores the burgeoning potential of Malaysia's hydropower sector with Sarawak aiming to increase its hydro capacity to nearly 4,700MW by 2028. Meanwhile, Sabah, recognised for its hydropower potential, is actively pursuing development of sites totalling 200MW within the next five years ⁸. Additionally, with the approval of the Power Development Plan (PDP) in August 2023, Sabah anticipates a surge in electricity generation capacity by 400MW between 2026-2030 ⁹. Notably, the initiation of a 187.5MW hydro dam project is underway, with completion slated for 2029. These targeted expansions are anticipated to generate a significant number of RECs, potentially making a substantial contribution to the REC market for carbon offsetting as well as a more balanced generation mix of energy supply system.

By proactively exploring REC integration and incorporating this new mechanism into its business model, KAB provides customers with an additional avenue to contribute to and align with the global sustainable energy movement. This demonstrates KAB's capability to lead the nation in decarbonisation efforts, setting a prime example in the realm of RECs.

KAB's 11MW mini-hydropower plant, PT Inpola Mitra Elektrindo (PT IME), in North Sumatera, Indonesia, generated a substantial number of RECs, totalling nearly 60,000 in 2023. The upcoming development of the 9.6 MW Pedu Hydro Electric Power Generating Station in Kedah, Malaysia, will further increase the hydro RECs output. The generation of RECs through these facilities demonstrates the potential of hydropower as a sustainable and reliable energy source, contributing to the hydro REC market. PT IME has its RECs registered with Evident and validated by The Green Certificate Company – this signifies a commendable recognition for KAB as a registered market participant, holding a certified license and the authority to engage in REC trading either directly or on behalf of its clients.

This further enriches KAB's identity as a facilitator in the sale and purchase of RECs. It highlights efforts to optimise and expand its renewable energy initiatives, alongside bolstering its capabilities to invest positively in supplying more clean energy to Malaysia's national grid, in accordance with the nation's renewable energy objectives.

Hydropower is a key player in Southeast Asia's renewable energy sector, with countries like Vietnam and Laos leading the way in harnessing this resource. Between 2000 and 2016, the region saw a remarkable increase in hydropower capacity, from 16GW to 44GW, showcasing the growing importance of this renewable energy source.

Given the prominence of hydropower in Southeast Asia and Malaysia's active involvement in hydropower development, it is reasonable to expect that hydropower RECs could become a substantial element of the REC market in the region, enhancing its value as a tradable commodity.

Malaysia and Southeast Asia's hydropower sector is set for significant expansion, with the potential for RECs in this industry being particularly noteworthy. KAB's involvement as a registered market participant for REC trading demonstrates the company's capabilities in the energy sector to explore new mechanisms and foster a sustainable energy market. By offering a comprehensive range of sustainable energy options, including RECs, KAB is reiterating the importance of nation's renewable energy goals and positioning itself as a key player in the regional renewable energy landscape.

The collective efforts of individuals, businesses, and government entities are crucial for unlocking the full potential of hydropower industry. Ultimately, the value of the RECs will help with the implementation of hydropower projects which will accelerate the transition towards a net-zero future.

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