*4.3. Composition of the Market Components*

Next, our analysis looks into the components that constitute the electricity markets. The essence that differentiate between a liberalised ESI and a monopolised one is the presence of the electricity market, both at the wholesale and retail levels. At the wholesale market, generators (the supply side) bid to offer the lowest price to the potential buyers (the demand side). At the retail market, the buyers will subsequently supply electricity to their respective customers, who are the consumers of electricity or the end-users. Despite the different progress achieved, approaches taken and challenges faced by the Philippines and Singapore in liberalising the ESIs and setting up their open electricity markets, similarity is seen in terms of the components that constitute the markets as shown in Table 8. These components can therefore be regarded as the main components of an open ESI. The agencies and/or companies that correspond to the components in the respective markets are also shown in the table.



The current structure of MESI is still largely monopolistic. Competition only exists at the generation sector where the generators sell electricity to the Single Buyer (SB) as shown in Figure 5. Wholesale market in the sense discussed above does not exist and electricity trading is done according to the bilateral agreements (PPA/SLA/NEDA) signed between the generators and the SB. TNB, being the main electricity provider in Malaysia, is still a main player in the generation sector, having more that 50% generation capacity in the peninsular Malaysia alone [59]. It is still monopolising the transmission and distribution sectors, and in almost full control of the retail sector. The Energy Commission (EC) has been regulating the MESI since 2001. It is expected that the EC will continue to assume the role as the regulator once the open electricity market is operationalised, with the necessary redefinition of the scope and possibly renaming or rebranding too. Rebranding and redefining the scope of the regulator are needed to emphasise the independence from the government, to change public perception and to clarify the refreshed scope of the EC. In the Philippines too, the ERB had its name changed to ERC after liberalisation and in Singapore, EMA was established to replace the PUB.

A market operator (MO) also needs to be created to manage and coordinate the activities in the wholesale electricity market. Ideally, an *independent* MO (IMO) is expected. However, transition period is foreseen where government agency, a division of the regulator or a government-owned company will operate during the initial phase of the market. For example, the WESM is run by the government through the PEMC [60] since the market went into operation in 2006 until 2018 [24], although the initial intention was to have the IMO in within the first year of the market launch. The other important component of an electricity market is the System Operator (SO), who is responsible for the dispatch of the electricity traded in the wholesale market. Thus, the SO is not involved in the trading process. TransCo was the first SO in WESM, which was later given to NGCP, while in NEMS, a division of EMA (the regulator) is the SO. Looking at the current MESI structure shown in Figure 5, SB and the Grid System Operator (GSO) would most likely be the MO and SO respectively to undertake the initial operation of the open electricity market to be established, based on the experience they have. At the moment, both are ring-fenced entities under TNB [61]. As mentioned earlier, the plan to free them from TNB is already on the MESI roadmap even prior to the start of MESI 2.0 as can be seen from Figure 4. Commercial operation date for the enhanced SB and GSO is expected to be in the first quarter of 2021 [44]. Transformation of the independent SB into IMO is also on the roadmap. The transmission on the other hand should remain a regulated monopoly as per practiced in the Philippines and Singapore. The same arrangement is also seen in the Nordic countries.

**Figure 5.** The current MESI structure.

Currently, there are three types of generators in MESI; generators under the TNB who have service level agreements (SLAs) with the SB, IPPs who trade electricity with the SB according to the power purchase agreements (PPAs) and other generators who sell electricity to the SB following the new enhanced dispatch agreements (NEDA) [62]. These generators would be the candidates for the wholesale sellers in MESI wholesale electricity market. Ideally, all electricity trading should be done through the wholesale market. Bilateral contracts between the sellers and buyers may still be allowed on a very small number of specific cases, but with limited percentage. In both WESM and NEMS, three categories of wholesale buyers are identified; suppliers, distribution utilities and directly connected end-users. Depending on the categories, buyers at the wholesale market either consume the electricity themselves or become the sellers at the retail market. Suppliers serve contestable customers, that is, customers whose electricity usage exceed certain imposed limit and as a result, are allowed to choose suppliers whom they deem can offer them the best values. Distribution utilities (MSSL in NEMS) are the default retailers that supply electricity to the rest of the consumers, known as non-contestable or captive customers, at the regulated price. They are not able to choose suppliers until they are eligible to become contestable customers. The last category of the wholesale buyers is the directly connected customers. These are the large power consumers who buy electricity in bulk directly from the wholesale market for their own use. Electricity consumers in Malaysia are categorised into residential, industrial and commercial [63]. Almost all of them are served by TNB retail at the moment. Retail electricity market is currently non-existent in MESI. Thus, in essence, there is no competition at the retail level. Franchised retailers do exist, but with the scope limited to managing the supply of electricity to the tenants of shopping malls or office complexes. The industrial customers are either directly connected to the grid (via switching stations) or to the substations depending on the amount of the maximum demand levels [64]. They are therefore foreseen to be the potential directly connected customers who will buy electricity directly from the wholesale market for their own use. TNB Retail, as the incumbent retailer is expected to play the role as the SOLR, due to the experience and extensive infrastructure that they already have. Thus, it can be seen that current MESI structure is able to prepare itself well into liberalisation. Nevertheless, it is worth noting that the electricity markets have evolved or are also evolving into hybrid forms, liberalised but not fully due to the lack of some of the institutional and other preconditions for the full and effective implementation of the standard reform model, which is beginning to be acceptable new norms of liberalisation [48].

#### *4.4. Influence on the RE Penetration*

Finally, the extent to which the electricity market liberalisation has influenced the RE penetration into the grid, if any, is also analysed in this study. This is a topic of interest because Malaysia has set the aim to achieve 20% RE penetration by the year 2030 [65] and 50% by the year 2050 [66], excluding those from large (>100 MW) hydro power stations [59]. Thus, it is important to ascertain in what ways MESI liberalisation can help to achieve the target. Promoting energy efficiency and the use of RE resources are amongst the objectives of ESI liberalisation [67]. One of the means is by having more RE actors into the industry as a result of liberalisation [68]. Findings from Reference [69] suggest that reduction in the monopolistic power of state-owned utilities due to liberalisation has had positive effect on RE policies when various types of actors are ensured access to the grid instead of it being provided to only a few large private firms. It also found that liberalisation increases public support for renewable energy. As explained earlier in the respective sections above, the Philippines and Singapore have also put their own targets with regards to RE. Figure 6 shows the current state with respect to the electricity generation mix in the Philippines, Singapore and Malaysia. At a glance, no significant relationship can be seen between the RE penetration and electricity market liberalisation. It can be seen from the figure that Malaysia is already doing good with respect to the RE penetration, with about 20% RE in its generation mix, a small percentage away behind the Philippines. Looking over a period of time from 2005 to 2018, Malaysia is also showing a good progress with respect to the increased RE penetration as shown in Figure 7. Based on this raw information, for the moment, there is no clear evidence on the influence of the liberalised electricity market per se on the increased RE penetration. In addition, from the experience of Japan, its government does not rely on electricity liberalisation alone to give further impetus to RE development [68]. It is being supported by other initiatives too. Government intervention is also found needed to achieve the objectives of liberalised ESI [58]. For example, as pointed out by Reference [70], generators should have a wide market for the products they are creating, to ensure that they receive the fairest price and the government can help to institute the necessary policies to facilitate this. In this regards, it can be seen that the government of Malaysia has already been introducing a number of schemes to promote RE, including the large scale solar (LSS) (A solar PV plant producing between 1 MWac and 50 MWac connected to either distribution or transmission network [71]), the feed-in tariff (FiT) and the net energy metering (NEM) [72]. Based on the current setting, once the wholesale electricity market is available in MESI, the LSS generators can become the market participants and compete to sell electricity to the wholesale buyers. This is plausible especially with the solar generation cost that is becoming lower and lower than the generation costs from the conventional resources [73]. At the moment, the LSS generators are already selling electricity to the SB together with the other generators through PPAs as shown earlier in Figure 5. For the lower scale solar and other distributed RE generators, FiT and NEM schemes are available. However, as of June 2018, only 10 MW of the allocated 500 MW quota for NEM are taken [72]. Thus, the Malaysian government should continue its effort to promote and support RE penetration through various initiatives, along with the ESI reform initiatives.

**Figure 6.** Energy mix in the Philippines, Singapore and Malaysia.

**Figure 7.** Percentage of renewable energy (RE) the generation mix in the Philippines, Singapore and Malaysia.

#### **5. Conclusions and Outlook**

In this paper, the chronological review of the Philippines' and Singapore's experience in liberalising their ESIs is presented. While the Philippines went through an eventful transformation, it was a smoother sailing for Singapore. Nevertheless, both have respective lessons and best practices that Malaysia can learn in the process of liberalising its ESI. The purpose of focusing on the Philippines and Singapore in the review, as mentioned earlier, is because of their current state of ESI liberalisation, which is considered to be in the more advanced stage compared to the other ASEAN countries. The importance of legislative framework and phased implementation are amongst the lessons that Malaysia can learn from their experience. Similarities in terms of components that constitute the electricity markets would serve as the starting point for Malaysia in determining its future electricity market components. Analysis on the impact of the liberalised electricity markets on the RE penetration into the grids provides useful insight for Malaysia in retaining the existing initiatives towards meeting its RE targets. A foreseen challenge for Malaysia in liberalising MESI is in terms of the public acceptance, particularly the households or the residential consumers. Energy liberalisation in general has led to positive and globally widespread but modest efficiency gains across all energy sectors but a lack of clearly visible direct benefits to the households in many countries [10]. Pricing in particular is expected to be one of the main issues. Electricity prices can rise for some or all customer groups (reducing their welfare) while the overall social welfare goes up [10]. This is expected to be the case for Malaysia where the government has been subsidising the electricity tariff for so long. Therefore, there is an urgent need to identify electricity pricing schemes that strike a more satisfactory balance between

economic efficiency and social equity as proposed in Reference [48], which will be a subject for a future study. Beyond Malaysia, liberalisation of the ESIs in all ASEAN countries can also be considered in realising the APG. Experience from the other regions, such as the Nordic, shows that liberalised ESI aligns very well in accommodating renewables and attaining efficiency. With the depleting fossil fuel and the energy demand that is predicted to exceed the production of indigenous energy resources of the region based on the recent Southeast Asia energy outlook, increased penetration of renewables into the grid, and more efficient use of energy would be the silver bullets in alleviating the impact of depleting natural indigenous energy resources for the benefits of the generations to come. Thus, it is a potential that future direction of the ASEAN countries with regards to the energy and electricity is towards the liberalisation of the ESIs. Furthermore, extending the ESI liberalisation to the whole of ASEAN in realising the APG requires a more authoritative form of coalition, similar to the European Union where each member state is, by law, obliged to comply to the directions. Having said that, integrated and fully connected APG does not have to wait until all ASEAN countries have liberalised their ESIs in order to materialise. It would be sufficient to have the necessary regulations imposed for the setting up of compatible ESIs that can harmoniously connect and communicate regionally. For this, the ESI in each ASEAN country needs to be studied in detail to identify the extent to which they can be harmonised. However, it is not within the ambit of this research to provide the detailed review on the ESI of each ASEAN country. It can be a separate study on its own, and a future work that we are considering.

**Author Contributions:** Conceptualization, H.A.; methodology, H.A.; validation, I.S.M.Z., B.N.J.; formal analysis, H.A.; investigation, H.A. and I.S.M.Z.; resources, H.A. and I.S.M.Z.; writing–original draft preparation, H.A.; writing–review and editing, H.A., I.S.M.Z. and B.N.J.; supervision, B.N.J.; project administration, H.A.; funding acquisition, H.A. All authors have read and agree to the published version of the manuscript.

**Funding:** This research was funded by Universiti Tenaga Nasional grant number RJO10517844/008.

**Conflicts of Interest:** The authors declare no conflict of interest.
