IEEJ：July 2019○ｃIEEJ 2019
Special Bulletin
A Japanese Perspective on the International Energy Landscape (437)

July 18, 2019

At the IFGE 2019
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn July 16, a conference called the “International Forum on Global Energy Landscape(IFGE) 2019” took place in Putrajaya, Malaysia. The third conference of its kind was organized by
the Institute of Energy Policy and Research at the University of Tenaga Nasional (UNITEN) andsponsored by the Malaysia Energy Commission regulating the power and gas sectors and Malaysianstate-run power utility Tenaga Nasional Berhad (TNB). An opening speech was delivered at theoutset of the conference by Yeo Bee Yin, Malaysian Minister of Energy, Science, Technology,Environment and Climate Change, followed by three plenary sessions attended by numerous
panelists including prominent international experts, senior Malaysian officials from the Energy
Commission, the Ministry of Economic Affairs in charge of the oil/gas sector, the Sustainable
Energy Development Authority promoting renewable energy and other Malaysian government
agencies, as well as industry executives such as representatives from TNB, the Malaysia Gas
Association and energy-consuming manufacturers.
Far more than 300 people participated in the forum titled “Opportunities and Challenges in
Global Energy Transition.” It was divided into three plenary sessions in each of which aninternationally famed speaker made a presentation for a panel discussion and a question-and-answersession with the audience. I have served as international adviser to the Energy Commission ofUNITEN. At the conference, I delivered a keynote speech on the conference title, following theopening speech by Minister Yeo Bee Yin. Participants discussed various matters while keeping inmind what the direction and challenges of the global energy transition would be, what implications
they have for the Malaysian energy sector and how Malaysia should face or address its own energychallenges. In the following, I would like to summarize particularly impressive points for me in thethree plenary sessions of the forum.
In the first session titled “Long Term Outlook for Global Energy Market and the Role ofRenewable Energy,” Ms. Yukari Yamashita, director of the Institute of Energy Economics, Japan,
made a presentation for a panel discussion with Malaysian government officials. Amid global energy
transition, it is basically important to simultaneously accomplish the 3E challenges – energy security,environmental protection and economic efficiency enhancement – in a well-balanced manner. Basedon the IEEJ Outlook 2019, Ms. Yamashita discussed how important and difficult the simultaneous
accomplishment of the 3E challenges is.
Based on the fact that coal is a mainstay energy source in many Asian countries including
Malaysia, Ms. Yamashita provided costs and challenges for a case in which no new coal-fired power
plants would be built from 2020 in the world with substitution either by natural gas or renewableenergy power, indicating the complexity and difficulty of the switching away from coal. Renewables
including wind and solar photovoltaics have been expanding their share of power generationcommonly in the world thanks to rapid falls in its power generation costs and are expected tocontinue to do so in the future. At the same time, however, overall costs including the cost for1

IEEJ：July 2019○ｃIEEJ 2019
integrating intermittent renewables into the electric system have attracted attention. The mostimportant challenge regarding renewables amid the global energy transition is how to hold down
overall costs including the integration cost. The challenge, though being a globally common issue, is
important particularly in emerging and developing countries where the affordability of energy ispolitically and socially significant. As a matter of course, the affordability is very significant inMalaysia.
In the second session titled “Challenges of Power Market Transition and Liberalization,”
U.S. Rice University Prof. Peter Hartley made presentations for a panel discussion with Malaysianand Philippine industry and other stakeholders. Prof. Hartley explained that European countries andsome of the U.S. states have taken the initiative in liberalizing the electricity market by introducing
competition into the market through privatization and deregulation to enhance market efficiency andconsumer benefits. While the liberalization has brought about the clear advantage of market
efficiency enhancement through competition, the so-called missing money problem has emerged tomake it difficult to recover fixed costs for power generation capacity in the competitive electricity
wholesale market and maintain or expand the capacity for stable electricity supply, he noted. Prof.
Hartley also pointed out that the missing money problem could grow complicated or serious asrenewable energy power (including wind and solar PV) rapidly expand their share of the electricity
wholesale market. In order to achieve a politically desirable power mix in a competitive electricity
market, governments should implement appropriate policy interventions and create adequate market
design instead of leaving market forces alone to work on their own.
Malaysia is about to reform electricity and gas markets. Minister Yeo Bee Yin emphasized
the significance of such market reform in her opening speech. The market reform sought by thegovernment leader would become a significant challenge for Malaysia’s energy sector. Participantsin the forum argued that Malaysia should learn lessons from successful and unsuccessful cases ofearlier electricity and gas market reform in Western countries.
In the third session titled “the Role of Gas in Global Energy Transition and Its Challenges
in a Sustainable Energy Future,” Prof. Jonathan Stern from the Oxford Institute of Energy Studies
gave a presentation, followed by a panel discussion with Malaysian government and industry
stakeholders. Prof. Stern pointed out that while global natural gas demand is expected to steadily
increase over a long term in the main scenarios of many forecasting institutes, decarbonization
initiatives and natural gas’ price competitiveness or affordability are likely to exert great influenceon the future of natural gas.
As a symbolic case where decarbonization initiatives have great influence on natural gas
demand, Prof. Stern explained the influence of the European Union’s very ambitious initiative
including the reduction of net greenhouse gas emissions to zero. Fundamental decarbonization
would make the use of natural gas effectively difficult and require natural gas to be replaced bybiogas, synthetic gas or hydrogen. In Asia that will lead global natural gas demand expansion, nosuch strong decarbonization initiative has been seen, with moves growing to switch from coal tonatural gas to counter climate change and air pollution. Over a long term, however, progress indecarbonization could affect natural gas demand in Asia. Realistically, meanwhile, Prof. Sternemphasized that natural gas’ price competitiveness or affordability should be adequately enhanced toallow natural gas demand to expand as expected.
In the panel discussion of this session, participants noted that gas and electricity market
liberalization would require much time to make markets truly competitive after launching relevant
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IEEJ：July 2019○ｃIEEJ 2019
systems and policies as indicated by European and American cases and that a truly competitivemarket would be “painful” for existing business players and other stakeholders. They also pointed
out that liberalization or deregulation could bring about higher energy prices in Malaysia and othercountries where gas and electricity prices are held down by subsidies and that whether such energy
price hikes are accepted politically or socially would be key to liberalization. These points areimportant for considering future policies in Malaysia.

Contact: report@tky.ieej.or.jp
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