This article first appeared in Forum, The Edge Malaysia Weekly on August 31, 2026 – September 6, 2026

Tenaga Nasional Bhd’s ongoing dependence on coal as a primary source of power generation should be a concern. With coal still accounting for roughly 40% of our electricity demand, recent indications that this reliance may continue, although not formally confirmed, only deepen that concern.

The government’s National Energy Transition Roadmap sets out a target of 40% renewable energy by 2040 and a full coal phase-out by 2045. It is a solid foundation. But as long as coal continues to dominate the current mix, the reality tells a different story.

What is missing, then, is not ambition but balance. The transition cannot be measured by targets alone, but by how effectively we align those targets with the realities of our resource base. Malaysia is not short of renewable potential. As the world’s second-largest palm oil producer, we already generate significant energy streams within our existing value chains. The real challenge is whether we are fully leveraging these for reliable, continuous power. This is where the conversation needs to shift.

An untapped asset hiding in plain sight

Malaysia is not new to biogas power generation. It already contributes close to one-fifth of renewable energy capacity under the feed-in tariff (FiT) mechanism, with palm oil mill effluent (POME) as the primary fuel source.

Yet the scale of what we are leaving on the table is striking. Every tonne of POME sitting in open lagoons releases methane, a greenhouse gas roughly 25 times more potent than carbon dioxide. Estimates suggest that Malaysia’s POME streams carry a power generation potential of around 400MW to 500MW. Yet, installed biogas capacity stood at only about 165MW in 2024, a small fraction of what is technically achievable.

The barriers are not difficult to identify. Many mills are located in remote areas, far from grid connection points. The cost of extending grid infrastructure, combined with long payback periods, has discouraged investment.

A similar story can be seen in biomass power. As of 2024, about 74MW of biomass capacity is in operation, representing only a small share of total renewable capacity under the FiT framework. Over the past decade, growth has been modest compared to other renewable sources.

Here, the core challenge lies in feedstock reliability. Biomass power plants require a steady and predictable supply of fuel. In Malaysia, supply chains for palm-based residues remain fragmented, seasonal and logistically complex. When fuel supply is uncertain, electricity output becomes inconsistent and investor confidence quickly erodes.

Others started from nothing, we have no excuse

Consider what Germany has achieved with biogas. Supported by long-term policy frameworks and FiT, the country developed one of the world’s most mature biogas industries. From a modest base in the early 2000s, Germany now operates more than 9,000 biogas plants, supplying several gigawatts of dispatchable power to the grid. These are not pilot projects. They are embedded within the national energy system, providing stable, on-demand electricity alongside intermittent renewables. Germany did this despite higher land and feedstock costs.

Japan offers another striking example. Prior to 2012, it had a negligible biomass power industry. Following the Fukushima disaster, the government introduced a long-term FiT that guaranteed attractive returns. Within a decade, biomass capacity grew from near zero to more than 7,000MW. Much of this was achieved by importing biomass feedstock from overseas, absorbing significant transport costs.

In both cases, the lesson is clear. The constraint was never resources. It was policy commitment. Malaysia, by contrast, already produces the feedstock at scale, yet continues to lag behind.

What a serious policy response looks like

For POME-based biogas, policy must combine both incentives and accountability. Methane emissions from open lagoons should be incorporated into a carbon pricing framework, creating a clear cost for inaction. At the same time, mills that capture methane and convert it into electricity should be eligible for double carbon credits. One credit stream would reflect avoided methane emissions while another would reflect the displacement of fossil-based electricity. This creates multiple revenue streams from a single investment and fundamentally changes the economics.

Addressing biomass requires a more coordinated approach to supply. Feedstock should be treated with the same seriousness as any other fuel supply chain. Mills should be encouraged to enter into long-term supply agreements with power producers, with the Malaysian Palm Oil Board (MPOB) playing a coordinating role across clusters of mills in the same region. A coordinated aggregation model, where clusters of mills supply a dedicated plant, as suggested under the National Biomass Action Plan, would help stabilise fuel availability and reduce seasonal variability.

This is also where certification frameworks can play a stronger role. The Malaysian Sustainable Palm Oil (MSPO) standard already includes sustainability requirements and a chain of custody for biomass. But the next step should go further. MSPO should progressively encourage, and eventually require, mills to reduce their carbon footprint to the lowest practical level. In doing so, biomass valorisation naturally becomes part of the solution rather than an optional add on. Embedding biomass valorisation as a measurable component within the certification framework would create stronger incentives for mills to convert residues and POME into useful energy. Mills that take meaningful steps in this direction should be recognised and rewarded, whether through certification advantages, market access or fiscal incentives. This creates alignment between environmental performance and commercial value.

At the same time, the broader policy landscape must do more to attract serious capital. While the FiT 2.0 mechanism by the Sustainable Energy Development Authority (SEDA) is a positive step, more comprehensive support mechanisms are needed to unlock large-scale investment. High upfront costs for biomass plants and grid connections for rural biogas projects cannot continue to rest solely on private investors if Malaysia is serious about decarbonisation.

Stronger coordination between the Ministry of Plantation and Commodities and the Ministry of Energy Transition and Water Transformation will be essential to unlock this opportunity at scale. These are not separate agendas but two sides of the same national opportunity.

The pressure is already here

Global pressures are already reshaping the landscape. The introduction of the EU Carbon Border Adjustment Mechanism places a carbon price on exports from emissions-intensive economies. New industries such as data centres are demanding reliable, round-the-clock clean power. The palm oil sector itself continues to face scrutiny over its environmental footprint.

Converting POME and biomass into electricity addresses all of these challenges at once. It reduces emissions, strengthens energy security and creates a credible sustainability narrative backed by measurable outcomes.

The resources are already here. The technology is proven. What remains is the willingness to design policies that make action commercially compelling.

Continuing to rely on coal while valuable renewable resources are left to decompose is not an energy strategy. It is a choice. And it is one Malaysia continues to make every single day.

Hong Wai Onn, a chartered engineer, chartered environmentalist and professional technologist, is the founder of the Research Institute for Sustainable Excellence and Leadership

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