IEEJ：February 2018○ｃIEEJ 2018
Special Bulletin
A Japanese Perspective on the International Energy Landscape (363)

February 15, 2018

IFGE2018 Conference in Malaysia
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn February 13, the International Forum on Global Energy Landscape: Electricity and Gas
Market Liberalization and Its Implication to Malaysian Economy (IFGE 2018) took place inMalaysia’s Putrajaya. The forum was sponsored by Universiti Tenaga Nasional (UNITEN) and its
Institute of Energy Policy and Research (IERPe) with support from the Malaysian EnergyCommission and Malaysian state-run utility Tenaga Nasional Berhad. It was the second suchconference following IFGE 2016 in December 2016.
I have served as international adviser to the Energy Commission at UNITEN andcooperated with the Malaysian sponsors in making arrangements, including program planning, forIFGE2018 as well as for IFGE2016. As indicated by the title, the conference focused on electricity
and gas market liberalization and reform in the changing global energy situation and dealt with how
to interpret relevant moves in the world, what implications these moves have for Malaysia and how
Malaysia should respond to them.
In addition to high-level Malaysian participants including the Energy Commission
chairman and acting CEO, foreign experts attended the conference, including Patrick Heather fromthe British Oxford Institute for Energy Studies, James Alan from Singapore’s Frontier Economics,
Yenfei Li from Indonesia’s Economic Research Institute for ASEAN and East Asia and Suthee
Travivatana from Thailand’s Chulalongkorn University. I was given an opportunity to deliver akeynote address at the outset of the forum. Highlighting the conference were very interestingpresentations and discussions by these foreign experts and Malaysian electricity and gas businessstakeholders on electricity and gas market liberalization and reform as the topic for the forum. In thefollowing, I would like to summarize their key points.
First, I felt that Malaysia and other Asian emerging countries are highly interested in what
they should learn from preceding electricity and gas market liberalization and reform initiatives in
Europe, the United States and Japan. The theme for the forum reflects that interest. The Malaysianenergy market, where state-run companies are dominant under government regulations and control,contrasts with the deregulated and competitive markets in Europe, the United States and Japan.
However, Malaysia has already been implementing electricity and gas market reform initiatives. AMalaysian speaker explained some ongoing initiatives including the introduction of third-party
access to key gas market infrastructure such as LNG terminals. These initiatives have just started andindicate that Malaysians are exploring how to liberalize energy markets in consideration of theunique Malaysian conditions (including energy subsidies for low-income people) and are willing tolearn lessons from developments in the world.
Second, electricity and gas market reform is not necessarily easy but rather challenging not1

IEEJ：February 2018○ｃIEEJ 2018
only for Malaysia attempting to learn lessons from earlier reform cases but also for Westerncountries that have implemented such reform and for Japan that is now tackling such reform. In
discussions at the conference, one participant gave a view that the introduction of competition andthe utilization of market mechanisms and market pricing would be essentially important and shouldbe pursued. Another pointed out that market liberalization and maturation would take 10 or moreyears as indicated by Western experiences. Interestingly, participants noted that political or policy
commitments would be required to maintain such a long reform process and that market participants
would play key roles in producing bottom-up changes in which market pricing would be selected in
response to deregulation. They also pointed out that the principle of self-responsibility should be
retained culturally for market liberalization and competition promotion.
Market liberalization is naturally expected to push down electricity and gas sales prices
through competition pressure and its cost reduction and rationalization promotion effects. It could
also increase consumer utility by expanding the range of options for consumers. Liberalization could
create new business opportunities and lead to economic and social vitalization. Participants in theconference noted that new energy technologies expanding in the global energy market at aremarkably high speed, including those for electricity storage and renewable energy, could becombined with artificial intelligence and Internet of Things technologies to explore new businesshorizons and be utilized in a liberalized world.
However, it must be noted that changes in energy prices for final consumers in aliberalized market depend not only on the effect of competition but also on other (occasionally more
influential) factors including crude oil price fluctuations and renewable energy surcharges, making it
difficult to identify the effect of competition. Just after liberalization and competition introduction,
many players may enter into the market to vitalize competition. As competition essentially represents
a world for winners and losers, however, a small number of strong companies may eventuallysurvive to cause a market power problem. In addition to the classic “missing money” problem
regarding the recovery of capital investment in a competitive wholesale electricity market, we now
see a new “missing money” problem arising from renewable energy’s massive inflow into theelectricity market. At the conference, it was pointed out that a capacity market or mechanism andother measures would have to be taken to secure capital investment recovery and necessary capital
investment. Furthermore, we must understand that it is not easy to realize the future picture ofenergy pursued to address market externalities including energy security and environmental
measures in a liberalized, competition-dominated market. The United Kingdom’s introduction offeed-in tariff and contract for difference (FIT/CfD) programs, U.S. liberalized-market states’adoption of the zero-emission credit system and the consideration of how to introduce the value ofbaseload electricity sources on a federal basis in the United States indicate that political initiatives
are indispensable for addressing market externalities.
In my keynote address at the forum, I pointed out that market liberalization would be a
grand social test in a sense. As far as liberalization is a social test, it can be turned out to be
successful or not. Depending on specific developments, liberalization may have to be reviewed andadjusted. Any country must balance its pursuit of advantages gained through liberalization andcompetition with its response to energy security and environmental problems. It will be importantfor Malaysia, Japan or any other country to have a strategic control tower based on a broad, highperspective to balance the so-called 3E’s – energy security, economic efficiency and environmentalprotection – which could occasionally trade off with each other.

2

IEEJ：February 2018○ｃIEEJ 2018

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3