EVER since the industrial revolution heralded a transition from an agrarian economy to one that is dominated by machine manufacturing, the supply and reliability of energy sources have shaped global geopolitics as well as built domestic economies.
Fossil fuels have driven global security as well as prosperity of nations that depend on their export. However, fossil fuels are
the main contributor to carbon emissions and one of the major issues of our time — climate change. Global efforts such as
the Paris Agreement alongside strong climate policies around the world are transforming the energy system rapidly.
Globally, there will be both winners and losers in energy transition. We have already seen competition in new energy technologies, such as solar photovoltaics, electric vehicles and battery storage. China has set itself apart in energy transition, with cheap solar photovoltaics and first-generation clean-energy technologies such as crystalline silicon solar, onshore wind and lithium-ion batteries.
Europe and the United States are now racing to take the lead in developing next-generation technologies that promise improved performance and lower costs. The new Biden administration is expected to invest in and develop more clean energy innovations.
Countries that are dependent on oil and gas for their economies will be the ones most at risk due to declining demand for fossil fuels during this transition.
However, energy transition faces major challenges. This includes higher energy demand, greater consumer participation and increasing intermittent renewable energy. In the book The New Map, Daniel Yergin argues that energy transition will be hard to scale, with 84 per cent of the economy still reliant on fossil fuels, boosting the supply chain and scaling raw materials (such as lithium, cobalt and nickel) to meet demand will be a big challenge.
For Malaysia, the declining demand for oil and gas will impact our oil and gas industry and, ultimately, government revenue. Due to Covid-19 alone, Petronas experienced RM21 billion in losses from April to June last year due to lower demand and oil prices. To prepare itself for the energy transition, Petronas is planning to achieve net zero carbon emissions status by 2050 by reshaping its business models.
On top of that, Malaysia's power sector has set hopeful targets to achieve 20 per cent renewable energy in the capacity mix by 2025. Currently, the daily average of low carbon generation is only about 8 per cent, mainly from hydropower generation. In addition, there are many recent initiatives in the renewable energy space, including the 1000MW LSS@MEnTARI, Net Energy Metering 3.0 and new Feed-in-Tariff allocations.
While energy transition has a clear goal for climate change, the path will look different across the globe. A crucial challenge for a developing country like Malaysia is to balance energy transition with affordability.
For example, Covid-19 lockdowns have exposed issues in our electricity tariff's affordability despite our subsidised prices for domestic consumers. Consumers experienced massive spikes in their bills due to increased usage at home. This led to RM2.6 billion in electricity bill discounts for consumers in the economic stimulus packages.
To ensure that we can sustainably transition to a low carbon energy system, we need to critically assess our system's capability to withstand reduction of stable and cheap fossil fuel generations, like coal and gas, and take on more expensive renewable energy.
Energy transition will not be as simple as increasing renewable energy penetration, and it needs whole-of-society and systemic action to reduce carbon emissions — from producers to consumers (prosumers). Consumers of the future will play a bigger role in reducing peak demand by becoming prosumers with their own distributed energy resources and battery storage.
Currently, our rigid energy system may find it challenging to be sufficiently flexible to manage changes in the supply and demand sides at all times.
Moving forward, to address this monumental challenge, energy transition should be driven by an understanding of these complex dynamics, both globally and domestically. This requires clear direction and policies that understand this is as much a technical problem as it is a societal one.
The author is a senior researcher with the Technology, Environment, Innovation and Sustainability (TIES) division at the Institute of Strategic and International Studies (ISIS) Malaysia