Electricity Supply Industry Reform: MESI 1.0 and 2.0

For most Malaysians, buying electricity means one bill from one company. Behind that simplicity sits a quiet, decade-long argument about whether the country’s power market should ever look like anything else — and the answer keeps landing on “not yet, but a little more each year.”

That argument has a name: MESI, the Malaysia Electricity Supply Industry reform. It comes in two chapters. MESI 1.0 rewired the plumbing inside the incumbent utility. MESI 2.0 tried to open the doors to competition. Neither has fully finished the job.

What did MESI 1.0 actually change?

MESI 1.0 was about restructuring one company rather than breaking it up. From around 2010, Tenaga Nasional Berhad (TNB) — which owns the Peninsular transmission grid and most of the distribution network — was functionally unbundled into ring-fenced business units regulated by the Energy Commission (Suruhanjaya Tenaga).

Two of those units matter most. The Single Buyer plans and procures all the electricity Peninsular Malaysia needs, managing the power-purchase contracts and settlement. The Grid System Operator dispatches that electricity across the grid. Both sit inside TNB but are ring-fenced and directly supervised by the Energy Commission, so that TNB’s own power stations get no favourable treatment over independent producers.

The other big piece was pricing. Since 2014, tariffs have run on Incentive-Based Regulation (IBR): a base tariff is fixed for a multi-year regulatory period, while an Imbalance Cost Pass-Through (ICPT) is reviewed every six months to pass changing fuel costs on to (or back to) consumers. When global coal and gas prices fall, consumers get an ICPT rebate; when they spike, a surcharge flows through.

What MESI 1.0 did not do was introduce competition at the retail end. You still could not choose your electricity supplier. That was left for the sequel.

What was MESI 2.0 supposed to do?

MESI 2.0 was a far more ambitious plan. Approved by Cabinet in September 2019 as a 10-year master plan, it set out to introduce competition along the entire value chain — fuel procurement, generation, transmission and distribution, and retail — while making room for more green energy.

Its headline ideas were:

• Third-party access (TPA) to the grid. Generators would be able to use TNB’s wires to sell power directly to buyers, paying a regulated access charge. An early quota of 100 MW was set aside for renewable-energy generators to sell straight to end buyers.
• Independent fuel procurement. Independent power producers (IPPs), which previously sourced coal through TNB Fuel Services and gas through PETRONAS, would be allowed to buy their own fuel — individually or in consortia — with any savings shared with consumers.
• A rethink of power-purchase agreements (PPAs). The old model of 21–25 year contracts with guaranteed capacity and energy payments would give way to shorter tenures and capacity auctions. In practice, few new PPAs were expected for several years anyway, because Peninsular Malaysia’s reserve margin already exceeded 30%.
• A shift away from the single-buyer model toward a more competitive wholesale market, with expiring PPA capacity progressively auctioned rather than locked into long-term contracts.

For bondholders, the stakes were real but contained: the sector carried around RM47 billion of outstanding sukuk when the plan landed, and rating agency RAM judged that MESI 2.0 had no immediate credit implications for the peninsula’s power sector.

Why did the reform stall?

Big-bang liberalisation is expensive, and MESI 2.0 ran straight into that math.

In 2020, the then Minister of Energy and Natural Resources, Datuk Dr Shamsul Anuar Nasarah, told Parliament the plan should be reviewed. His reasoning was blunt: pressing ahead implied a financial hit to the government of roughly RM5 billion, on top of RM60–80 billion in power-purchase obligations then sitting with TNB that the government would have had to take on.

That review reset expectations. Instead of one sweeping reform, Malaysia has moved through smaller, targeted steps — each testing a piece of the MESI 2.0 vision without committing to the whole.

Timeline: from unbundling to third-party access

When	Milestone
~2010	MESI 1.0 begins: TNB functionally unbundled into ring-fenced units, including a Single Buyer and Grid System Operator
2014	Incentive-Based Regulation (IBR) with six-monthly ICPT takes effect
Sept 2019	Cabinet approves MESI 2.0, a 10-year liberalisation master plan
2020	Government signals MESI 2.0 should be reviewed on cost grounds
2023	Cabinet approves carving the Single Buyer out of TNB to make it independent
Sept 2024	CRESS launches — the first live third-party grid access framework

How did third-party access finally arrive?

Not through the master plan’s front door, but through a green-energy side entrance.

In November 2023, then Minister Nik Nazmi Nik Ahmad said Cabinet had approved carving the Single Buyer out of TNB to become genuinely independent — a body to run an energy exchange and give the market confidence that dispatch and procurement are neutral. Full market opening, he noted, still depended on third-party access, which remained under review for the 2025–2027 regulatory period.

Then came the concrete step. Announced on 26 July 2024 and launched in September 2024, the Corporate Renewable Energy Supply Scheme (CRESS) became Malaysia’s first working third-party access framework. Under CRESS, a renewable-energy developer can sell green electricity directly to an eligible commercial or industrial consumer over the grid — the first time a buyer in Peninsular Malaysia can contract power from someone other than TNB.

The price of using the wires is a System Access Charge (SAC) set by the Energy Commission:

Supply type	System Access Charge
Firm (e.g. solar paired with storage)	25 sen/kWh
Non-firm (intermittent)	45 sen/kWh

The roles map cleanly onto the MESI structure: the Energy Commission regulates, the Single Buyer and Grid System Operator handle market and system operations, and TNB continues to own the grid and physically deliver the power.

Who does what in the reformed market?

Player	Role
Energy Commission (Suruhanjaya Tenaga)	Regulator — sets tariffs, access charges and rules
Single Buyer	Plans and procures electricity for the peninsula (being made independent)
Grid System Operator	Dispatches and balances the grid neutrally
TNB	Owns the transmission and distribution network; delivers power; still the default retailer
IPPs / RE developers	Generate electricity; under CRESS, can now sell directly to eligible buyers

What are the limits of the reform so far?

CRESS is a real opening, but a narrow one. Analysts at ISEAS’s Fulcrum have flagged that the scheme excludes small and medium enterprises — over 97% of Malaysian businesses — leaving genuine retail choice out of reach for most consumers. The higher access charge on intermittent supply can discourage renewable investment, pushing developers toward costly battery storage to qualify for the firm rate, and the grid itself needs upgrading to absorb more variable generation.

In other words, Malaysia has proven the mechanism works. What it has not yet done is turn a single scheme for corporate green-energy buyers into open retail competition for everyone.

What’s next

The immediate signal to watch is the independent Single Buyer: separating it fully from TNB is the structural change that would make a neutral, competitive wholesale market credible. After that, the question is whether third-party access broadens beyond renewables and beyond large corporates — the point at which ordinary consumers might finally get a choice of supplier.

Also worth tracking is how the tariff mechanism evolves as the market opens, and whether the 2025–2027 regulatory period brings the wider third-party access framework that MESI 2.0 first promised back in 2019. For now, Malaysia’s electricity reform remains a story of deliberate, incremental steps — real movement, but well short of a fully liberalised market.