Electricity consumption contributes significantly to the greenhouse gas emissions of many Malaysian businesses, particularly manufacturers, commercial buildings, data centres and other energy-intensive operations. Although the electricity is consumed at your premises, the associated emissions are largely produced by the power plants that supply the grid. These indirect emissions are classified and reported as Scope 2 emissions.
With growing requirements under the National Sustainability Reporting Framework (NSRF), Bursa Malaysia’s sustainability reporting framework, investor assessments and customer supply-chain programmes, Scope 2 is no longer merely an annual ESG statistic. It can affect reporting readiness, customer confidence, business opportunities and, for some exporters, product-level carbon disclosures.
Solar can reduce grid electricity purchases and support a more credible carbon-reduction strategy. BESS, renewable-electricity procurement and RECs may then help address the remaining electricity demand, provided all claims are supported by reliable data, clear contractual rights and an auditable methodology.
Scope 1, Scope 2 and Scope 3 Emissions – A Quick Primer
The Greenhouse Gas Protocol divides corporate greenhouse gas emissions into three broad categories:
Scope 1: direct emissions from sources your business owns or controls, such as boilers, furnaces, generators, process equipment and company vehicles.
Scope 2: indirect emissions from purchased or acquired electricity, steam, heating or cooling consumed by your business.
Scope 3: other indirect emissions across the value chain, including purchased materials, transport, business travel, employee commuting, waste, financed emissions and the use of products sold.
For most Malaysian commercial and industrial businesses, Scope 2 emissions arise primarily from electricity purchased from the relevant electricity grid.
| Scope 2 emissions = Grid electricity consumed (kWh) × Applicable grid emission factor (kg CO₂e/kWh) The result is then divided by 1,000 to convert kilograms of CO₂ equivalent into tonnes of CO₂ equivalent. |
Use The Correct Malaysian Grid Emission Factor
Malaysia does not have one single factor for every site. The Energy Commission publishes separate grid emission factors for Peninsular Malaysia, Sabah and Sarawak. The latest official publication available provides the following provisional 2024 factors:
| Grid region | Grid Emission Factor (GEF) in Malaysia, 2024 (Provisional) |
| Peninsular Malaysia | 0.740 kg CO2e/kWh |
| Sabah | 0.539 kg CO2e/kWh |
| Sarawak | 0.199 kg CO2e/kWh |
Location-based vs market-based Scope 2
These two methods answer different questions:
Location-based reporting reflects the average emissions intensity of the grid from which the organisation consumes electricity. On-site solar can lower this figure by reducing metered grid imports.
Market-based reporting reflects eligible contractual electricity choices, such as qualifying green tariffs, power contracts and energy attribute certificates. RECs may influence this figure when the applicable quality criteria are met and the certificates are properly allocated and retired.
IFRS S2 requires disclosure of location-based Scope 2 emissions and information about contractual instruments that is necessary to understand those emissions. Under the GHG Protocol Scope 2 Guidance, organisations operating in markets where qualifying contractual instruments are available generally apply dual reporting. A market-based figure should therefore not be presented as a substitute for the location-based figure where both are relevant.
| Important distinction Solar consumed on-site changes the physical quantity of electricity purchased from the grid. RECs do not change the grid-average location-based calculation, they support a separate market-based renewable-electricity claim when all applicable requirements are satisfied. |
Why Scope 2 Is Now a Business Risk, Not Just a Report
NSRF, Bursa and IFRS S1/S2
Malaysia’s National Sustainability Reporting Framework (NSRF) adopts IFRS S1 and IFRS S2 as the baseline standards for sustainability-related financial disclosures. Implementation is being phased according to entity category:
- Group 1: Main Market listed issuers with a market capitalisation of RM2 billion and above, for annual reporting periods beginning on or after 1 January 2025.
- Group 2: Other Main Market listed issuers, for annual reporting periods beginning on or after 1 January 2026.
- Group 3: ACE Market listed issuers and non-listed companies with annual revenue of RM2 billion and above, for annual reporting periods beginning on or after 1 January 2027.
The NSRF provides transitional reliefs, including a climate-first approach and phased Scope 3 disclosures. The Advisory Committee on Sustainability Reporting has stated an aim to mandate reasonable assurance from 2027, subject to the final Sustainability Assurance Framework and applicable requirements. Bursa Malaysia’s sustainability reporting framework has similarly transitioned towards disclosures aligned with the NSRF and IFRS S1/S2.
IFRS S2 incorporates the core TCFD pillars of governance, strategy, risk management, and metrics and targets. Companies applying the NSRF should therefore structure their climate disclosures around IFRS S1 and IFRS S2, rather than treating TCFD as a separate competing framework.
Even businesses outside the initial mandatory groups may be required to provide emissions information to banks, investors, parent companies, multinational customers, tendering authorities or overseas buyers. Inadequate electricity and emissions data can therefore affect customer confidence, financing discussions and supply-chain opportunities before it becomes a direct statutory compliance issue.
Malaysia’s Carbon Tax: What Businesses Should Know
The Malaysian Government has announced plans to introduce a carbon tax, initially targeting the iron, steel and energy sectors.
However, businesses should not rely on unofficial carbon-price estimates until the relevant legislation, scope, rate, exemptions and commencement date are formally confirmed.
Companies outside the initial sectors may still be affected indirectly through electricity costs, customer requirements and supply-chain expectations. Businesses should therefore establish a reliable emissions baseline and assess energy-efficiency, solar and other decarbonisation projects under different carbon-price scenarios.
EU CBAM: What Malaysian Exporters Face From 2026
The EU Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase on 1 January 2026. It currently covers selected goods in the cement, iron and steel, aluminium, fertiliser, electricity and hydrogen sectors.
Although formal obligations generally fall on EU importers, Malaysian producers may need to provide reliable production and embedded-emissions data to their customers.
Solar may help reduce CBAM-related emissions where electricity use is included under the relevant product methodology. However, RECs should not automatically be assumed to reduce CBAM exposure, as CBAM applies its own calculation, verification and reporting requirements.
| Practical Guidance for Exporters Solar should be treated as part of a broader industrial decarbonisation and CBAM-readiness strategy, rather than as a guarantee that rooftop generation alone will eliminate CBAM costs. Exporters should begin by identifying the applicable product classification and CN code, production process, reporting boundary and information required by the EU customer. This should be supported by reliable electricity, production and emissions data that can withstand customer review and, where required, independent verification. |
How Solar Reduces Scope 2 Emissions
On-Site Solar Self-Consumption: The Most Direct Operational Reduction
When solar electricity is generated and consumed behind the meter, the business purchases less electricity from the grid. This is generally the most direct way for solar to reduce location-based Scope 2 emissions, provided the reduction is supported by actual metering data and the associated renewable-energy attributes are not claimed elsewhere.
Consider a factory in Peninsular Malaysia with annual electricity demand of 2,000,000 kWh. If 600,000 kWh of verified solar generation is consumed on-site, its grid purchases would fall to 1,400,000 kWh:
| Electricity profile | Before solar | After solar |
| Total electricity demand | 2,000,000 kWh | 2,000,000 kWh |
| Solar consumed on-site | Nil | 600,000 kWh |
| Electricity purchased from the grid | 2,000,000 kWh | 1,400,000 kWh |
| Location-based Scope 2 emissions at 0.740 kg CO₂e/kWh | 1,480 tCO2e | 1,036 tCO2e |
The indicative reduction is 444 tCO₂e. Actual results will depend on solar generation, on-site consumption, grid imports, system losses, curtailment, reporting boundaries and the grid emission factor applicable to the reporting period.
Solar-generation forecasts remain useful for project planning and investment assessment. However, once the system is operational, Scope 2 reporting should be based on actual electricity bills, meter readings and solar-monitoring data rather than proposal-stage estimates.
June 2026 SELCO Guidelines Requirements for Businesses
For self-consumption projects in Peninsular Malaysia, businesses should consider the Energy Commission’s revised Guidelines for Solar Photovoltaic for Self-Consumption in Peninsular Malaysia (June 2026).
Key requirements for commercial and industrial installations include:
- No export to the grid: Electricity generated by a grid-connected SELCO installation must be consumed within the premises. No power may be exported to the electricity utility’s supply system at any time.
- No general capacity limit for non-domestic consumers: The Guidelines do not prescribe a general capacity limit for non-domestic installations, provided all applicable technical and regulatory requirements are satisfied.
- BESS requirement for larger installations: A non-domestic solar PV installation exceeding 1 MWac must generally include a BESS with at least a one-hour rating, subject to the exemptions and transitional provisions set out in the Guidelines.
- Connection assessment: Installations above 72 kWac require a connection assessment study. Installations of not more than 72 kWac require a self-assessment study when requested by the electricity utility company.
- Environmental attributes: Rights to credits or financial benefits arising from greenhouse-gas reductions associated with the solar energy produced belong to the consumer of the installation.
These requirements apply specifically to SELCO projects and should not be confused with Solar ATAP or other programmes that apply different export, offset and metering arrangements.
On-Site Solar PPAs and Environmental Attributes
Under an on-site solar power purchase agreement, the solar developer typically finances, installs, owns and operates the system, while the customer purchases the electricity generated. This allows the customer to reduce grid purchases without incurring the full upfront capital cost of the installation. Where the system owner supplies electricity to the customer within the same premises, the owner must hold a public distribution licence under the June 2026 SELCO Guidelines.
The agreement should reflect the applicable regulatory requirements and clearly address:
- Access to solar-generation and metering data;
- Responsibility for carbon and renewable-energy reporting;
- Registration, transfer and retirement of any RECs;
- Permitted environmental and sustainability claims; and
- Prevention of double counting or duplicate claims.
For a SELCO project, the contractual arrangements should be consistent with the Energy Commission’s position on environmental attributes. A party should not claim renewable-energy benefits that have already been transferred, sold or retired for the benefit of another party.
Adding BESS: Improving Solar Utilisation
A BESS can store surplus solar electricity generated during the day for use at a later time. This may increase solar self-consumption, reduce selected grid purchases and support peak-demand management or operational resilience, depending on the system design and the facility’s load profile.
However, a battery does not generate renewable electricity. Its emissions impact depends on:
- Whether it is charged from solar or the grid;
- The carbon intensity of any grid electricity used for charging;
- Charging and discharging times;
- Round-trip energy losses; and
- The system’s dispatch strategy.
Carbon modelling should therefore distinguish between solar-charged and grid-charged electricity and reconcile the battery data with the facility’s overall energy balance.
Renewable-Electricity Procurement for Residual Demand
Most facilities cannot meet their full annual electricity requirements through rooftop solar alone. Residual demand may be addressed through available renewable-electricity procurement options, subject to eligibility, commercial terms and prevailing programme rules:
- CRESS: Enables eligible corporate consumers to procure renewable electricity from renewable-energy developers through third-party access to the Peninsular Malaysia electricity network.
- CGPP: For existing approved projects, CGPP uses a virtual power purchase agreement between an approved solar producer and a corporate consumer for the virtual sale and purchase of renewable energy and its associated green attributes.
- Green Electricity Tariff: A subscription-based TNB programme supported by Malaysia Renewable Energy Certificates, subject to available quota and the applicable subscription terms.
- Unbundled RECs: Renewable-energy certificates purchased separately from physical electricity supply, including eligible mREC or I-REC-based arrangements.
These procurement options do not necessarily reduce location-based Scope 2 emissions, which remain based on grid electricity consumption and the applicable grid-average emission factor. Their principal reporting effect is generally reflected through contractual-instrument disclosures and, where the relevant quality criteria are satisfied, the market-based Scope 2 calculation.
RECs and mGATS – Claiming the Renewable-Energy Attribute
A Renewable Energy Certificate (REC) represents the renewable attributes associated with 1 MWh of renewable electricity generation. It does not mean that electricity from a specific renewable-energy facility is physically delivered to the purchaser. Instead, a REC is an accounting and tracking instrument that enables the renewable attribute of the electricity generated to be allocated and claimed.
Malaysia’s Green Attribute Trading System (mGATS) facilitates the issuance and trading of Malaysia Renewable Energy Certificates (mRECs). TNB’s Green Electricity Tariff (GET) is also supported by mRECs, while Bursa Carbon Exchange facilitates REC transactions involving certificates issued under recognised tracking standards.
Businesses should confirm the applicable certificate type, registry, ownership and retirement documentation before using RECs for carbon reporting or renewable-energy claims.
When RECs Can Support Scope 2 Reporting
RECs may support a market-based Scope 2 calculation where they satisfy the requirements of the applicable reporting framework. A credible REC procurement process should consider:
- Quantity: The number of certificates should correspond with the electricity consumption covered by the claim.
- Vintage: The renewable generation period should be appropriately aligned with the reporting or consumption period.
- Market boundary: The certificates should originate from an eligible electricity market.
- Ownership and retirement: The reporting entity must have the right to claim the renewable attributes, and the certificates must be retired or redeemed in its name.
- Double counting: The same attributes must not also be claimed by the generator, developer, landlord, another customer or another product.
- Technology and source: The renewable-energy technology and generation facility should be identified and documented.
- Reporting purpose: The certificates should be suitable for the relevant GHG inventory, renewable-energy target, customer programme or disclosure.
Purchasing RECs also does not reduce location-based Scope 2 emissions, which remain calculated using grid electricity consumption and the applicable grid-average emission factor. Their primary effect is on market-based reporting, subject to the relevant quality criteria.
Measuring and Reporting Scope 2 Reductions Credibly
1. Define the Reporting Boundary
Identify which companies, facilities, leased premises and operations are included in the Scope 2 calculation. Electricity supplied through landlords or shared facilities should also be included where relevant.
Apply the same reporting approach consistently and document any exclusions or estimates.
2. Build an Electricity Baseline
Collect electricity data for each site for the full reporting period, including:
- Utility bills and meter readings;
- Grid electricity purchased;
- Solar generation and self-consumption;
- Electricity exported, where applicable;
- BESS charging and discharging;
- Generator fuel use; and
- Electricity allocated by landlords or to tenants.
Where possible, reconcile meter and sub-meter data with utility bills to confirm accuracy.
3. Measure Solar and BESS Performance
Before installation, use available electricity-consumption data to estimate how much solar energy will be used on-site, stored, curtailed or exported.
For BESS projects, record the charging source, usable capacity, efficiency, energy losses and operating strategy.
Once the system is operational, replace forecasts with actual meter data and explain any significant differences between projected and actual performance.
4. Apply the Correct Calculation Method
Calculate location-based Scope 2 emissions using the grid emission factor applicable to the site’s region and reporting period. Record the source, year and status of the factor used.
Assess GET, renewable-energy contracts and RECs separately for market-based reporting. These instruments should only be used where they meet the applicable reporting requirements.
5. Make Accurate and Supportable Claims
Claims should clearly state the reporting period, calculation method and supporting data.
6. Maintain Supporting Records
Keep clear records to support the calculations and claims made, including:
- Utility bills and meter data;
- Solar, inverter and BESS monitoring records;
- Emission factors and calculation worksheets;
- PPAs, leases and documents relating to environmental attributes;
- REC certificates and retirement records; and
- Internal reviews and approvals.
The GHG Protocol’s Scope 2 Guidance remains under review. Businesses should continue applying the standards and regulatory requirements in effect for the relevant reporting period and monitor future changes.
A Practical Decarbonisation Roadmap for Manufacturers and Exporters
A credible decarbonisation strategy should follow a structured sequence that prioritises measurable operational reductions before relying on contractual instruments.
- Establish a reliable emissions baseline. Define the reporting boundary, collect site-level electricity data and assign clear responsibility for data quality, calculations and management review.
- Reduce avoidable electricity demand. Improve energy efficiency across cooling systems, motors, compressed air, lighting, production scheduling and equipment controls before determining the required solar capacity.
- Install appropriately sized on-site solar. Design the system based on available space, electricity demand, structural and safety requirements, applicable regulations and commercial objectives.
- Use BESS where it adds value. Battery storage may increase solar self-consumption, manage selected peak demand and improve resilience. Its charging source, efficiency losses and operating strategy should be properly assessed.
- Procure renewable electricity for residual demand. Evaluate suitable options such as CRESS, GET, existing CGPP arrangements or other eligible structures based on electricity demand, contract duration, pricing risk and reporting needs.
- Use RECs for remaining market-based claims. Ensure the certificates match the required quantity, vintage and market boundary, and are properly retired for the relevant reporting entity and period.
- Report, assure and improve. Disclose the methodology and limitations, retain supporting evidence, obtain appropriate assurance where required and update the strategy as operations and regulations evolve.
The Recommended Sequence
For most businesses, the strongest approach is:
Energy efficiency → on-site solar → BESS and renewable-electricity procurement → RECs for residual market-based claims
This sequence prioritises direct and measurable emissions reductions while providing practical options for electricity demand that cannot be met through on-site generation alone.
Frequently Asked Questions (FAQs)
What are Scope 2 emissions?
Scope 2 emissions are indirect greenhouse gas emissions associated with the electricity, steam, heating or cooling purchased and consumed by a business. For most Malaysian businesses, Scope 2 emissions arise mainly from electricity imported from the relevant electricity grid.
Although these emissions are generated at the power plant rather than at the business premises, they are reported by the organisation that consumes the electricity.
Does solar reduce Scope 1 or Scope 2 emissions?
Solar electricity consumed on-site primarily reduces Scope 2 emissions because it lowers the amount of electricity purchased from the grid.
Solar may also reduce Scope 1 emissions where it replaces electricity generated by an on-site diesel or gas generator. However, this reduction should be calculated separately because Scope 1 covers direct emissions from sources owned or controlled by the business.
Do RECs count toward Scope 2 reporting?
They may support a market-based Scope 2 calculation where they meet the applicable reporting requirements and are properly allocated and retired for the relevant organisation and reporting period.
A REC represents the renewable attributes of one megawatt-hour of electricity generation. It does not reduce the organisation’s physical use of grid electricity and therefore does not reduce the location-based Scope 2 figure.
Will Malaysia’s carbon tax apply to my factory?
The Malaysian Government has announced that the carbon tax will initially focus on the iron, steel and energy sectors.
Whether a particular factory will be covered will depend on the final legislation, including the activities, emissions thresholds, exemptions, applicable rate and commencement date. Businesses should therefore avoid relying on unofficial carbon-price estimates and instead assess potential exposure through scenario planning.
What is CBAM, and does it apply to Malaysian exporters?
CBAM is the EU mechanism for pricing embedded emissions in selected carbon-intensive imports. The formal obligations generally sit with the EU importer or indirect customs representative, but Malaysian producers may be required to provide detailed production, energy-use and embedded-emissions information to their EU customers.
Exporters should first confirm whether their products fall within the relevant CBAM classification and what data their customers require.
Does SELCO allow excess solar electricity to be exported?
No. Under the June 2026 SELCO guidelines, electricity generated by a grid-connected self-consumption installation must be consumed within the premises and cannot be exported to the utility network.
This is different from other solar programmes that may allow electricity export, offsetting or credit arrangements. Businesses should therefore identify the correct regulatory programme before designing the system or making assumptions about excess generation.
Can a business claim solar under an on-site PPA?
Potentially. Under an on-site solar power purchase agreement, the developer usually owns and operates the solar system while the customer purchases the electricity generated.
Whether the customer may claim the associated renewable-energy benefits depends on the applicable reporting framework, metering arrangements, regulatory requirements and contractual ownership of the environmental attributes.
The PPA should clearly state who owns the renewable attributes, who may register or retire RECs, who has access to generation data and what sustainability claims each party is permitted to make.
How Avera Energy’s VeraNex Platform Supports Your Net-Zero Journey
Avera Energy’s VeraNex platform provides a structured pathway from emissions measurement and energy analysis to renewable-energy deployment, certificate procurement and long-term asset performance. Its modules can be deployed individually or combined into a wider clean-energy and carbon-management programme.
The objective is not simply to install equipment. It is to connect electricity data, carbon accounting, system design, financing, environmental-attribute ownership, reporting and long-term performance in one practical transition plan.
Build a More Credible Carbon and Energy Strategy with Avera Energy
Whether your business is preparing for the NSRF, responding to multinational customers, evaluating carbon-tax scenarios or strengthening its position as a Malaysian exporter, Avera Energy can help assess your electricity profile and identify the right combination of energy efficiency, solar, BESS, renewable-electricity procurement, RECs and reporting support.
| Speak to Avera Energy Start with a site-level electricity and Scope 2 assessment. Avera Energy can help translate your consumption data, operational constraints and sustainability objectives into a commercially grounded pathway under the VeraNex platform. |
