Improving energy efficiency can reduce inequality

Semenanjung makes up 80% of electricity demand in Malaysia with its electricity demand growth tacking closely with the Gross Domestic Demand (GDP). Tenaga Nasional Berhad (TNB) generates Semenanjung’s electricity demand from imported coal (66%), fossil-gas (30%), and renewable energy (RE) (4%). The failure to decouple economic growth with electricity consumption means Malaysia must continue to pollute and contribute to climate crisis for economic progress.

Source: Tenaga Nasional Berhad (2021)

The climate crisis hurts the bottom of society particularly farmers and fish-folk through crop failure and declining seafood stocks respectively. The collapse of the rural economy will create economic refugees leaving the rural areas for urban settlements. This will put tremendous pressure on the urban infrastructure. A large influx of rural population seeking employment in urban areas increases the labour force surplus enabling the capitalists and employers to supress wages widening inequality.

The absence of energy efficiency regulation to optimise consumption had increased the dependence on foreign fuel. Between 2021 until 2030, TNB will import RM150 billion worth of foreign coal putting huge downward pressure on the Ringgit. The fall in Ringgit will increase the cost of importing essential goods such as medicine and food hurting the Bottom 80 (B80) of the population.

The overconsumption of electricity increases the need to upgrade our power infrastructure. Between 2018 and 2021, TNB will spend about RM23billion in capital expenditure on the electricity grid for non-energy transitions such as capacity upgrades. Energy efficiency minimises the need for upgrades of the electricity grid putting long-term downward pressure on electricity tariffs. The cost of building, upgrading, and operating the electricity grid makes up 1/3 of the base electricity tariff in Semenanjung.

Suruhanjaya Tenaga (ST) has projected that peak electricity demand for Semenanjung will increase by 28% in 2039 compared to the 2020 baseline under the existing scenario. This demand will be met by building 14,300MW of fossil-gas power plants and 2,800MW of coal power plants. These new independent power plants (IPPs) will consolidate the society’s wealth into the hands of private capitalists, with the electricity tariffs widening inequality.

IPPs are owned by a handful private capitalists but funded by institutional capitalists through sukuk/bonds. The internal rate of return for IPPs is 8.5% per annum. Meanwhile, the interest (profit) rate on the power plant bonds starts at 5% per annum. This generates risk-free guaranteed profits for the capitalists throughout the tenure of the power purchase agreement for 21 years and 25 years for gas and coal respectively.

Malaysia can decouple economic growth and electricity demand by making energy efficiency mandatory in every sector. Malaysia should focus on non-household sectors such as the industrial and commercial sectors, which make up 18% of electricity customers but consume 80% of all electricity generated in Malaysia. Industries make up 0.3% of electricity customers but consumed 46% of the electricity demand because energy-intensive industries operate non-stop 24 hours a day, 7 days a week all year around.

Generally, industries maximise profit and minimise capital expenditure. Thus, they favour energy-intensive methods of production as this requires minimal upfront capital. Subsequently, the burden of the electricity over-consumption from the industries is shouldered by society through pollution, healthcare costs and fossil fuel subsidies. Malaysia needs to develop an industrial energy usage benchmark to measure and improve the efficiency for the industrial sectors.

Government needs to make Building Energy Index (BEI) mandatory to reduce the overall electricity usage of the commercial sector. The BEI measures the amount of electricity used per building area per annum which is denoted as kWh/m2/year. Larger establishments such as shopping malls, hypermarkets, and office towers should be the primary target before progressively expanding towards smaller commercial spaces such as franchise retail chains and cinemas. Large commercial spaces have better financial capacity due to their historical profits.

The failure to adopt mandatory energy efficiency standards has coupled Malaysia’s economic growth with energy demand and heavy pollution. The overconsumption of electricity widens inequality in our society which can trigger social unrest and political instability. It is better late than never to realign and rebuild an equitable economy by improving energy efficiency for electricity consumption.

Central Committee
Parti Sosialis Malaysia (PSM)

State Secretary
Parti Sosialis Malaysia Negeri Melaka (PSM Melaka)

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