KUALA LUMPUR (Oct 8): Malaysia has made significant early headway in its energy transition journey, having reached a 33% renewable energy (RE) capacity mix by mid-2026, placing the nation comfortably within reach of its 35% target by 2030 and its ultimate goal of
70% by 2050.

However, the next phase of decarbonisation will require greater private capital deployment, extensive grid modernisation and the removal of persistent regulatory and bankability bottlenecks.

These were among the key takeaways from a panel session titled “Green Sukuk and Sustainable Finance: Mobilising Climate Capital for Malaysia’s Energy Transition” at the Kuala Lumpur Sustainability Summit (KLSS) on Oct 7.

Under the National Energy Transition Roadmap (NETR), Malaysia’s total estimated investment requirement stands at between RM1.2 trillion and RM1.3 trillion through 2050, while up to RM240 billion is required between 2023 and 2029 alone.

Highlighting the scale of funding required, HSBC Bank Malaysia international director of mid-markets and head of Amanah Banking Solutions Shafiq Sheikh Mohamed said project financing typically adheres to an 80% debt-funding ratio.

“If you take 80% of that [RM240 billion], you will be looking at a total debt amount required close to RM200 billion. And there is no way that the banking market, whether it's commercial or Islamic combined, would be able to absorb this kind of funding requirement,” said Shafiq.

“Hence, that is when the domestic capital market comes into play.”

The debt capital market is predominantly driven by sukuk, a shariah-compliant alternative to conventional bonds, with Sustainable and Responsible Investment (SRI) sukuk issuances reaching RM67 billion between 2015 and 2025, or about 87% of the country’s total ESG debt
issuance of RM77 billion.

By July 2026, Malaysia accounted for nearly 32% of global outstanding ESG sukuk.

Green sukuk offers structural advantages for large-scale infrastructure projects, including access to a broad institutional investor base comprising pension funds, insurance companies and asset managers, Shafiq said.

He added that sukuk tenors can extend beyond 20 years with fixed-rate pricing, providing developers with long-term funding suited to projects with large capital outlays and long payback periods.

Investor demand can also result in favourable pricing for issuers.

“We have seen that for one of the sukuk issuances, an SRI sukuk, where the bid-to-cover ratio exceeded 10 times,” shared Shafiq.

“So for every US$100 million, you have a US$1 billion capital competing for that US$100 million of assets. When you have that kind of situation, it would be to the benefit of the developers to say that... this would be our price guidance.”

While project developers often focus on power generation assets, Tenaga Nasional Bhd (TNB)(KLTENAGA) chief financial officer Badrulhisyam Fauzi stressed that grid infrastructure and system flexibility remain fundamental to the energy transition.

“To us, this is a very critical part of the energy transition where we don't have an energy transition without a capable and strong grid in the middle of it,” said Badrulhisyam.

“If you ask me, if we have to pin down one thing that must be invested over the next 20 years, we must make sure that there is adequate investment into the grid to make sure that we are able to cater to renewable assets across Malaysia, enabling us to channel renewable energy electros to where the demand is at.”

TNB is substantially ramping up capital expenditure (capex) under Regulatory Period 4 (RP4), which runs from 2025 to 2027.

“In the previous three regulatory periods, we actually spent close to RM20 billion over three years. But upon the launch of NETR, in making sure that we are on track to deliver the renewable energy, as well as the energy transition agenda, the capex being proposed is actually RM43 billion,” said Badrulhisyam.

The RM43 billion outlay is directed towards maintaining security of supply, meeting new demand and supporting the energy transition.

Demand has also risen sharply, with electricity units sold increasing 8% year on year in the first half of 2026.

A key driver of grid investment is managing the intermittency of solar power, which generates most strongly during the day while Malaysia’s maximum system demand occurs in the evening.

To manage these fluctuations, TNB in May commissioned a 100MW/400MWh Battery Energy Storage System (BESS) at Santong in Terengganu, Malaysia’s first grid-connected BESS.

TNB is also deploying smart meters across its customer base and introducing Time-of-Use (TOU) tariffs to encourage consumers to shift electricity use away from peak periods.

Addressing concerns over electricity demand from energy-intensive data centres, Badrulhisyam said he is confident in TNB’s grid capacity, noting that 41 data centre projects are currently operating with an eventual maximum demand of 5.75GW, with an additional 8.35GW already signed up under TNB’s Green Lane Pathway, a fast-track framework designed for data centres and large-scale investors looking to set up operations in Malaysia.

Despite the availability of capital and growing infrastructure investment, renewable energy developers continue to face significant challenges in taking projects to financial close.

Tadau Energy Sdn Bhd CEO Datuk Susanna Lim, whose company issued the world’s first green sukuk in 2017, highlighted administrative delays and financing conditions that can hold up projects.

“When we received our letter of offer or term sheets, we were very happy because the bank was financing us. But when we turned to the second page, we saw the conditions precedent. It ran 30 conditions precedent to be fulfilled before you actually ever could draw down,” said Lim.

Among the biggest obstacles is securing development orders, which fall under state jurisdiction and can take anywhere from three to 18 months, she said.

Delayed approvals risk pushing projects beyond commercial operation date timelines stipulated in power purchase agreements (PPAs), potentially triggering walk-away clauses and putting financing at risk.

Lim also cautioned against aggressive tariff bidding in large-scale solar (LSS) auctions, where developers have bid tariffs as low as 13 sen to 14 sen per kWh.

“When you bid the lowest tariff, you actually have to compromise something, either the cost of the equipment or the cost of the business team. The moment you don't have any contingency left there, the whole project will be non-viable,” Lim said, stressing that project success relies on speed and certainty.

Another challenge is Malaysia’s reliance on intermittent solar power as it expands renewable capacity.

Shafiq said solar projects typically carry capacity factors of only 15% to 20% in financial models, meaning significantly more installed solar capacity would be required to replace an equivalent amount of coal-fired generation.

“If we are thinking of retiring coal-fired power plants with a total capacity of 10,000 MW, with a 20% capacity factor for a large-scale solar plant, technically we need to build a solar plant with a total capacity of 50,000 MW to be able to generate the 10,000 MW coming from the existing coal-fired plant,” Shafiq explained, adding that at for every 1MW of an LSS project, one would need about four acres of land, meaning that 200,000 acres of land is required to replace this capacity.

Lim called for greater attention and financing for biomass, biogas and biomass-to-liquid projects, although feedstock supply remains a key concern for financiers.

Shafiq said project debt can require repayment periods of 10 to 15 years, while feedstock supply contracts in the market rarely extend beyond two years, making it difficult for banks to establish long-term cash flow visibility.

To address this risk, Tadau Energy has taken greater control of its supply chain.

“We actually now have a plantation [where we] plant bamboo because we believe bamboo can grow 100 to 150 years, [meaning that] we have control over our feedstock and then we use this feedstock for our own biomass,” said Lim.